Abandoning LTC, MetLife sparks worries

MetLife Inc.'s announcement last week that it will stop writing new long-term-care insurance shocked advisers, raising fears that rates will rise for existing blocks of business and that other carriers will exit the industry. “There wasn't a lot of foreshadowing on this event,” said Jim Ryan, director of LTC insurance at Lenox Advisors Inc. “I was surprised that they got out of it. My take on this is that time will tell how they honor the policyholders on their books.” The carrier last Thursday said that after Dec. 30, it will no longer accept applications for individual LTC coverage. Next year, the carrier also will stop allowing new enrollments in existing group and multilife LTC policies. The current low-interest-rate environment — which crimps returns on the fixed-income investments MetLife uses to help pay claims — was one of the drivers of the company's decision, said MetLife spokeswoman Karen Eldred. “The challenges within the current environment for the long-term-care-insurance industry aren't unique to MetLife,” she added. The news is another blow to advisers already having to deal with John Hancock Financial Services Inc.'s recent announcement that it will seek rate hikes of 40% on average for its in-force LTC business. Hancock also plans to raise the price of new LTC policies by 24% by early 2011. “Clients are going to be very upset [about MetLife's decision],” said Caleb M. Nitz, an investment marketing analyst at ValMark Securities Inc. “This is going to change the story that producers tell their customers when they talk with them about long-term-care insurance. They'll have to note that carriers have the discretion to raise their rates and remove their products.” MetLife, which said that it would continue to service its in-force business, receives the lion's share of incoming LTC premiums from business already on its books, said Bill Pargeans, an assistant vice president in A.M. Best Co. Inc.'s life and health ratings division. “New business isn't a material number to their top line,” he added. But analysts and observers agree that it's a difficult time for all sellers of LTC insurance. “There are a lot of things that haven't gone the right way with long-term-care insurance,” said Steven D. Schwartz, an insurance industry analyst at Raymond James and Associates Inc. who covers MetLife. “This is a lapse-supported product and nobody is lapsing, so the business has been underpriced.” “I don't blame [MetLife],” said Meg Green, who heads an eponymous wealth management firm. “It's a horrible bet for the insurance company and nobody is dealing with the fact that people are living so much longer.” MetLife's decision to halt sales of new policies also leaves John Hancock and Genworth Financial Inc. as perhaps “the only big players” left in the LTC business, Mr. Schwartz added. According to the American Association for Long Term Care Insurance, Genworth, John Hancock, Unum Group, MetLife and Continental Casualty Co. are the top five LTC carriers in terms of covered lives. While LTC insurance isn't considered a major part of MetLife's overall business, advisers said that the insurer's overall reputation is at stake. “It makes a difference in terms of what products people sell and what they buy,” Mr. Ryan said. “Nothing is more personal than long-term-care insurance. If you have a parent struggling on a budget and they get a rate increase, people don't forget that quickly.” Mr. Ryan said his firm has sold MetLife's LTC products and he worries that some of the “10-pay products,” which allow clients to pay off the policy within 10 years, will see rate increases. MetLife also said in its announcement that it is exploring the possibility of creating a hybrid product, which would involve creating a life insurance policy or annuity with LTC features. Genworth Financial and Lincoln National Corp., among other insurers, offer such products. Such hybrids typically involve an annuity or life insurance contract paid for with a single upfront premium, as opposed to continuing payments for traditional long-term-care insurance. Typically, client dollars are used first to cover LTC needs and coverage limits are lower, making hybrid solutions less costly than traditional LTC policies. “From an insurance perspective, hybrids put a lot less risk on the carriers' books,” said Mr. Nitz, adding that MetLife's decision to consider such a hybrid product may be a signal that the industry is moving away from traditional LTC policies. Advisers said that they remain suspicious of insurers' LTC strategies. “I wouldn't say that the traditional long-term-care-insurance business is over, but you're going to be wary of a carrier that's pricing too low or issuing policies without thorough underwriting,” Mr. Ryan said.