State regulators approved a wave of long-term care insurance rate increases in 2025 and into 2026, with several carriers receiving increases of 50% or more on legacy blocks after years of regulatory resistance. Genworth Financial received $209 million in incremental LTC premium approvals during 2025 alone, with an average increase of 38% per approved action. California approved a 58% increase for one major carrier in early 2026 following a contested hearing where DOI actuarial staff acknowledged that the alternative was greater insolvency risk.

These approvals represent more than a relief valve for underfunded blocks. For pricing actuaries working on new hybrid long-term care products today, the pattern of approved increases provides the clearest available signal about the minimum premium required to avoid repeating the same mistakes. The lesson is embedded in the approval data: lapse rates that never materialized, morbidity improvement assumptions that proved optimistic, and interest rate assumptions that locked in losses for thirty years.

The Scale of the Repricing

From tracking LTC rate filings across the NAIC Multistate Rate Review Framework and individual state databases, the magnitude of cumulative repricing on legacy blocks has become difficult to overstate. A 2024 Society of Actuaries survey of 17 major insurers found the average rate increase request was 56%, up from 47% in the 2021 survey. Actual approvals averaged 28% per action, but because carriers file sequentially across states over many years, cumulative approved increases frequently reach 150% to 250% on policies issued in the 1990s and early 2000s.

Nebraska and Texas have approved individual increases exceeding 100%. Washington state's Office of the Insurance Commissioner publishes a rate increase history showing that some blocks have experienced five or more rounds of increases. California's historically restrictive posture shifted in early 2026 when the DOI approved a 58% increase following a formal hearing; the actuarial staff's testimony explicitly weighed insolvency risk against policyholder premium burden.

Genworth's publicly disclosed rate action program provides the most complete picture of ongoing repricing. The company reported cumulative economic benefit from in-force rate actions of $34.5 billion on a net present value basis from 2012 through 2025. In the fourth quarter of 2025, Genworth received $100 million in premium approvals with an average increase of 35.6%. The company ties executive compensation to the rate increase program's progress, signaling that the repricing is not yet complete.

Three Assumptions That Failed

The rate increase data reverse-engineers which original pricing assumptions were most wrong. Every actuary pricing new LTC products should understand these failures not as historical curiosities but as calibration points for current assumptions.

1. Lapse Rates: The Persistency Surprise

Original pricing models for standalone LTC policies assumed lapse rates of 4-6% annually, borrowing from disability insurance experience as the closest available analogue. The SOA's 2000-2016 Individual Long-Term Care Policy Persistency study documented what actually happened: lapse rates settled below 1% for policyholders who reached claim-eligible ages, and in some blocks ultimate lapse rates dropped below 0.5%.

The mechanism is straightforward in hindsight. A 70-year-old policyholder who has paid premiums for 15 years holds a policy with substantial embedded value. The option to collect benefits that may run $200,000 or more over a claim duration creates a powerful financial incentive to maintain coverage regardless of premium increases. Unlike disability insurance, where policyholders age out of risk and allow coverage to lapse as they approach retirement, LTC policyholders age into risk. Every year of maintained coverage brings them closer to the period when claims become likely.

The practical implication for new-business pricing: any lapse assumption above 1-2% for policyholders past age 65 must be defended with credible evidence that the product design creates a different dynamic than traditional standalone coverage. Hybrid products with a life insurance chassis may show modestly higher lapses due to the cash surrender value option, but the SOA persistency data remains the primary credibility source under ASOP No. 25 for calibrating these assumptions.

2. Morbidity Improvement: The Optimism That Did Not Materialize

Early LTC pricing models assumed morbidity improvement rates for older ages that proved optimistic. The SOA's U.S. Population Long Term Care Morbidity Improvement Study examined HIPAA ADL disability trends and found improvement rates for the 75-90 age cohort running approximately 0.5-1.5% annually, less than half the rates originally assumed in many pricing models.

The claim incidence data from Milliman's 2024 industry experience reporting confirmed the pattern: incidence rates increased annually until 2020, dipped during the pandemic, then surged back above 2019 levels by 2022. The long-term trajectory shows morbidity improving more slowly than assumed for the ages that drive the majority of LTC claim costs.

For pricing actuaries evaluating new hybrid products, the lesson is to anchor morbidity improvement at 0.5-1.0% per year for ages 70 and above, test sensitivity to zero improvement, and treat any assumption above 1.5% as requiring explicit justification beyond historical population trends.

3. Interest Rate Assumptions: Thirty-Year Lock-In Risk

Many legacy LTC policies were priced with investment yield assumptions of 6-8%, reflecting the rate environment of the 1990s. The prolonged period of 2-3% yields from 2008 through 2021 meant that the asset portfolios backing LTC reserves generated returns 300-500 basis points below pricing assumptions for over a decade.

Current 10-year Treasury yields near 4.5% are more favorable than the 2010-2021 environment. But pricing actuaries must stress-test solvency under a sustained 2-3% yield scenario given that policy durations can extend 20-40 years. A product priced today that assumes 4.5% earned rates over the policy lifetime faces the same type of assumption risk that created the current legacy block crisis if rates return to post-2008 levels for an extended period.

The appropriate approach is to price to the 25th percentile of interest rate scenarios over the policy duration, not the median. The legacy block experience demonstrates that tail interest rate scenarios are exactly the conditions under which LTC claim frequency also increases (as economic stress correlates with family care capacity), creating adverse correlation between the asset side and liability side of the balance sheet.

