China Oceanwide furnishes evidence of funding, preserving deal to acquire Genworth

UPDATED Sept. 1 with Hony Capital involvement

Aug. 31 — Genworth Financial Inc.’s proposed merger with China Oceanwide Holdings Group Co., Ltd. survived to live another day as the Chinese conglomerate gave the long- term care and mortgage insurer assurance that it could pay for the company, according to a late evening press release.

Genworth had given China Oceanwide an Aug. 31 deadline to furnish evidence of funding for the deal.

Genworth said that its board of directors and its management team looked at what China Oceanwide had furnished as evidence to show it had the necessary funding for Genworth’s previously-agreed-upon price tag of $2.7 billion and had found the information “satisfactory.”

Therefore, it said “Genworth therefore does not intend to exercise its right to terminate the merger agreement as of August 31, 2020.” 

However, no mention was made in the release of Hony Capital, China Oceanwide’s investment partner or from where the funding is coming.

Genworth spokeswoman Julie Westermann did add the following day that the company believes “Oceanwide will pursue the same funding path that was disclosed in August 2018, whereby approximately $1B will be funded from mainland China and the balance funded by a bridge loan facilitated through Hony Capital.”

Westermann noted that the specific information that Oceanwide provided to Genworth regarding its funding progress is confidential so the company cannot we cannot share additional details now. 

The proposed merger, first announced in October 2016, before the last presidential election, had been previously extended to Sept. 30, 2020, its 15th such extension. China Oceanwide was supposed to meet the interim funding milestones by showing evidence of $1 billion of country-approved funding for the transaction plus evidence of another additional $1 billion from Hony.

Specifically, China Oceanwide was to show Genworth’s management that it had about $1 from sources in Mainland China to fund the acquisition of Genworth; and that Hony and/or other acceptable third parties had committed to provide $1 billion or more from sources outside of China to fund the transaction.

The Richmond, Va.-based company’s executives have said previously that the Hony funding commitment, first reached in 2018, only became an issue after the COVID-19 pandemic roiled global capital and financial markets beginning this past winter.

“We believe the funding is progressing well and that Oceanwide is working to close the transaction by September 30, 2020,” said James Riepe, non-executive chairman of the Genworth Board in the release. He based this on what he called regular discussions over the past few months between himself, CEO Tom McInerney and China Oceanwide.

“The August 31^st milestone was important to both inform Genworth’s ongoing review process as well as provide an important update to our shareholders ahead of the September 30, 2020 deadline, particularly in light of the market disruptions driven by the global pandemic,” McInerney stated.

LU Zhiqiang, chairman of Oceanwide, said the company had been constrained by the global Covid-19 pandemic, is making progress and is committed to bringing Genworth’s “long term care insurance expertise to China and the rest of Asia”

The U.S. regulatory approvals had formerly been sewn up, subject to confirmation from the Delaware Department of Insurance that the acquisition of its life and LTC unit can go forward proceed under the existing approval. 

Genworth disclosed also today in its release that they are speaking with the federal mortgage supervisors issuers Fannie Mae and Freddie Mac, both government- sponsored enterprises, “about their previous approval of the transaction,” indicating this is not completely settled yet.

China Oceanwide also needs to receive clearance for currency conversion and transfer of funds from SAFE. 

 Genworth has also been moving forward on plans to fulfill its near-term financial obligations, which include liabilities from an announced settlement with AXA S.A. on alleged mis-selling of policies belong to its self -off business and about $1 billion of debt maturing in 2021.

Genworth announced Aug. 21that its indirect wholly-owned subsidiary, Genworth Mortgage Holdings, Inc. completed its $750 million offering of senior notes due 2025, with about $450 million of the proceeds distributed to GMHI’s direct parent, Genworth Holdings. Under its agreement with AXA, Genworth Holdings intends to repay or reduce upcoming debt maturities from the net proceeds of the senior note offering.

