What is the future of Long Term Care (or what happened to LTC and can it be saved?)

1. What is the future of Long Term Care (or what happened to LTC and can it be saved?) IABA Annual Meeting August 4, 2012 Michael Barnett Chairman and CEO Employers Reassurance Corp.

2. What is LTC? • Long Term Care • Coverage that provides nursing-home care, home-health care, personal or adult day care for individuals with a chronic or disabling condition that needs constant supervision

3. What do I know about it? • I manage the largest and most extensive block of in-force LTC reinsurance in North America • Oldest policy is from 1986 • Policies from over 35 companies • ~371,000 in-force policies • ~$700MM in assumed premium • $8.5 B in Stat Reserves • 50 to 60 year runoff curve

4. Some numbers • Life expectancy in 1900 – 49 yrs, 2000 – 77 yrs, 2020 – est. 80 • 1 in 8 Americans over 65 • Chance that a senior citizen will enter a nursing home: 1 in 3 • Annual average cost to stay in a US Nursing Home: $76,680 • Chance that a senior citizen will become physically or cognitively impaired: 2 in 3 Data from: Paying for Senior Care

5. In the beginning • Big hopes for the new product back in the late 80’s, sales boomed • Clear need for the product….life expectancy increasing • Demographically positive…older, wealthy population • A non-annuity, non-equity market based product • Diversifies business mix • But no experience data……everything extrapolated from other products and from census data….this was a huge mistake

6. Where are we now? • The industry is in the midst of a sea change • Major writers exiting all or part the business…… • The #1 writer is retrenching…….. • Less than 20 individual writers of LTC left……..93% of LTC sales by top 10 companies

7. What are the problems? • Older products were badly designed (limited pay, guaranteed benefits) • Experience has been terrible for the older products • Lapse rates are too low… severity is too high, and continuance is too long • Significant interest rate risk • High reinvestment risk …long tail liability – 60yrs + • Too many variables in the equation to manage effectively • Huge capital strain associated with the product • Almost all writers asking for rate increases, if the product allows

8. What about rate increases? • Yes, but the problems are…………….. • Rate increases never catch up to the problem… takes months and even years to get through • States give increases at much lower percentages than requested • Frequency of requests is sometimes restricted by the states • Political environment very negative

9. What will work? • Hybrid products or riders seem to have some success • No limited pay options • No preferred discounts • Better underwriting at issuance • Better claims management

10. Wrap up? • A great product in theory…a catastrophe in reality • Once was a billion dollar industry…half that size and shrinking now • There is a need but….. • Hopefully in the future we will have experience data that will allow for better assumption setting • This product will return in an improved form……………. but that will take some time

11. Questions? DISCLAIMER This presentation and the views expressed within the oral presentation are being offered for your convenience and education and may contain opinions and viewpoints that are not the opinions and viewpoints of Union Fidelity Life Insurance Company, Employers Reassurance Corporation, General Electric Corporation or any of its affiliates. Union Fidelity Life Insurance Company, Employers Reassurance Corporation, General Electric and its affiliates make no representations or warranties of any kind, express or implied, regarding the accuracy, reliability, completeness, timeliness or applicability for a particular purpose of the information contained in this presentation and make no endorsement of the opinions of the presenter offered herein.