Midwestern Underwriting Conference
Life/LTC Linked Benefit Products
Kevin Oldani, SVP and Chief Underwriter
HLR America – Mortality Solutions
Midwestern Underwriting Conference
September 2014
Hannover Re Group
Disclaimer
This presentation does not address the investment objectives or financial situation of any particular person or
legal entity. Investors should seek independent professional advice and perform their own analysis regarding
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While Hannover Re has endeavoured to include in this presentation information it believes to be reliable,
complete and up-to-date, the company does not make any representation or warranty, express or implied,
as to the accuracy, completeness or updated status of such information.
Some of the statements in this presentation may be forward-looking statements or statements of future
expectations based on currently available information. Such statements naturally are subject to risks and
uncertainties. Factors such as the development of general economic conditions, future market conditions,
unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the
actual events or results to be materially different from those anticipated by such statements.
This presentation serves information purposes only and does not constitute or form part of an offer
or solicitation to acquire, subscribe to or dispose of, any of the securities of Hannover Re.
© Hannover Rück SE. All rights reserved.
Hannover Re is the registered service mark of Hannover Rück SE.
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Agenda
Market Overview
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LTC Market Environment
New Product Development Activity
Product Options and Benefits
How Do the Products Work and What do They Cover?
Why are These Products Gaining Traction in the Market?
Recent Sales Figures
Risk management
• Underwriting
• Underwriting training
• Claim Management Services
• Reinsurance
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LTC Market Environment
Hannover Re Group
LTC Market Environment
Current Market Overview
Significant Market Exits from Direct Writers
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Interest Rates, Persistency and Morbidity
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Regulations
Sales Have Been Relatively Flat/Declining Since 2005
Significant Premium Rate Increases Passed on to Policyholders
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States Are Not Always Approving Actuarially Justified Amounts Due to Political Pressure
As of 2010, 55% of Covered Lives Held in Closed Blocks (Only 25% in 2009)
Attention Being Paid to Re-vitalize the Market
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Stand-Alone LTC vs. Hybrid LTC/Life Products
Hannover Re Group
LTC Market Environment
Individual Stand-Alone LTC Market
Roughly 5-6 Million Policies Inforce
Total Annualized Inforce Premium over $8 Billion
Accounts for 58% of Market Today – Down from 75% in 2000
Roughly One Dozen Companies Still Significantly Active
Annual Sales in 2010 were 65% Lower than in 2000
Between 2009 and 2010 Average Annual Growth was 10%; has slowed again
since 2010 and declined in 2013
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Hannover Re Group
LTC Market Environment
Group Stand-Alone LTC Market
Between 2.2 and 2.6 Million Covered Lives
Total Premium is Greater than $2 Billion
Growth Rate from 2005 to 2010 is roughly 5% Annually
Slightly More than 12,000 Employers and Other Groups Sponsor Coverage
(Including Federal and Many State Governments)
Less than 8 Direct Writers Actively Selling in the Group Market
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Hannover Re Group
LTC Market Environment
Total Individual and Group Stand-Alone LTC Market
Total Number of Covered Lives by Year
8,000
7,263 7,357
7,115 7,033 7,186
6,995 6,894 7,030
7,000
6,404
6,053
Covered Lives (000's)
6,000
5,612
5,179
4,793
5,000
4,497
4,130
4,000
3,697
3,338
3,202
2,946
3,000
2,000
2,601
1,704
1,000
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source – NAIC LTC Experience Reports
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Hannover Re Group
LTC Market Environment
Individual Stand-Alone LTC Sales