Reduced benefit option imbalances in LTC can impact Medicaid, cause finance issues and confuse consumers, groups warn

Aug. 23, 2020 — Life and health insurers’ representatives are warning state regulars that a reduction in benefits for long term care policies, part of a strategy to keep LTC blocks solvent, could impact state Medicaid budgets, among other undesirable and unintended effects.

The insurers’ groups also are worried about the solvency or financial stability of the remaining block of LTC business. That could happen if the choices policyholders make to even cease their contracts lead to adverse selection, they warn.

The insurers’ grapple with ill effects driven by regulatory reverse-engineering of LTC rates and once-rich policy benefits to fit the actuarial risk of today, not the risk actuaries in the past formulated in error for LTC insurance. Consumer advocates argue, though, that won’t happen if RBOs stick to actuarial equivalence in the overall rate for the coverage offered.

“State Medicaid budgets could be impacted to the extent that the policyholder becomes eligible for and starts receiving benefits under their policy and continues to need care after the benefits under their LTC policy are exhausted,” stated a letter written by two Washington trade groups to insurance regulators.

Those constructing the array of reduced benefit options must look at what happens to the remaining policyholders and the rest of the company’s finances if certain policyholders drop coverage or pay new amounts in premiums as well as on the impact on the state Medicaid budgets, said the American Council of Life Insurers and American Association of Health Insurance Plans.

Their letter is up for discussion by the National Association of Insurance Commissioners’ Reduced Benefit Options Subgroup of the Long Term Care Task Force.

“To what extent could anti-selection take place, placing the financial stability of the remaining block of business at further risk?” the Aug. 3 letter asked. 

Health insurers and life insurers pick up the tab for liquidations of LTC insurers through the state guaranty funds, in some states evenly, under recent legislation intended to even the burden, and in others, statutorily health insurers still have more of the onus. Taxpayers also end up paying.

The ACLI and AHIP are also asking about the “impact on remaining policyholders and company finances, and [the] impact on Medicaid budgets if regulators are driving reduced LTCI benefits.

“State Medicaid budgets could be impacted to the extent that the policyholder becomes eligible for and starts receiving benefits under their policy and continues to need care after the benefits under their LTC policy are exhausted,” the insurance groups explained. It’s a complex question that needs further analysis, they said in the letter signed by actuary Jan M. Graeber of ACLI and Ray Nelson, a consulting actuary for AHIP. 

The more people who have LTC insurance, rather than dropping their coverage, though, will actually help Medicaid budgets, argued NAIC consumer advocate from the Center for Economic Justice, Birny Birnbaum

The insurance groups also wrestled with the possibility of actually going current policyholders fewer choices to help manage the decision-making process.

“Should regulators, in some cases, encourage a company to offer fewer options to reduce the complication in decisions policyholders will face?” the insurance groups asked. They believe “too many options [such as multiple inflation choices] can cause consumer confusion with respect to the decision-making process.”

They agreed that each company should prioritize very clear communications to policyholders and make as many appropriate choices as possible available to them. This would be addressed during the rate and form filing with the state regulators. 

In its comment letter ACLI goes on at length about the differences in LTCI products, in LTC insurer marketing strategies and in LTC policyholder motivations culminating in ACLI’s demand for LTC RBO flexibility and for policyholders to “contact the carrier to understand the range of options that are available to them.”

However, Birnbaum said the group “completely” disagrees with insurers counseling policyholders on RBO choices due to potential conflicts of interest as the two parties will weigh them differently, but due to their past performances.

“LTC insurers have a pathetic track record of demonstrating they actually understand the products they are selling,” Birnbaum stated.

Instead, the RBO should be “based on the actuarial equivalence of the overall rate of the policy, not limited to expected claims, so anti-selection would not be an issue, according to Birnbaum. “Stated differently, the expected after-tax return on invested capital should be identical for the new, higher rate and any of the RBOs,” he wrote in his Aug. 11 letter.

