One question for US regulators is what they can do to protect the interests of consumers.
In the UK, for example, the UK Court of Appeal ruled that the only party liable to consumers who purchased annuities from Prudential PLC of London – which has no connection with US Prudential – was the legal entity that purchased the annuities.
The court ruled that a lower court “should not have given any weight to the fact that policyholders chose Prudential on the basis of its long-standing reputation, age and reverence”, according to a summary of the UK ruling included in the draft white paper. .
Long-term care insurance blocks
U.S. insurers wrote billions of dollars in LTCI contracts between the 1970s and around 2010, when interest rates were higher and insurers weren’t sure how LTCI could actually work.
Issuers now face low returns on bond portfolios supporting LTCI activity and the discovery that consumers are much more likely to hold LTCI policies and possibly file claims than issuers had assumed when pricing policies.
The writers of the white paper say that letting LTCI issuers use a new insurance business transfer system to transfer LTCI benefit liabilities would likely be too complicated, because it’s so difficult to decide what the LTCI reserves should be.
“The task force recognizes that, regardless of whether certain state laws allow it, the use of a corporate restructuring mechanism in certain areas, such as long-term care, is likely to affect ‘object of much opposition and higher capital requirements for the insurers concerned,’ the editors continue.
Another problem, according to the editors, is that LTCI policyholders have much less capacity than legal persons to defend their interests in court.
“This fact, along with the traditional inability of insurers to properly estimate future liabilities in this line of business, makes it a line of business that is unlikely to be suitable for restructuring mechanisms,” the editors say. “This conclusion, however, could be rebutted if the proper plan addresses these issues and provides benefits to policyholders.”
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