Individual LTC Policies Sold
800
754
698
700
609
600
600
509
Policies (000’s)
500
500
420
400
380
362
332
300
306
283
300
253
249
254
221
200
172
100
0
1990
1992
1994
1996
1998
2000
Source – Univita Health Experience Reports and Analysis
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2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Hannover Re Group
LTC Market Environment
Shrinking Number of Direct Writers in Stand-Alone LTC Market
2002
2004
Aegon USA
Allianz Life
BL&C
CNA Insurance
GE Financial
John Hancock
Lincoln Benefit
Aegon USA
Allianz Life
BL&C
Genworth
John Hancock
Lincoln Benefit Life
Mass Mutual
MetLife
2006
Transamerica LTC
Allianz Life
BL&C
Allianz Life
BL&C
BL&C
Genworth
John Hancock
Genworth
John Hancock
Genworth
John Hancock
Mass Mutual
MetLife
Mass Mutual
MetLife
Mass Mutual
New York Life
Northwestern LTC
Prudential LTC
New York Life
Northwestern LTC
Penn Treaty
Prudential LTC
Prudential LTC
State Farm
Prudential LTC
State Farm
Share 81%
Share 86%
Share 86%
Share 93%
State Farm
Thrivent Financial
UnumProvident
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2011
Mutual of Omaha
New York Life
Northwestern LTC
Northwestern LTC
Share 77%
2008
Hannover Re Group
LTC Market Environment
Regulatory Environment
Rate Increase Requests Dominate Regulatory Arena
States Often not Approving Actuarially Justified Increases Due to Political Pressure
Different Treatment of Rate Increases by State
•
NAIC and Industry Working on New Rate Stability Provisions
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Improve Rate Increase Process and Add More Transparency for Policyholders
States Reacting to Filings for Gender-Based Rates
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Becoming an Equity Issue for Policyholders
No Clear Direction - Some Prohibiting and Some Approving
Life/LTC Hybrid Products Gaining Greater Acceptance
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New Product Development Activity
Stand-Alone LTC Market
Gender-Based Rates
More Affordable Types of Coverage
•
o
Affordable Alternative to Traditional Auto-Inflation Options
o
Enables Coverage to Increase Gradually Over Time
o
Product Shares Investment Risk with Policyholder (Benefits Only Increased if Investment Returns > 3%)
o
Customizable Benefit Periods and Elimination Periods (Up to 10 Yr. Benefit and 365 Day Elimination Period)
Continue to Withdraw Product Features more Prone to Fraud and Abuse
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John Hancock’s Benefit Bank
Cash Benefits
Continue to Issue more Limited Coverage's:
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Coverage Duration
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Benefit Amounts
Hannover Re Group
Product Options and Benefits
LTC/Life Linked Benefit Products
Provides integrated Death Benefit and Cash Value protection covering
chronically ill individuals
•
Structured to pay benefits beyond the acceleration of the Life Insurance
policy Death Benefit through a linked Extension of Benefit (“EOB”) rider
for qualifying LTC claims
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Reimbursement Dollar-for-Dollar Face Reduction Approach
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Indemnity Dollar-for-Dollar Face Reduction Approach
Mix of Life Insurance (acceleration component) and Individual LTC (EOB
component)
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Typically a standard LTC 2/6 ADL Definition)
Governed by Section 7702B and the LTC Model Act
Marketed as an Alternative to Stand-Alone LTC
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Product Options and Benefits
LTC/Life Linked Benefit Products
Product Rider Options
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Face Amount Acceleration Rider
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Extension of Benefits Rider
o
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2 or 3 year acceleration period
Generally 2 to 5 years
Inflation Protection Rider
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3% and 5% Simple
o
3% and 5% Compound
o
The 5% Compound Option must be offered under LTC regulations
Return of Premium Rider/Feature
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Why are These Products Gaining Traction in the Market?
