Canadian Pension Board Arm Agrees to Reinsure Big CNO LTCI Block

CNO Financial Group Inc. today announced a deal that could be a sign that at least some long-term care insurance (LTCI) issuers will have an easier time disposing of unwanted blocks of LTCI business.

Wilton Re has agreed to assume responsibility for a large block of old LTCI policies written by CNO’s Bankers Life and Casualty Company unit. The policies are backed by about $2.7 billion in reserves.

Wilton Re is not paying CNO for the opportunity to reinsure the LTCI block. CNO is paying Wilton Re $825 million to reinsure the block, the companies say.

CNO is a Carmel, Indiana-based holding company.

Bankers Life is a Chicago-based companies that continues to write some new stand-alone LTCI coverage.

Wilton Re is a Norwalk, Connecticut-based arm of the Canada Pension Plan Investment Board.

(Related: Canadian Pension Board Reinsurance Arm Closes on Aegon Deal)

The deal is subject to regulatory approvals. The companies hope to close on  the deal by the end of the year.

Why the Deal Matters

Many insurers have gotten out of the LTCI business in recent years, or reduced the scope of their LTCI programs, because of concerns about factors such as low interest rates, slow LTCI sales, and problems with predicting how LTCI policyholders will behave.

Insurers have had a hard time selling unwanted blocks of LTCI business, or disposing of unwanted blocks through reinsurance arrangements.

CNO succeeded at making an LTCI reinsurance deal in 2014, for a block of business with about $500 million in reserves, but it ended up canceling the arrangement in because of concerns about the reinsurer’s relationship with another company.

CNO executives have been hinting ever since that they would like to make a new LTCI deal, and they hinted in April that they might be getting close to making some kind of deal.

Gary Bhojwani, CNO’s chief executive officer, said today, in a statement about the deal, that Wilton Re is a highly traded, well-capitalized counterparty.

“Completion of this reinsurance transaction achieves our stated objective to reduce our exposure to the long-term care business,” Bhojwani said. “We expect this transaction to improve return on equity and cash flows in future periods and to materially reduce the risk profile of the company. More importantly, this allows management to focus its time on accelerating profitable growth and serving the needs of the fast-growing middle-income market.”

Although CNO is using the Wilton Re deal to dispose of an unwanted block of LTCI business, the deal could increase some insurers’ comfort with selling stand-alone LTCI or related products, by giving them a mechanism they can use to leave the market if they want to get out.

CNO’s Future as an LTCI Issuer