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Midwestern Underwriting ConferenceLife/LTC Linked Benefit Products
Kevin Oldani, SVP and Chief Underwriter
HLR America – Mortality Solutions
Midwestern Underwriting Conference
September 2014
Hannover Re Group
Disclaimer
2
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 the appropriateness of investing in any of our securities.
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 offeror 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.
Hannover Re Group
Agenda
Market Overview
• 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
3
LTC Market Environment
Hannover Re Group
LTC Market Environment
Significant Market Exits from Direct Writers
• Interest Rates, Persistency and Morbidity
• Regulations
Sales Have Been Relatively Flat/Declining Since 2005
Significant Premium Rate Increases Passed on to Policyholders
• 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
• Stand-Alone LTC vs. Hybrid LTC/Life Products
Current Market Overview
5
Hannover Re Group
LTC Market Environment
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
Individual Stand-Alone LTC Market
6
Hannover Re Group
LTC Market Environment
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
Group Stand-Alone LTC Market
7
Hannover Re Group
LTC Market EnvironmentTotal Individual and Group Stand-Alone LTC Market
8
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1,704
3,338
3,697
3,202
2,601
2,946
4,130
4,7934,497
5,179
5,612
6,053
6,404
6,995 6,8947,030 7,115 7,033
7,186 7,263 7,357
Total Number of Covered Lives by Year
Co
vere
d L
ives
(00
0's)
Source – NAIC LTC Experience Reports
Hannover Re Group
LTC Market EnvironmentIndividual Stand-Alone LTC Sales
9
1990 1992 1994 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
100
200
300
400
500
600
700
800
380
500
420
609 600
698
754
509
362332
300 306283
221
253 249 254
172
Individual LTC Policies Sold
Po
licie
s (0
00’s
)
Source – Univita Health Experience Reports and Analysis
Hannover Re Group
LTC Market EnvironmentShrinking Number of Direct Writers in Stand-Alone LTC Market
2002 2004 2006 2008 2011Aegon USA Aegon USA Transamerica LTC
Allianz Life Allianz Life Allianz Life Allianz Life
BL&C BL&C BL&C BL&C BL&C
CNA Insurance
GE Financial Genworth Genworth Genworth Genworth
John Hancock John Hancock John Hancock John Hancock John Hancock
Lincoln Benefit Lincoln Benefit Life
Mass Mutual Mass Mutual Mass Mutual Mass Mutual
MetLife MetLife MetLife
Mutual of Omaha
New York Life New York Life New York Life
Northwestern LTC Northwestern LTC Northwestern LTC Northwestern LTC
Penn Treaty
Prudential LTC Prudential LTC Prudential LTC Prudential LTC
State Farm State Farm State Farm
Thrivent Financial
UnumProvident
Share 77% Share 81% Share 86% Share 86% Share 93%
10
Hannover Re Group
LTC Market 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• Becoming an Equity Issue for Policyholders
NAIC and Industry Working on New Rate Stability Provisions• Improve Rate Increase Process and Add More Transparency for Policyholders
States Reacting to Filings for Gender-Based Rates• No Clear Direction - Some Prohibiting and Some Approving
Life/LTC Hybrid Products Gaining Greater Acceptance
Regulatory Environment
11
Hannover Re Group
New Product Development Activity
Gender-Based Rates
More Affordable Types of Coverage
• John Hancock’s Benefit Banko 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
• Cash Benefits
Continue to Issue more Limited Coverage's:
• Coverage Duration
• Benefit Amounts
Stand-Alone LTC Market
12
Hannover Re Group
Provides integrated Death Benefit and Cash Value protection covering chronically ill individuals
• Typically a standard LTC 2/6 ADL Definition)
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
• Reimbursement Dollar-for-Dollar Face Reduction Approach
• Indemnity Dollar-for-Dollar Face Reduction Approach
Mix of Life Insurance (acceleration component) and Individual LTC (EOB component)
• Governed by Section 7702B and the LTC Model Act
Marketed as an Alternative to Stand-Alone LTC
13
Product Options and BenefitsLTC/Life Linked Benefit Products
Hannover Re Group
Product Rider Options
• Face Amount Acceleration Ridero 2 or 3 year acceleration period
• Extension of Benefits Ridero Generally 2 to 5 years