Client Need – Review of Long Term Care Costs
Nursing Homes
Area
Private
Daily Rate
Assisted Living Facilities
Semi1 Bedroom
Private
Monthly
Daily Rate
Rate
2 Bedroom Studio Unit
Monthly
Monthly
Rate
Rate
Home Health Providers
HHA
Hourly
Rate
RN
Hourly
Rate
LPN
Hourly
Rate
2012 National Averages
$262
$229
$3,694
$3,400
$3,435
$19
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2013 National Averages
$262
$228
$3,512
$4,474
$3,572
$22
$66
$51
% Change (2012 to 2013)
0%
0%
-5%
25%
4%
14%
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2013 Annual Costs
$95,706
$83,114
$49,669
$53,691
$42,864
$17,248
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Key Statistics
The median age of Nursing Home residents is 82.7 years old; 66% are Female
Nearly half (46%) of Nursing Home residents die within 28 months of admission
The average length of time since admission for Nursing Home residents is 27.5 months
The median age for Assisted Living residents is 86.9 years old
The median length of stay for Assisted Living Residents is 25.6 months
79% of Home Health Care Agencies provide Alzheimer’s training to their employees
Nearly one-third (31%) of Home Health Care recipients die within 28 months of initial care
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Sources: Univita Cost of Care Survey 2013
LifePlans : Cognitive and Functional Disability Trends for Assisted Living Residents – March 2009
CDC : The National Nursing Home Survey: 2004 Overview – June 2009
Hannover Re Group
Why are These Products Gaining Traction in the Market?
Client Need – Marketing Story
Products market away from the most common objection to stand-alone LTC products: it is a
“use it or lose it” sale:
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Products are generally marketed to those who have decided to self-fund their LTC needs
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If the client does not own stand-alone LTC, they ARE self-funding
Products can help client leverage the assets they are allocating to LTC protection need
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Provides integrated Death Benefit and Cash Value protection features
Typically includes a Return of Premium Feature
Linked Benefit Rider** Average Premium: $81,134
Average Face Amount : $145,387
Potential Additional EOB Coverage : $290,774
Total Potential Coverage : $436,161 (~5.4x Leverage)
Provides benefits over a minimum 6-year period
Source : LIMRA Individual Life Combination Products – 2013 Annual Review
** - Linked Benefit Averages based on Single Premium Products
Hannover Re Group
Why are These Products Gaining Traction in the Market?
Client Need – LTCI Leverage
$72,694
Extension
of Benefit
Monthly LTC Benefit: $6,058
Year 3
Total Leverage: 5.4x
Leverage Impact for
LTC Combo Products
$290,774
(2x Face Amt)
$72,694
Extension
of Benefit
Year 4
Total 4 Yr.
$72,694
Accelerated
Face
Amount
$145,387
$81,134
Premium
Total
Acceleration
LTCI Benefit
or
Tax-Free Face
Amount
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Year 1
LTCI
Extension
Benefit
$72,694
Extension
of Benefit
Year 5
$72,694
Accelerated
Face
Amount
$72,694
Extension
of Benefit
Year 2
Year 6
Hannover Re Group
Why are These Products Gaining Traction in the Market?
Product Risk Profile
Life / LTC Linked Benefit Products are not “Stand-alone LTC”
• Combination of mortality and morbidity risks result in a natural hedge providing a degree
of embedded risk management versus stand-alone LTC
• The Extension Rider is the equivalent of a limited benefit LTC policy with a 2 or 3 year
elimination period
− Maximum benefit period is typically 6-7 years
− Acceleration Rider must be exhausted before Extension Rider is used
− This product is not available in the stand-alone LTC market and is more efficient given the “effective”
elimination period
Products have lower expected claims incidence
• Policyholder must decide to use their own money first for the first 2 to 3 years of claims
via the Acceleration Rider
• Expected to result in lower LTC claims costs to insurance company
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Recent Success
2013 Sales Results
Total Premium : $2.6B
• 8% growth over 2012
• Represents 13% of Total Individual Life Premium
• ~98,000 Policies Issued (14% growth)
Average Premium
• Single Pay : Increased by 14% to $81,134
Average Face - $145,387
• Recurring Premium : Increased by 34% to $8,849
Average Face - $342,555
Product Mix
• Acceleration Products Grew by 18%
• Extension (Linked Benefit) Products Grew by 14%
• 24% Extension Products / 76% Acceleration Products
• Universal Life is Dominating (79% of policies sold)
General Movement Towards Flexible Payment Products
Sources: LIMRA Individual Life Combination Products – 2013 Annual Review
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Risk Management
Overview
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Risk Management
Underwriting
Underwriting
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Difference between Life and LTC underwriting
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Life Risk is the probability of early death
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LTC risk of future activities of daily living (ADL) limitations and cognitive dependency
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Underwriting requirements
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Application
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Phone History Interviews and Cognitive Screening
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What age do you start Cognitive Screening?
