Multiple private equity firms are looking at the long-term care business.  They wouldn’t do this unless they saw a profit opportunity for their investors.  A transaction could take several forms.  The private equity firm could buy a block of long-term care policies outright and take over responsibility for servicing the acquired policies.  Or, assume payment of claims while the insurer continues to service the policies.

Several carriers, both of which have stopped selling new LTC policies, have acknowledged exploring these options.  John Hancock, which is owned by Manulife, was among the largest players in this sector, covering about 1 million individuals.  Similarly, Prudential, which has more than 200,000 policies, said they consistently evaluate these opportunities.  Maintaining this business has gotten expensive for the carriers, requiring large cash infusions to shore up long-term care reserves.   Prudential, for example, took a $1.5 billion pre-tax charge on its LTC business this year on top of $700 million it added to  reserves in 2012.  The combination of deteriorating claim experience and no new LTC business seems like it will produce opportunities for bargain sale prices that look good to private equity firms.  This is a business that many insurers would like to exit completely. 

But what about the policyholder?  It’s bad enough that your carrier no longer sells new policies.  How will you feel when your policy is owned by a private equity firm, whose goal is to maximize profit for its investors and they’re managing your claim?  Can you expect the same quality of care in claim servicing?  What about rate increases?    Private equity will still be accountable to the state  regulators, but it’s likely you should expect more frequent and severe increases. 

Private equity is not a new visitor to the insurance business.  Within the past year, VOYA sold off more than $50 billion of annuities to three firms and Hartford Financial sold $48 billion of annuities to six investors.

Net — this is a new and dramatic development that adds to the instability of the LTC market.  My outlook continues to be pessimistic — poor claim experience as longevity continues to increase, shrinking marketplace and higher prices — not pretty.  My advice to those thinking about long-term care insurance is to consider all the alternatives. 

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