Genworth Financial Inc (GNW), Manulife Financial Corporation (USA) (MFC), Metlife Inc (MET): Interest Rate Rise Will Bolster Long-Term Care Insurance Company Earnings

A rise of 1% in investment return on fixed interest instruments could generate an additional $100 million or more in annual revenue for insurance companies with blocks of long term care insurance.

Several years of historic low interest rates have wreaked havoc on the long term care insurance marketplace. Several insurers directly cited this as a contributing factor in their decision to cease selling policies to new applicants.

Conversely, a predicted rise in interest rates will ultimately result in additional revenue. “The impact is not immediate but will positively effect revenue over time,” explains Claude Thau, a leading industry expert in Overland Park, Kansas.

According to industry professionals, when the portfolio rate earned on a company’s in-force business increases by 1%, a long-term care insurer with $10 billion in reserves will gain roughly $100 million of additional revenue annually. It needs to be noted that this amount is prior to any federal corporate taxes that may be due on that additional income.

Executives note that much of the added earnings will be needed to pay future claims. The industry paid $6.6 billion in claims in 2012 according to research by the American Association for Long-Term Care Insurance, with experts acknowledging the amount will grow in the years ahead as policyholders age and initiate claims. However, some of the added revenue will definitely go directly towards the bottom line income of the company.

The latest Long Term Care Experience Report produced annually by the National Association of Insurance Commissioners shows the reserves for leading insurers. The report published in 2012 provides data based on 2011 filings submitted by insurers.

The two largest long term care insurers include Genworth Financial Inc (NYSE:GNW) with over 1.1 million policyholders and some $9.96 billion in policy reserves. John Hancock, owned by Canada’s Manulife Financial Corporation (USA) (NYSE:MFC), has two companies with long term care insurance. The two entities insure over one million individuals and have roughly $8.0 billion in policy reserves.

Both companies could benefit from other factors when compared to other insurers.  Both companies continue to sell new policies and both have increased prices on newer policies offered.  For the most recent year, the two companies will have sold approximately 100,000 new policies worth some $250 million in annualized premium. In addition, both recently started charging women applicants more than men as a result of consistent data showing that women comprise two-thirds of all benefit payments.

Among the companies no longer selling new policies, Continental Casualty Company, which is more commonly known as CNA Financial ceased offering new policies, but has roughly 450,000 individual and group long term care insureds and some $7.0 billion in reserves. Metlife Inc (NYSE:MET) with some 680,000 insureds reports a combined $10.1 billion in reserves from the various entities holding its LTCi policies.