In March 2000, John Hancock entered into an agreement whereby it would administer and
reinsure the Fortis Insurance Company (now known as Time Insurance Company) block of
individual long-term care insurance. Through this coinsurance arrangement, John Hancock
assumed the administration and servicing, the financial risk, and responsibility for paying claims
and maintaining sufficient reserves for these policies.
John Hancock monitors and studies claims patterns on a regular basis. In addition, every few
years we conduct a comprehensive and extensive study that analyzes Long-Term Care (LTC)
insurance claim patterns and trends based on our actual claims experience. Our 2010 study
examined morbidity and termination trends, and was the most comprehensive analysis ever
conducted by John Hancock due to the natural maturing of our business and our increased
claims experience. Morbidity is driven primarily by three factors: claims incidence, length of
claims, and utilization of benefits. Terminations are reflective of lapse rates (when people give up
their policies) and mortality (how long people are expected to live). Compared to just three years
ago, this review encompassed twice the overall claims and four times more data at older ages
and later policy durations. We examined all LTC insurance claims that took place over a 20-year
period, from 1990 to 2010.
When comparing the results of this 2010 study against original pricing expectations, the common
findings are that more insureds are reaching the ages where claims increase more rapidly than
originally expected in the pricing of the product and the resulting claim costs at those ages are
much higher than previously expected. While this is good, in that many more insureds will benefit
from their long-term care insurance policy, the unfortunate consequence is that the premium rates
need to increase to help offset the additional claims we will have to pay. It is important to note
that the rate increases we have requested on long-term care insurance are solely due to
morbidity, mortality and lapse experience, and do not reflect the lower than expected investment
returns. John Hancock is absorbing the investment losses completely, and is not passing these
losses onto our customers.
The company is taking this in-force rate increase action in order to honor the promise to pay
claims in the future and to continue to provide valuable coverage to our customers. The actual
increases requested vary by insured age at issue, benefit period, and inflation options. The
requested overall average increase on the impacted Time Insurance Company policies in
Vermont is approximately 59%.
We understand that this increase may be difficult for some of our policyholders to afford, so there
will be an array of options available to minimize the size of the premium increase, and for most
policyholders, to keep premiums at their current level.
John Hancock developed an innovative alternative whereby policyholders with unlimited
automatic Compound and Simple inflation protection options can completely avoid this premium
increase and keep their current premium unchanged by reducing the future inflation indexing
amount from 5% to 2.1%. With this option, benefits accrued to date at 5% are retained by the
customer – only future inflation increases would be reduced. Recent inflation in the cost of long-term care services has been in the range of 2%-4%, so the company believes this is a very viable
alternative to the premium increase. Over 79% of the affected Time Insurance Company
policyholders in Vermont will have this option available to them.
This filing is subject to a formal review process and includes a demonstration of compliance with
the requirements pursuant to applicable Vermont law and regulations.
The company voluntarily complied with the NAIC Rate Stabilization rule which was adopted by
the state of Vermont on 1/1/2010, although none of the impacted Vermont policies were issued
after Rate Stabilization took effect in Vermont. The Rate Stabilization Rule requires the past and
future projected claims must be greater than 58% of the original premium plus 85% of any
premium increases. That is, a significantly greater percentage of the increase must go toward
paying claims than is required for the original premium. Further, it ensures that the resulting new
premiums after the rate increase are not greater than the current new business rates, adjusted for
The company will implement the requested premium rate increase only after approval by the
Department and satisfaction of all regulatory and contractual requirements, including adequate
advance notification to affected policyholders.
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