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RX
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MVR
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Typically no APS’s, Exams, Blood or Ekg’s
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LTC Underwriting
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Underwriting Manual
Hannover Re Group
Risk Management
Underwriting
Underwriting Process
• Application completed
• Determine if qualifies for life table 4-8 or better
• Any impairments that are automatic decline for LTC
− COPD, Emphysema
− Parkinson’s disease
− Severe or Chronic back pain
− Chronic moderate to severe depression
− Type 1 Diabetes
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Complete teleunderwriting
Instrumental activities of daily living (IADLs) are precursors to ADL impairments
Cognitive Screening, Older age supplement, MCAS
RX review
Accept/reject LTC You have to balance the risk of accepting too few with the risk of
accepting too many who are high risk. Up to a 20% decline rate.
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Risk Management
Underwriting
Typically need for assistance with 2 or more ADLs (medically necessary, provided
regularly; based on policy language)
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Bathing
Dressing
Transferring
Toileting
Incontinence management
Eating
Ambulation and mobility
Cognitive impairment
• Moderate or severe impairment
• Requires continuous supervision for safety
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Hannover Re Group
Risk Management
Underwriting
Medical diagnosis
• History
Extent of condition
Severity of condition
Stability of condition
• All determined based on limited information
Comorbid conditions
Impact on physical and cognitive function
• Low or average risk of disability and dependency
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Hannover Re Group
Risk Management
Underwriting Focus
To Claimed Events
Pure Dementia
24%
Cancer
13%
Stroke
9.9%
Fractures/Injuries
6.8%
Arthritis and other Rheumatic Disorders
5.7%
Parkinson’s
4.9%
Cardiomyopathy, Congestive Heart Failure
4.2%
Respiratory Disease
4.2%
Disorders of the Spine
2.7%
Dementia with Falls/Fractures/Injuries
2.1%
Univita LTCI Underwriting and Claims Data Base 6/30/14
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Hannover Re Group
Risk Management
Claims
Claims Management
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Definition review, do they qualify/life is clear cut
LTC component
Ongoing Health management
Close follow up required
Ongoing claims payments
Hannover Re Group
Risk Management
Underwriting and Claims Training
Underwriting
• Have a written program
• Documentation
• LTC underwriting training program
− List of impairments, Accept, IC, Reject
• Simplified issue underwriting
• Cognitive status awareness (clues)
• Audits
Claims
• LTC component
• Ongoing qualification requirements
• Ongoing payments
Product development
• LTC component
• Product features
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Hannover Re Group
Outsourcing/Partnering
Product development
Product and application filings
Teleunderwriting process
Cognitive screening
Underwriting
Claims management
Reinsurance support
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Conclusions
Hannover Re Group
Conclusions
LTC Combo Products Have Been Successful
LTCI Linked Benefit Products offer a unique way for insurance companies to
differentiate themselves in today’s market
Products fill a distinct client need as baby-boomers continue to age and lack longterm care coverage
Products provide a multi-faceted solution in comparison to the stand-alone LTC
market which has been declining sharply
The major risks underlying the products can be mitigated by solid policy / product
design, underwriting, claims management processes
Assumption Development is “Non-Trivial”; Spend Time Asking Questions
These products can help an insurance company significantly grow the top and
bottom lines while effectively managing their overall risk profile
Underwriting and Claims training is key to long term success
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Hannover Re Group
Contact information
Kevin Oldani
Senior Vice President & Chief Underwriter
Tel. (720) 279-5019
kevin.oldani@hlramerica.com
www.hlramerica.com
Thank You