The letters are addressed to Jessica Altman, Pennsylvania’s insurance commissioner and chair of the subgroup. The group is set to meet Aug. 24 on the response to the NAIC’s RBO Principle document, exposed in early July. The goal is to create a framework to provide guidance for policyholders as LTC insurers with claim payouts outstripping premium increases create RBO offers for them.

Consumer advocates are expressing worries about the plan going forward, as well.

“Our primary concern for policyholders is that long standing coverage be preserved and that the options they select to reduce cost maintain reasonable amounts and duration of coverage,” stated Bonnie Burns of California Health Advocates and an NAIC consumer representative. She told Altman that most of the policyholders that come to CHA or local groups are actually “confused about the information they received and worried about losing coverage or making the wrong choice.”

In fact, Burns noted, “some considered just giving up their coverage.”

 The charge of the parent task force is to develop a consistent nation approach for LTC premium rate increases as well as other options, such has reduced or otherwise modified benefits. Some states had long complained they were subsidizing others when they allowed rate hikes for the seriously under-priced insurance while other states did not allow much, if any, of a premium increase in order to protect the policyholders fro rate shock. This has led to instability in the LTC blocks as they struggle with solvency and financial stability issues.

LTC policies were initially underwritten in a time when interest rates were higher and assumed to stay that way, mortality was lower, health care costs were much lower and the percentage of people living a long time with chronic illnesses was not anticipated. Thus, rates were much lower than they needed to be.

Insurers have been reporting that Covid-19 deaths have benefitted quarterly earnings in the near-term from higher policyholder mortality and fewer amounts of submitted claims, but some say that there is a backlog of usage and nursing home and health care aide care that will kick in once the pandemic significantly eases its grip in the U.S. 

But, if the health crisis does allow for rate decreases because of mortality trends or more efficient, cheaper treatments, “policyholders who have selected a RBO because of higher rates should also have the option of reinstating original benefit levels if rates decrease,” Birnbaum told regulators. He said he wants to have policyholders have flexibility, too, and have an upside if experience does again shift, arguing that much of the fission has been one-sided, in favor of the insurer in recent discussions.

Genworth Financial shows off Genworth Mortgage’s clout as clock ticks on China Oceanwide funding for long-delayed deal

As Genworth Financial Inc. and China Oceanwide Holdings Group Co., Ltd. are facing down less than two weeks of time before it is time to fish or cut bait in their merger, based on a previously stated milestone for evidence of funding commitments, the insurance company is forging ahead with Plan B, involving its subsidiary, Genworth Mortgage Holdings Inc. 

Genworth Mortgage, led by the parent, rolled out a colorful and detailed 29-page investor presentation Aug. 17 touting the subsidiary company’s strengths, such as leadership, capitalization, risk management and operating performance over the years.

The presentation, led by Dan Sheehan, Genworth CFO and CIO, Genworth Mortgage CEO Rohit Gupta and CFO Dean Mitchell, served as a primer in the structure of the company, a lesson on private mortgage insurance and a statement on how Genworth’s mortgage insurance company it is definitely different than Genworth, the U.S.’s largest long-term care insurer.

The LTC and life and annuity insurance businesses are shown in grayish blocks while other segments are in bright colors. It also focused on future plans, mortgage unit’s financial results, how it is dealing with mortgage delinquencies under U.S. government forbearance programs put in place due to the Covid-19 pandemic. 

Genworth executives noted that the Covid-19 pandemic had created delays in the Chinese company’s funding plans. In fact, they called it “the primary factor currently holding up the transaction closing.”

The presentation said that Genworth Mortgage expected to reach an agreement “with the GSEs [Government Sponsored Enterprises] to maintain necessary PMIERs [private mortgage insurer eligibility requirements] at 115% of current requirements and for any near-term debt financing at GMI to be limited to $750mm, with a $300mm holdback to pay interest and support capital.”

