Problems with long-term care insurance thrust General Electric and long-term care industry into spotlight

Developing problems with long-term care insurance have thrust General Electric (GE) and the wider long-term care industry into the spotlight, according to Erik Miller and Jason Hopper, associate directors with AM Best.

Miller said AM Best views long-term care as having lower creditworthiness compared with other life/health insurance products.

“AM Best considers long-term care one of the most risky products that it monitors,” he said. “It is not just the number of assumptions that go into it, but the duration of the product. Due to the product being a long-term tail product, even small revisions to the assumptions can lead to large changes in reserves. Additionally, if GE’s subsidiaries could not make the shortfall, GE itself would be liable and that has the potential of having a significant impact on the overall company.”

Discussing reserves at the GE insurance subsidiaries with long-term care exposure at Employers Reassurance Corporation and Union Fidelity Life Insurance Company (collectively referred to as the ERAC Group), Hopper said: “A little over half of the ERAC Group’s total reserves, or roughly $28 billion, are in long-term care policies. This makes for more of a risky profile given the repeated need to make additional reserve contributions over a number of years, based on initially inaccurate actuarial assumptions. Nevertheless, GE is not the only company that needs to continue to shore up its continued long-term care reserves; this is more of an industry-wide phenomenon.”