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Athene, Blackstone, Buffett seen among possible reinsurers of LTC liabilities


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Athene, Blackstone, Buffett seen among possible reinsurers of LTC liabilities

Hope persists for reinsurance solutions to carriers' long-term care insurance problems, even if they have been slow to emerge.

Long-term care reinsurance attained new prominence in 2018 thanks to massive reserving actions and capital infusions associated with longstanding arrangements involving certain General Electric Co. subsidiaries and the collapse of Senior Health Insurance Co. of Pennsylvania's agreement with an offshore reinsurer. But the year also saw the emergence of a new entrant to the business.

Under 100% indemnity coinsurance agreements that took effect April 1, 2018, Wilton Reassurance Co. assumed $2.7 billion of long-term care statutory reserves from CNO Financial Group Inc.'s Bankers Life and Casualty Co. The transaction, for which CNO paid a ceding commission of $825 million, involved pre-2003 comprehensive and nursing home long-term care policies. CNO CEO Gary Bhojwani in his annual letter to shareholders described the block as having "the most potential tail risk and volatility."

Bhojwani added that the agreement with the Wilton Re Ltd. subsidiary stood as the industry's lone "significant" long-term care reinsurance transaction in 2018. Data reported by U.S. life insurers on Schedule S of their 2018 annual statements confirm that the Bankers Life/Wilton Re arrangement was the lone reinsurance deal involving long-term care liabilities among unaffiliated counterparties with an effective date during 2018 and at least $10 million of ceded premiums.

"This should provide considerable comfort that the portion of our LTC block that remains has a very different profile from the other long-term care blocks in the marketplace that continue to generate negative headlines," he said, though he noted that the agreement was "expensive."

Wilton Reassurance, in its most recent annual statement, listed premiums from in-force blocks of primary life and long-term care insurance business acquired through stock acquisitions or reinsurance as one of its three principal sources of expected future revenues.

But Loews Corp. President and CEO James Tisch during a recent investor conference said Wilton Re stands as one of "just" 1.5 acquirers of legacy long-term care liabilities in the marketplace today. The "half" was Berkshire Hathaway Inc., according to Tisch. But as Chairman, President and CEO Warren Buffett is "no dope at making deals" Berkshire has not bought any long-term care business, he said.

Berkshire did, however, shift long-term care liabilities among its subsidiaries in 2017. General Re Life Corp. transferred 100% of its $1.13 billion in net in-force long-term care liabilities to National Indemnity Co., effective Oct. 1, 2017. The cedant agreement to pay a consideration of approximately $1.6 billion, including $500 million in cash up front, for an agreement that provides for a $5 billion aggregate limit of liability. General Re Life reinsured long-term care business under a variety of 1990s- and early 2000s-era agreements with a list of cedants headed by subsidiaries of Genworth Financial Inc.

"Recently, we've seen actions from Athene [Holding Ltd.] and also from Blackstone[Group LP] where they've shown a desire to raise capital to buy long-term life insurance liabilities," Tisch said.

Athene executives have indeed expressed interest in extrapolating a structure used in partnership with Apollo Global Management LLC to acquire closed blocks of annuity business from Voya Financial Inc. for long-term care liabilities. The Wall Street Journal listed Blackstone, affiliates of which hold a large minority stake in FGL Holdings, among the bidders for Lincoln Benefit Life Co. While that company had $1.62 billion of reported policy reserves for long-term care business at year-end 2018, statutory filings indicate it ceded the business under longstanding agreements with GE's Employers Reassurance Corp.

"I think there's a distinct possibility that in the coming months or years we'll see them as someone who's interested in acquiring those [long-term care] businesses," Tisch said.

Loews' exposure to long-term care business results from its majority stake in CNA Financial Corp. CNA ceased writing new individual long-term care business more than 15 years ago and stopped accepting new members from groups with long-term care policies about four years ago, Tisch said. Still, the company ranks among the industry's leading insurers in the business line based on active life reserves.

"We love not to be in the long-term care business, but we are," Tisch said, later noting that he is "reasonably comfortable" with CNA's reserves in that line.

"If someone today would take us out of it, we'd be more than willing to talk to them," Tisch said. Any deal for all or parts of the business, he added, would need to make economic sense for CNA.