It also pointed to the GSE’s “desire for Genworth to strengthen its financial profile or for [Genworth Mortgage] to gain greater independence, access to capital and improve ratings.”

This comes at a time when Genworth is considering a potential partial 19.9% IPO of its U.S. mortgage insurance business if the China Oceanwide transaction is terminated, which it could be if China Oceanwide doesn’t secure funding. Genworth has spent the better part of four years getting the necessary U.S. federal, international and state approvals or even selling stake in a subsidiary in Canada where a timely approval was not foreseen.

A couple of days after the presentation, on Aug. 19, Genworth proposed selling $750 million in debt in the form of senior notes due in 2025 in Genworth Mortgage.

The proceeds of the notes, less $300 million, will flow to the parent, Genworth Holdings Inc., to pay AXA under a settlement agreement and also reduce debt coming due. The AXA case involves losses on acquired Genworth policies that suffered under misspelling allegations. Although part of the settlement has been made, Genworth still has to make deferred cash payments totaling approximately £317 million in two installments at the end of June and September 2022 and to pay a significant portion of all future mis-selling losses incurred by AXA, which AXA will invoice quarterly. Genworth’s (#GNW) stock rose on the news, closing at $2.73 per share, up almost 12%, and was still rising in after-hours trading. 

 China Oceanwide signed a deal almost four years ago to acquire Genworth for $5.43 per share, or about $2.7 billion. Oceanwide also committed to contribute $1.5 billion to Genworth over time.

The merger agreement with China Oceanwide had earlier this summer been extended Sept. 30, but with a waiver requiring the Chinese conglomerate, to show evidence by Aug. 31 that it had funding for the deal, namely about $1 billion from sources in Mainland China and another $1 billion from Hony Capital and/or other acceptable third parties.

The Genworth executives said in the presentation that “Genworth’s management team remains focused on closing the Oceanwide transaction while also retaining flexibility to address near-term liquidity needs and maximizing shareholder value.”

The Richmond-based company said in its second quarter earnings release last month that it expects these steps to include a debt financing in the near term, which comes in the form of the senior note offering, and steps for the partial IPO of the mortgage subsidiary if the deal fails, the so-called Plan B. 

“Maintaining an 80% ownership of USMI preserves important benefits, including preservation of tax consolidation and future structuring flexibility,” a Genworth spokeswoman emailed in response to a query on the rationale for an approximately one-fifth offering in any potential mortgage company IPO.

HONY and China Oceanwide did not respond to inquiries. Genworth has pointed to its publicly available releases for more information. 

China Oceanwide had said back in early May that it was finalizing its funding plan for the transaction. After the funding is secured, China Oceanwide must then successfully complete the currency conversion and transfer of funds with China’s State Administration of Foreign Exchange for the merger to be completed. The companies have both continually repeated commitment to the merger’s closing.

Treasury-led report rejects policy ideas of LTC tax breaks and favorable ERISA treatment; asks states to improve harmonizing some requirements – or HHS might

Aug. 13, 2020 — A newly released report on addressing the future of long term care insurance spearheaded by the Treasury Department has recommended that Congress should consider giving some authority to the Department of Healthcare and Human Services for inflation protection requirements for LTCI policies if overall regulatory efficiency cannot be achieved. Other than that, the report showed little appetite for Congressional or federal action on LTC beyond monitoring the situation.

The report, published Aug. 11, is light on targeted action items. It mainly encouraged initiatives already underway, like a national approach from the NAIC to rate increases while eschewing Congressional or agency involvement that would require an overhaul of existing tax or labor laws. The task force that developed the report often recommended that the NAIC and the states maintain their focus on their current work in all facets of long term care, from increasing the market to solving challenging solvency issues.

For example, the report called for state policymakers and the National Association of Insurance Commissioners work together to harmonize and streamline standards, in general, in particular, with the “Partnerships for Long-Term Care.”

