Thought for the day:
When I was growing up we didn’t have so many warning labels. Guess we weren’t as stupid then. –Gene Pastula
If you will read no further:
You have to read further because that is the only reason I am sending this out this week.
Important thought for the week:
Last week was not a good week for Genworth Financial (NYSE:GNW) as they reported losses due to higher-than-expected long-term care benefit claims, they posted a third quarter loss of $317 million; most of it of due to a $531 million increase in reserves for additional LTCi claims expense. The resulting buzz has been all over the board from a sell-off resulting in the over 40% reduction in their stock price, to “buy” recommendations from other analysts who follow the company. And of course we have been receiving our share of phone calls from concerned advisors wondering if Genworth can still be a trusted insurance provider.
I have personally been following Genworth for many years, both as an insurance professional who likes and sells their products and as an investor. One of the first things I thought of when I read the news was that it is good that they have increased their reserves to guarantee near term expected claims, but the stockholders are definitely going to take a hit. Those who have been betting on a completed turnaround for GNW will have to wait a while longer.
In the meantime:
•What about our clients who hold GNW Life and LTCi policies?
*How good are their products?
•How secure are their promises?
Not to worry
A long visit with their chief actuary confirmed my basic premise relative to my clients who own GMW policies and the proposals we have outstanding to new clients. With Risk Based Capital Ratio of over 400%, owners of these policies have no worries about the carrier’s ability to meet its claims and promises. The fact that they just increased their reserves by $531 million tells us several things:
•The incidence of claim on their Legacy Block (prior to 2002) of business is much higher than anyone expected.
•The length and therefore the cost of claims are also greater than expected.
•The increase in reserves will add confidence that insurers will receive the benefits they have purchased.
•The increase in reserves assures that they continue to have sufficient claims reserved to meet the anticipated claims on their Legacy Block of business.
•The stockholders will not be happy that the stock is down and there will be no dividends.
•The Stockholders can deal with the knowledge that at the current $8 per share, the stock is trading at 6 times earnings and a fraction of book value. http://goo.gl/0aEhKG; a buying opportunity for us fans.
Also a learning experience
1. There are lessons to be learned here; the first lesson is that, all the talk about 70% of Americans will need long-term care, is coming true. We can also learn that the average cost of care can easily be over $70k per year and that the length of time we may need care is extending – The Marvels of Medicine and a Tribute to American Healthcare!
2. With these facts of life, you need to take seriously the risk of long-term-care and as a financial professional you need to offer your clients strategies or products to handle (at least a portion of) these expenses when they come.
3. The carriers are pricing product offerings with greater knowledge gained by years of experience in the market and clients should have a much more reasonable expectation that they are receiving full value for their money. Clients should still understand that there may be future reasonable pricing adjustments unless you have a guaranteed product.
FINAL NOTE:
We are proud of the work we have done over the past couple of decades to introduce Linked-Benefit products to the market and helping financial advisors include them in their clients’ portfolios. We also thank and congratulate all the financial advisors who have helped their clients address the LTC issue. The Linked Benefit approach has proven to be a very bright spot in the process of retirement planning. These products are safe and guaranteed. They have and will continue to provide predictable returns while protecting the families and their estates from the exorbitant costs of a long-term care event that has such a high likelihood of occurring in every family. For Key Messages for Sales Teams from Genworth, go here.Westland is your one stop shop that can help you develop the appropriate strategy for each unique situation presented to us.