Morgan Stanley Sees Negatives In 1Q Life Earnings

First quarter earnings numbers from life and annuity companies reveal more negatives than positives with long-term care leading the way, analysts said.

“Results remained disappointing, and while some issues were temporary, other factors such as long-term care exposures are likely to remain a concern for years to come,” wrote Morgan Stanley analyst Nigel Dally, in a research note.

With respect to the negatives, the analysts pointed to:

• Concern over long-term care and reserves.
• The tepid pace of buybacks.
• Market volatility dragging down investment results.
• Asset flows remaining weak.

There was good news also and Dally and his team pointed two encouraging trends:

• Interest rates continued to rise.
• Regulatory risks ebbed as the Fifth Circuit Court of Appeals killed the Labor Department’s fiduciary rule.

LTCi Re-Emerges as Major Concern

This earnings season’s 800-pound gorilla was long-term care, and the market punished Unum with a 17 percent decline on the day of its results after the company reported a rise in its LTC loss ratio over the fourth quarter.

The entire LTC industry “could be significantly under-reserved,” Dally wrote in his research note titled “A Formidable Wall of Concern.”

GE earlier this year announced it was more than doubling its reserves to account for LTC liabilities and analysts have been pressing life and annuity industry executives about them ever since.

Meantime insurers continue to ask for, and in many cases receive, premium increases from regulators and analyst see that as a sign that insurers expect to pay a higher amount of LTC benefits than originally modeled.

In the latest example, MassMutual has asked regulators for a 77 percent rate increase in LTCi policies, A.M. Best reported last week.

The hike would affect two-thirds of MassMutual’s 72,000 LTC policyholders nationwide and help pay for the increasing and the rise in LTC costs, the company said.

An increase in LTC claims, unfavorable LTC experience and the need for reserve increases, “have continued to place pressure on many of these carriers capital and earnings,” A.M. Best Co. said in a February report on the LTC market.

Company Executives Move to Reassure Analysts

But in conference calls, insurance company executives moved to reassure analysts that so far as insurers were concerned, analysts’ worries were misplaced.

More than half of Unum’s business is in group LTC, not individual LTC, said CFO Jack McGarry.

Even within the group LTC exposures, the bulk of the business is employer funded, paid premiums have different lapse expectations than in individual LTC and group LTC plan designs remain very conservative, he said.

Between rate increases and reserve charges, Unum has put billions of dollars into its LTC block and has conducted two LTC reviews dating back to 2011, he said.

Unum was the No. 4 LTC writer with a 5.2 percent market share in 2016, according to A.M. Best Co.

Other companies with significant LTC exposures include CNO Financial and Manulife, parent of John Hancock, Dally said. Ameriprise, Prudential and MetLife have some LTC exposures.

Half of Ameriprise’s LTC exposure is reinsured through Genworth, the nation’s top LTC insurer.

Genworth executives say they are satisfied with the “additional protections” the company has in place, Dally said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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