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Another Reason Not to Trust Insurance Companies
Old 12-09-2007, 12:29 PM   #1
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Another Reason Not to Trust Insurance Companies

Some people may not associate me with being the ultimate skeptic of promises made by insurance companies. I don't trust them with providing for my longterm care or longterm income source. I've not seen an annuity that makes financial sense and frequently rant about them when the topic comes up.

With that disclosure out of the way, I recently had another insurance company trick played on me that reinforces my beliefs. First, all insurance company products are a contract between you and the insurance company.

Ten years ago I bought a 15 year level term insurance from the absolutely highest rated insurance company available. It was pretty much top on all the rating services. They got acquired by a slightly less highly rated company but still just about as high.

Last week when my bill arrived for the annual premium I was informed that my policy had been acquired by another company. I checked their ratings and they are still in the "A range." Unfortunately, they are down anywhere from three to five levels from the very top.

They didn't raise my rates because they can't but they did reduce the credit quality of my potential benefit.

I suspect that this sort of risk migration will start to happen with longterm care policies when the potential beneficiaries begin approaching the date when payouts can be expected.
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Old 12-09-2007, 01:01 PM   #2
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I am also somewhat sceptical of insurance companies. My DH and I are retiring soon and looked at an annuity to supplement the pension until social security kicks in. The more I looked at purchasing an annuity, the less I liked the idea of turning over so much cash to an insurance company for a "guaranteed" income stream. Our LTC and health care is through government employment, so we hope that will be safe. I will be interested in hearing what others think about this topic.
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Old 12-10-2007, 05:16 AM   #3
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Well let me help pile on to your paranoia. First, the latest fiasco with CDO etc. is yet another nail into the crediability problem that credit rating companies have. It is a fairly common and long standing criticism that credit rating are slow to downgrade firms that are in trouble. So something that is 5 levels down from the top is called Secure/Very Good by AM Best but only Questionable by Moody's

Second a lower rated insurance company may have to offer better rates/lower premium to compete with AAA insurance company. If things go bad they maybe in trouble.

I am sure they'll laugh in your face if you call them up and ask for some type of lower premium due to your lower benefits, but hey you may get a calendar out of it. !

Still, I am no expert but my impression is that virtually nobody has been hosed by a insurance company going bankrupt in recent years due to regulators keeping tabs. (Of course, I won't be surprised to be proven wrong.)
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Old 12-10-2007, 09:20 AM   #4
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Originally Posted by Purron View Post
I am also somewhat sceptical of insurance companies. My DH and I are retiring soon and looked at an annuity to supplement the pension until social security kicks in. The more I looked at purchasing an annuity, the less I liked the idea of turning over so much cash to an insurance company for a "guaranteed" income stream. Our LTC and health care is through government employment, so we hope that will be safe. I will be interested in hearing what others think about this topic.
Brewer and I have chimed in time and time again on this subject. The best companies are mutuals, like NML and New York Life. The 2nd best are the BIG public ones, like Hancock, Hartford, and Prudential.

The rest of them you can have. It sounds like you are an unfortunate victim of a consolidation between companies......

If I needed LTC, I would only buy it from NML, METLife, Or Genworth. The reason being.....they are the only ones I personally know who set aside funds to pay claims with seed money from day one. For instance, NML set aside $100 million to pay LTC claims BEFORE they started selling it..........
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Old 12-11-2007, 10:29 AM   #5
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Brewer and I have chimed in time and time again on this subject. The best companies are mutuals, like NML and New York Life. The 2nd best are the BIG public ones, like Hancock, Hartford, and Prudential.

The rest of them you can have. It sounds like you are an unfortunate victim of a consolidation between companies......

If I needed LTC, I would only buy it from NML, METLife, Or Genworth. The reason being.....they are the only ones I personally know who set aside funds to pay claims with seed money from day one. For instance, NML set aside $100 million to pay LTC claims BEFORE they started selling it..........
I haven't been personally involved with NML, so I don't have in insider's knowledge. However, as an outsider, I've always read the "seed money" from a different perspective.

When NML got into the LTCi business, they could have written the policies in "the company". Instead, they started a subsidiary called "Northwestern Long Term Care Insurance Company". Of course they had to provide some initial capital - that would be the seed money. I assumed they did this because they were nervous about LTCi, so they wanted to insulate the parent, just in case things turned out badly in long term care insurance. So I get the "seed money" as part of a strategy of keeping LTCi a little separate from their other business, kind of a vote of limited confidence.

Having said that, I have heard that NML refused to match the competition on premium rates during an extended period when they thought the sales leaders were under-pricing the product. It turned out that NML was more accurate. If that's true, I feel good about NML because that means they know more about what they are doing and they are running the business for the long term.
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Old 12-11-2007, 10:35 AM   #6
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NML has always been more disciplined in the LTC market. Many of their competitors were not, and the roadside is littered with their remains. I think there are really only 3 viable competitors in this market: NWM, Genworth, and John Hancock. Others are in varying degrees of financial disarray, or are relatively small.
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Old 12-11-2007, 12:25 PM   #7
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When NML got into the LTCi business, they could have written the policies in "the company". Instead, they started a subsidiary called "Northwestern Long Term Care Insurance Company". Of course they had to provide some initial capital - that would be the seed money. I assumed they did this because they were nervous about LTCi, so they wanted to insulate the parent, just in case things turned out badly in long term care insurance. So I get the "seed money" as part of a strategy of keeping LTCi a little separate from their other business, kind of a vote of limited confidence.
Actually it's quite smart to seperate different risks in an insurance company. You as a whole life owner would not want your life policy at risk because a bunch of sick people went into nursing homes this year...........plus it is all about reinsuring the risk, right brewer?

Quote:
Having said that, I have heard that NML refused to match the competition on premium rates during an extended period when they thought the sales leaders were under-pricing the product. It turned out that NML was more accurate. If that's true, I feel good about NML because that means they know more about what they are doing and they are running the business for the long term.
The guy that runs NML's LTC area was the guy who set up the program at GE. He left because GE got goofy with underpricing the risk.......
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Old 12-11-2007, 12:46 PM   #8
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Hard to find reinsurers for LTC risk after all the disasters. You write it, you own it.
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Old 12-12-2007, 09:44 AM   #9
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Hard to find reinsurers for LTC risk after all the disasters. You write it, you own it.
Agreed...........makes me think NML or NYL might be the answer if I want LTC coverage.........
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Old 12-12-2007, 09:47 AM   #10
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Agreed...........makes me think NML or NYL might be the answer if I want LTC coverage.........
Maybe. I think Genworth and Hancock are worth considering, though, assuming you want to buy this (IMO) questionable product. The latter's credit profile was considerably enhanced by Manulife's acquisition of the company a few years ago.
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