U.S. life insurers have recently transferred long-term care (LTC) insurance reserves to reinsurers to lower risk and reduce exposure.
Fitch Ratings considers these moves credit-positive. The transactions improve balance sheets, capital use, reserve levels, and profitability.
Fitch does not expect many LTC reinsurance deals in 2025. Still, higher interest rates have narrowed price gaps.
Three recent LTC transactions have created a framework others may follow. Insurers are likely to continue combining LTC with shorter-term, more profitable liabilities in future deals. This strategy helps reduce exposure to older policies and frees capital for more stable lines of business.
Unum Group (UNM) will cede $3.4bn of LTC reserves—19% of its LTC block—to Fortitude Re. Fortitude Re will pass the biometric risk to a global reinsurer.
The transfer should improve UNM’s balance sheet by lowering volatility and improving earnings quality, despite a small decline in absolute earnings.
The deal is expected to create a $100mn capital benefit, partially offset by LTC capital charges.
Manulife Financial has continued to reduce risk through similar deals. In November 2024, Manulife announced a $5.4bn transaction with Reinsurance Group of America (RGA), including $2.4bn of LTC reserves and structured settlements.
This followed a December 2023 deal with Global Atlantic to cede $6bn of LTC reserves, again with full biometric risk transferred.
These moves reduced Manulife’s LTC reserves by 18% and lowered its sensitivity to morbidity by 17%. The company has also begun shifting away from alternative long-duration assets linked to these liabilities.
Insurers continue to face pressure from poor LTC experience in claims, policyholder behavior, and interest rates that did not match original assumptions.
Regulatory processes at the state level create further challenges, including delays in rate approvals and varied testing rules across jurisdictions.
Fitch expects reinsurance activity to persist as companies exit blocks that fall below return thresholds. Some may need to bolster reserves before ceding or make payments to reinsurers to reflect uncertain liability estimates.
These steps address early underwriting and pricing assumptions that were often too optimistic, especially before the 2000s.
LTC policy risk varies widely based on age, policy vintage, and design features. In many cases, the data on older age claims is limited, increasing uncertainty.
Some companies assume future improvements in claims experience, which Fitch views as too optimistic. Insurers are also expected to use internal actions like reducing benefits and raising premiums to manage underperformance.
Recent LTC deals involved negative ceding commissions, as legacy LTC blocks remain among the riskiest liabilities. These policies add earnings volatility, raise capital needs, and increase interest rate exposure.
Though rates have risen from pandemic lows, future rate shifts still pose risks due to LTC’s long-term nature. Some insurers have reduced this risk by locking in higher rates through hedging.
Fitch expects insurers will keep shedding long-dated, market-sensitive liabilities such as LTC, variable annuities, and universal life with guarantees. They will aim to boost capital efficiency. Buyers of these blocks will focus on improving investment returns.
