Companies no longer selling will see reduced premium flow over time. For example, the soon-to-be-published 2014 Long-Term Care Insurance Sourcebook reports that CNA showed 449,000 covered lives for 2011 a decline from 461,000 the prior year. Companies no longer selling will see the number of covered lives diminish as policy holders voluntarily lapse or die, which actuaries often refer to as involuntary lapses.
Two other players in the industry include Prudential Financial Inc (NYSE:PRU) Insurance Company of America, which reported $1.68 billion in reserves, Unum Life Insurance Company of America, part of the Unum Group (NYSE:UNM), reports $3.99 billion in reserves. Both companies no longer offer long term care insurance policies and their business is primarily comprised of group or employer plans, which tend to have small premium amounts and may experience higher rates of policyholder attrition.
Obviously, added future earnings are only one aspect of ultimate income and profitability. Two concluding thoughts to keep in mind: for most companies, with Genworth Financial Inc (NYSE:GNW) being an exception, long term care insurance has little impact on an overall company’s earnings. In addition, while we have focused on the impact of rising interest rates on a company’s long term care insurance business, it will also affect profitability for other lines, including life insurance.
For that reason, because much recent media attention has focused on the negative impact of declining interest rates on insurance companies, especially long-term care insurers, the outlook for rising rates warranted understanding their impact in the years ahead. It certainly is some reason for optimism.
The article Interest Rate Rise Will Bolster Long-Term Care Insurance Company Earnings originally appeared on Fool.com and is written by Jesse Slome.
Jesse Slome has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Jesse is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.