In late 2007, Genworth Financial beganimplementing its first long-term-care insurance (LTCI) premium increase in almost 35 years, a process that will continue through 2009. At first glance, this increase might appear to be a response to the company's recent, meltdown-related misfortunes: Genworth's stock price has fallen from $34 in 2007 to less than $1.25 a share in late February. However, a crumbling stock price was not what led to higher policy prices.

Other LTCI leaders, such as John Hancock and MetLife, are raising premiums, too, even though their stock prices haven't fallen quite as hard as Genworth's. "The increases had less to do with recent financial turmoil and more to do with the fact that premiums had originally been priced far lower than they should have been," says Henry Montag, a financial planner in Jericho, N.Y. LTCI premiums are moving to what insurers perceive as more realistic levels.

That's not to say that recent economic woes have passed over the LTCI business. A weak revival in policy sales hit the skids last year. According to LIMRA International, a research firm in Windsor, Conn., LTCI premiums cratered in the fourth quarter of 2008 and ended the year down 7%, after growing 3% in 2007.

Nevertheless, the long-term prospects for long-term-care insurance may be brighter. "The 'glass-half-full' crowd says that there has never been a more important time to purchase this coverage," says Phyllis Shelton, president of LTC Consultants in Nashville, Tenn. "With assets dwindling, protecting what you have can be considered retirement insurance. People who thought they could comfortably self-insure aren't so sure anymore."

Bottom Fishing

Assets are down sharply at insurance companies, too, along with stock prices. Are acquisitions likely—and would any acquisitions have negative consequences for LTCI policyholders? "MetLife and Manulife (parent of John Hancock) are financially healthy and are too big to be acquisition targets," says Steven Schwartz, a life/health insurance equity research analyst in the Chicago office of Raymond James. "If anything, they're acquirers."

What about Genworth, which has suffered ratings downgrades as well as a shrinking stock price? "Some day, Genworth might be acquired," Schwartz says. "It probably won't happen soon, though. Buyers don't want the company's mortgage insurance business."

Schwartz believes that a future economic turnaround could allow Genworth to spin off its troubled mortgage insurance product line. At that point, the remaining businesses, which include LTCI, life insurance, annuities, Medigap insurance, reverse mortgages and financial advisory services, might be an acquisition target. "If that happens, the buyer is likely to be a larger, better-capitalized company," Schwartz says, although he wouldn't speculate about possible buyers.

Such a company could pursue the LTCI business, sell it or cover its obligations via reinsurance, after this hypothetical buyout takes place.

"In the meantime, I don't think that buying long-term-care insurance from Genworth is risky," Schwartz says. "The company may have problems with its assets and write-offs, but the underlying core business is doing quite well."

Schwartz also mentions Unum, another publicly held company selling LTCI, as a possible takeover target down the road. As with virtually all financial services companies, its stock has been hard-hit recently, sinking from its 2007 high of $27.57 per share to $10.13 at the end of February. "If Unum were acquired, its new owner would be most interested in its disability insurance business," Schwartz says. "Again, it's hard to know what would happen to the long-term-care business."

Shelton notes that any future acquisitions of LTCI insurers would hardly be unprecedented. "The big fish have been swallowed by even bigger fish for years," she says. "As far as I know, the acquirers have serviced old policies. I sold policies from Travelers that are now serviced by Genworth."

Are Policies at Risk?

There's no question that LTCI providers have been affected by the weakening economy and falling asset values, just like everyone else. The most important question, however, is whether this poses any danger to clients' policies.

"It's true that insurance companies' reserves are down because their portfolios have lost value," says Kansas insurance commissioner Sandy Praeger, who chairs the Health Insurance and Managed Care Committee for the National Association of Insurance Commissioners (NAIC). "But we have not noticed any cash flow problems yet."

What's more, as Praeger points out, many LTCI payouts are likely to be far in the future. "The average purchasing age for LTCI is now 58, down from 67 in 2000," she says. "It's hard to say what will happen by the time today's buyers need long-term care. Will there be cures for Alzheimer's, diabetes and Parkinson's?"