This Partnership program began with a few states in the 1990s and by 2005, as part of the Congressional Deficit Reduction Act it was extended with consumer protections. Treasury’s report found that the inflation protection requirements among states amounts to a patchwork program of “widely varying” requirements that hamper underwriting and sometimes may actually raise costs for LTCI policies. Thus, the report raised the possibility of HHS taking on a role in inflation protection for Partnership policies.

“The Task Force recommends that state policymakers—legislators, state Medicaid directors, insurance commissioners, and the NAIC—improve regulatory efficiency and effectiveness by harmonizing and streamlining inflation protection requirements under the Partnership program. Alternatively, Congress should consider delegating to HHS the authority to set Partnership program inflation protection requirements,” it stated.

The report, Long-Term Care Insurance: Recommendations for Improvement of Regulation, is a product of the Federal Interagency Task Force on Long-Term Care Insurance, which began meeting in earnest, with a public meeting last July. Treasury Secretary Steven Mnuchin and Assistant Secretary Michael Faulkender are credited as the authors, with work growing out of meetings of the Federal Insurance Office. The task force members include representatives from Treasury, FIO, including LTC point-person Bruce Saul, HHS, the U.S. Department of Labor and the Office of Management and Budget.

Various stakeholders from the industry, the actuarial community, the state regulatory community and others were engaged in the process, sometimes providing hours of researched material, and at least one was underwhelmed and even disappointed. The report made a point of “affirming the primary role of the U.S. states as insurance regulators in the United States,” even as the challenges and scope of funding LTC were called a national interest, requiring a coordinated federal response.

The task force rejected NAIC recommendations for proposed new, generous tax incentives, except for one proposal to get rid of the additional tax on early withdrawal from retirement funds if the money is used to pay LTCI premiums. This idea was popular among some regulators, stakeholders and the insurance industry to increase the purchase of LTC policies on the private market. The idea came from a 2017 list of NAIC policy ideas for financing LTC and bringing the product to more future retirees that would involve Congress.

The Treasury-led report said that, in addition to complicating the already-complex tax code and reducing tax revenue, that the proposed tax incentives, in general, would primarily benefit the wealthy and might not “be fully effective in targeting lower and middle-income individuals who need financial protection against LTC risks.”

Consumer advocate Birny Birnbaum of The Center for Economic Justice said he was “glad to see no tax incentives were proposed and that task force recognized tax incentives were skewed to the rich.”

The task force also rejected two policy proposals for LTCI group products that would involve the Employee Retirement Income Security Act’s fiduciary provisions because it does not believe it would really increase employee participation levels much and has stiff legal barriers.

One proposal was to remove potential exposure to ERISA fiduciary liability and the second is to allow plan participants to purchase LTCI within their retirement accounts, expanding the risk pool and enlarging the pool of policyholders. These ERISA proposals were also put forward under the NAIC’s 2017 potential Congressional action list.

The task force also decided against choosing any particular alternative financing approach such as government-financed public programs, telling state regulators and others that they should keep on doing what they are already doing — namely, developing, reviewing and analyzing these financing reform proposals to gauge their effectiveness and costs.

The task force did instruct actuaries, underwriters and others involved in crafting new and innovative LTC/life insurance/annuity combination products and those supervising them to keep on doing what they are already doing — trying them out, and analyzing their impact.

The four main LTC areas discussed in the report are: innovation and product development; regulatory efficiency and alignment; financial literacy and education; and tax incentives.

TheTreasury-led interagency document lays bare how much long term care matters — and can cost — in the coming decades.

“In their 2019 report, the trustees for Social Security project that the ratio of the number of people age 65 and over to the number of people age 15 through 64 will rise .. nearly 60%,” the report stated. It pointed out that the Congressional Budget Office projected that long term care services will rise to 3% of the GDP in 20150, from 1.3% in 2010.

A huge factor in the LTC usage calculations is the sad fact that “the number of individuals with dementia is expected to triple over the next 40 years.” Deaths from Alzheimer’s are now the sixth-leading cause of death, according to the report, citing the Centers for Disease Control and Prevention.