• Inflation Protection Ridero 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
14
Product Options and BenefitsLTC/Life Linked Benefit Products
Hannover Re Group
Why are These Products Gaining Traction in the Market?Client Need – Review of Long Term Care Costs
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
15
Private Daily Rate
Semi-Private
Daily Rate
1 Bedroom Monthly
Rate
2 Bedroom Monthly
Rate
Studio Unit Monthly
Rate
HHA Hourly Rate
RN Hourly Rate
LPN Hourly Rate
$51$66
-
-
$22
$17,248
14%
$3,572
$42,864
4%
$4,474
$53,691
25%
$3,512
$49,669
-5%
$228
$83,114
0%
$95,706
0%
2013 National Averages
2013 Annual Costs
% Change (2012 to 2013)
Home Health Providers
-
2012 National Averages $262 $229 $3,694 $3,400 $3,435 $19 - -
-
Area
Nursing Homes Assisted Living Facilities
$262
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
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:
• Provides integrated Death Benefit and Cash Value protection features• Typically includes a Return of Premium Feature
Products are generally marketed to those who have decided to self-fund their LTC needs
• 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
• 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
Why are These Products Gaining Traction in the Market?
16
Hannover Re Group
Client Need – LTCI Leverage
$81,134 Premium
$72,694 Accelerated
Face Amount
Year 1$145,387
Total Acceleration LTCI Benefit
or
Tax-Free Face Amount
$72,694 Accelerated
Face Amount
Year 2
$72,694 Extension of Benefit
Year 5
$72,694
Extension of Benefit
Year 6
$72,694
Extension of Benefit
Year 3
$72,694 Extension of Benefit
Year 4
$290,774
(2x Face Amt)
Total 4 Yr.
LTCI Extension
Benefit
Leverage Impact for LTC Combo Products
Monthly LTC Benefit: $6,058
Total Leverage: 5.4x
Why are These Products Gaining Traction in the Market?
17
Hannover Re Group
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
Product Risk Profile
18
Why are These Products Gaining Traction in the Market?
Hannover Re Group
Recent Success2013 Sales Results
Sources: LIMRA Individual Life Combination Products – 2013 Annual Review
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
19
Risk ManagementOverview
Hannover Re Group
Risk Management
Underwriting
• Difference between Life and LTC underwriting
• Life Risk is the probability of early death
• LTC risk of future activities of daily living (ADL) limitations and cognitive dependency
Underwriting requirements
• Application
• Phone History Interviews and Cognitive Screening
• What age do you start Cognitive Screening?
• RX
• MVR
• Typically no APS’s, Exams, Blood or Ekg’s
• LTC Underwriting
• Underwriting Manual
Underwriting
21
Hannover Re Group
Risk Management
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
• 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.
22
Underwriting
Hannover Re Group
Risk Management
Typically need for assistance with 2 or more ADLs (medically necessary, provided regularly; based on policy language)
• Bathing
• Dressing
• Transferring
• Toileting
• Incontinence management
• Eating
• Ambulation and mobility
Cognitive impairment
• Moderate or severe impairment
• Requires continuous supervision for safety
23
Underwriting
Hannover Re Group
Risk Management
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
24
Underwriting
Hannover Re Group
Risk Management
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
25
Underwriting Focus
Hannover Re Group
Risk Management
Claims Management
• Definition review, do they qualify/life is clear cut
• LTC component
• Ongoing Health management
• Close follow up required
• Ongoing claims payments
26
Claims
Hannover Re Group
Risk Management
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
27
Underwriting and Claims Training
Hannover Re Group
Outsourcing/Partnering
Product development
Product and application filings
Teleunderwriting process
Cognitive screening
Underwriting
Claims management
Reinsurance support
28
Conclusions
Hannover Re Group
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 long-term 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
LTC Combo Products Have Been SuccessfulConclusions
30
Hannover Re Group
Contact information
Kevin OldaniSenior Vice President & Chief Underwriter
Tel. (720) [email protected]
Thank You