(The analysis for the report was substantially done before Covid-19 struck the U.S. and does not factor it in. However, the report said in a footnote that “Treasury will continue to monitor the effects of COVID-19 on insurance products and markets, including LTCI,” noting that COVID-19 “disproportionally affects older adults and individuals with chronic illnesses or other high-risk health conditions, making the LTC population.”

NOLHGA files to have a say in proposed SHIP rehab plan, warning of potential liquidation scenario impacting GA funds

Aug. 4, 20202–The National Organization of Life and Health Insurance Guaranty Associations filed to intervene July 30 in the rehabilitation plan for Senior Health Insurance Company of Pennsylvania, or SHIP. That plan was filed on April 22 by the Pennsylvania insurance commissioner, Jessica Altman.

The national guaranty association system is focused on SHIP’s proposed rehabilitation plan because of the possibility of a potential liquidation and the impact on the GA system, namely statutory obligations that could reach the hundreds of millions of dollars.

SHIP has a shortfall of between $500 million and $1 billion now, and if the rehabilitation plan can’t be eliminated,liquidation may be inevitable,” NOLHGA warned.

Its new filing to the Commonwealth Court of Pennsylvania, NOLHGA also pointed to what it called “uncertainties” about of the proposed rehabilitation plan, which has not yet been okayed by the court.

Generally, SHIP’s rehabilitation plan calls for benefit reductions and/or premium rate increases for policyholders in a attempt to keep policies in their hands even if they pay more and/or have benefits slashed — in the arena of LTC insurance payouts from beleaguered companies, there is only so much money to go around, as state regulators and policyholders have discovered, decades too late.

Decades-old LTC insurance policies were under written by life insurance companies with a different set of actuarial assumptions that proved drastically off mark and under an environment of rising interest rates.

NOLHGA also told the court that its limited intervention, if permitted, “would facilitate the efficient administration of this case.” When LTC companies liquidate, life insurers and many health insurers must foot the bill for the state guaranty funds. Some states have worked out a system where this is evenly divided, but it has still been a thorny issue of responsibility in the overall insurance industry.

There is also a chance the plan is not approved, in addition to the chance of its failure. In either scenario, the guaranty funds would need to step in to provide funds to policyholders up to the statuary limited mandated by individual states. These limits typically reach $300,000 on a state-by-state basis, sometimes more or less, but many times far short of the needed funds for elders’ long term care coverage needs.

“To the extent GAs provide coverage to SHIP policyholders, GAs would have claims against the SHIP estate,” NOLHGA argued, noting that the rehabilitation plan references guaranty associations 65 times.

“It is in the best interests of SHIP’s approximately 45,000 policyholders that the GA system be fully apprised of and potentially participate in the receivership proceedings related to SHIP,” the Virginia-based association argued.

If indeed the GAs are triggered by liquidation, NOLGHA should be there “to provide protection to policyholders, such benefits may be delivered, in as coordinated and comprehensive manner as is practicable, and with as little disruption as possible to policyholder services and claims payments,” it said.

Outside counsel for NOLGHA at the law firm Faegre Drinker Biddle & Reath LLP stated in the filing that it had discussed NOLHGA’s intervention with Patrick Cantilo, who serves as the special deputy rehabilitator of SHIP, and said that he does not oppose NOLHGA’s application for limited intervention.

The case management order with deadlines for review for the rehabilitation plan was filed June 12.

LTC company restructuring parameters sugested by NAIC Q&A to first focus on solvency; could consider splits, captive reinsurance

Aug. 2, 2020 — The National Association of Insurance Commissioners is considering a potential restructuring of how insurers hold long term care insurance policies to find a way to carve out the business from companies general accounts, perhaps resulting in a model that separates the faltering LTC business from healthier lines through reinsurance or a new runoff facility. 

These options could include, as contemplated by some state regulators and/ or the NAIC , a good bank/bad bank scenario, as varied out under the controversial but upheld 2009 restructuring of MBIA Insurance Corp., a facility to runoff LTC businesses the use of captive reinsurance. At stake are hundreds of billions of dollars in benefits for millions of U.S. policyholders.

In a Q&A issued by the NAIC in late July in response to a batch of consolidated questions from would-be bidders and interested parties, the standard-setting organization for state insurance regulators said the goal is to find solutions that avoid insurance company receivership. The project would evaluate all LTC business, open and closed, and stick to solvent transactions in its first phase.

The NAIC had announced July 8 that it was taking proposals to find a new regulatory framework that would allow insurers to separate policies from one another. They could accomplish this, as envisioned, through a restructuring or a transfer of blocks of business with the purposed of separating LTC “policies from insurers’ general accounts” to precent a host of current industry maladies. These include oversized increases of rates by some states to compensate for those states that are raising rates, the billions of dollars of potential risks to states’ guaranty funds and current state laws on separating policies from the insurer’s general account.

The Q&A said solutions could possibly involve consideration of captives but noted that state legislative changes that might be required for any restructuring would only be addressed in the second phase of the project. For example, legislation could be required in many states for a split runoff facility or other mechanism.

The NAIC and state regulators are in the process of a years-long initiative to address the growing solvency challenges of the LTC industry, even as several of these insurers, like Penn Treaty companies and Senior Health Insurance Company of Pennsylvania, have entered rehabilitation or liquidation proceedings in recent years. Other companies, like Prudential Financial, State Farm and MetLife have closed their blocks in the past decade and the one with the highest number of policyholders now, Genworth Financial, as part of a public company, is in the final throes of a merger attempt with a Chinese conglomerate buyer. 

According to the American Association for Long-Term Care Insurance, LTC insurers paid out $10.3 billion to over 303,000 claimants in 2019, an amount that has increased annually. The total number of individuals with LTCI coverage was 7.2 million in 2014, according to a 2016 NAIC report on the state of the market, its challenges and future. However, at the time, the maximum potential benefit value in policies came in at a little less than $2 trillion, according to the same report, with a then-expected payout if everyone used 100% of their benefits at the time of $800 billion.

The sheer numbers pressure regulators to address policyholder needs and business structures at a time when paid premiums, even with rate hikes and diminished benefits increasingly permitted by the states coupled with years of anemic interest rates on company funds aren’t enough now to cover future claims. 

Not all state regulators would necessarily be on board with the final report of the legal consultant  —  some would be concerned with the fate policyholders carved out of the more solvent arms of a large multi-line insurer and its general accounts.

Private investors and hedge funds are also contemplating deals involving legacy blocks of LTC business, but these have been slow endeavors which have been taking a long time to review and value, industry participants have noted.

The winner of the contract for the first phase is not the one who will necessarily carry out phase 2, according to the NAIC response to questions on the contract proposal. 

A draft report is expected two to three months after a contract is signed with selected hired legal team, expected be finalized October 2020.

Confidentiality will apply to the preliminary work on the report done by the law firms under attorney-client privilege, according to the NAIC. 

In response to a question on whether there is a goal of avoiding cross-state or interstate rate stabilization with closed blocks or if the concern would also include new products, the NAIC responded that the project is to evaluate all long-term care business, therefore closed and open.

Pulling teetering or frail business lines from the general accounts is not generally used in insurance companies, but the structure prevailed in court battle involving the old MBIA when it split its structured financial product business from its healthy, traditional municipal bond business in response to the market lashings of the financial crisis.

“The reorganization was intended to generate market confidence and increase liquidity in the municipal bond market,” according to a bulletin by the law firm Morrison & Foerster LLP in March 2009. Four years later, in March 2013, New York’s Supreme Court upheld then-New York Insurance Superintendent Eric Dinallo’s decision after a challenge by Societe General SA.