The NAIC Multistate Framework: Coordinating the Correction

The NAIC adopted the Long-Term Care Insurance Multistate Rate Review Framework in April 2022 to coordinate rate increase reviews across states that process the majority of LTC filings. The framework eliminates cross-state premium subsidization and aims to produce actuarially appropriate increases in a timely manner. As of the spring 2026 update, the framework has facilitated greater information sharing among regulators and leveraged collective actuarial expertise to improve review consistency.

The practical significance for new-business pricing is regulatory: the multistate framework establishes that regulators now accept the actuarial reality of legacy block inadequacy. States that historically denied or reduced increase requests (notably New York, which has approved materially smaller increases than other states over three years) are under pressure to align with the framework's methodology. This regulatory acceptance of the true cost of LTC risk means that new products priced at adequate levels are less likely to face political pressure to reduce premiums below actuarially sound levels.

Calibrating New-Business Hybrid LTC Pricing

The traditional standalone LTC market has contracted to fewer than five active carriers. New sales are dominated by hybrid products that combine long-term care benefits with a life insurance or annuity chassis. Lincoln Financial's MoneyGuard III, Nationwide's CareMatters II, Pacific Life's PremierCare, and Securian's SecureCare represent the primary competitive landscape. Genworth's CareScout subsidiary launched CareScout Care Assurance, a standalone product approved in 37 states as of late 2025, signaling that at least one carrier believes new standalone LTC is viable at properly calibrated premium levels.

Each hybrid structure creates a different pricing risk profile. A life/LTC combination product transfers mortality risk from the insurer to the policyholder in exchange for LTC benefit access, while an annuity/LTC combination front-loads the premium and eliminates lapse risk through single-premium design. The pricing actuary must evaluate which of the three failed assumptions (lapse, morbidity, interest) each hybrid structure mitigates versus which it leaves exposed.

Applying the Three-Failure Checklist to Hybrid Products

Assumption Failure Life/LTC Hybrid Annuity/LTC Hybrid Standalone (New)
Lapse risk Moderate: cash surrender value creates lapse option, but LTC benefit rider discourages exercise Low: single-premium eliminates periodic premium lapse; surrender charges discourage early withdrawal High: same dynamics as legacy blocks unless pricing reflects sub-1% ultimate lapse
Morbidity risk Full exposure: benefit triggers same as standalone (2 of 6 ADLs or cognitive impairment) Full exposure: same benefit triggers apply Full exposure: identical to legacy products
Interest rate risk Material: level premiums create asset-liability duration mismatch over 20-40 year horizons Reduced: single premium creates known initial asset; reinvestment risk concentrated in later policy years Severe: same dynamics as legacy blocks with multi-decade premium payment periods

The checklist reveals that no hybrid structure fully mitigates all three assumption risks. Annuity/LTC hybrids eliminate lapse risk and reduce interest rate exposure, but retain full morbidity risk. Life/LTC hybrids offer moderate lapse protection through surrender charges but maintain substantial interest rate exposure. New standalone products, if priced with the benefit of legacy block experience data, can calibrate all three assumptions accurately but face the highest exposure if actual experience deviates from pricing.

ASOP No. 25 Credibility for LTC Lapse Assumptions

Pricing actuaries calibrating hybrid LTC lapse assumptions face a credibility challenge under ASOP No. 25. The primary data source is the SOA's Long-Term Care Policy Persistency studies covering 2000-2016 experience from 18 participating companies. This data describes traditional standalone LTC persistency with extreme precision, but hybrid products have been sold in volume for fewer than 15 years, generating limited experience data specific to the life/LTC and annuity/LTC chassis.

ASOP No. 25 requires the actuary to assess whether the subject experience is relevant to the pricing exercise and to determine appropriate credibility weightings between the subject experience and other data. For hybrid LTC products, the actuary must weigh:

The conservative approach assigns majority credibility weight to traditional LTC persistency for policyholders past age 65, reasoning that the LTC benefit rider dominates lapse behavior at claim-eligible ages regardless of the underlying chassis. Any actuary using chassis-specific lapse assumptions (e.g., universal life lapse rates of 3-5%) for the full policy duration bears a significant burden of justification given that legacy LTC experience consistently demonstrates sub-1% ultimate lapse rates at older ages.

What the Rate Increases Tell Us About Minimum Adequate Premium

The cumulative rate increase data provides a direct, if imperfect, measure of original pricing inadequacy. If a legacy block has received approved cumulative increases of 150%, the original premium was approximately 60% below the level required to fund expected claims at current assumptions. This calculation overstates the adequacy gap slightly because increases also compensate for past losses (reserve deficiency), not merely for prospective inadequacy.

Nevertheless, as a rough pricing floor: a new LTC product that charges less than 2.0 to 2.5 times the original 1990s premium level for comparable benefits is likely underpriced relative to current actuarial best estimates. Milliman's 2024 LTC valuation survey documented that annual incurred LTCI claims have risen by over 80% since 2015, reaching approximately $17 billion in 2024, with 5.8 million individuals still holding standalone coverage. The trajectory suggests claim costs will continue to escalate as in-force blocks age into peak utilization.

For pricing actuaries, the key takeaway is that approved rate increases are not regulatory generosity; they are the market's revealed preference for minimum adequate premium. Any new product priced below the post-increase premium level on comparable legacy blocks is implicitly assuming that actuarial experience will improve relative to recent history, a bet that the last twenty years of data does not support.

Why This Matters for Pricing Actuaries

The LTC rate increase wave provides three concrete pricing lessons that apply across practice areas but hit with particular force in long-duration health and life products:

First, duration amplifies assumption error. A 1% annual lapse rate overshoot compounds over 30 years into a 26% higher in-force population than expected. In short-duration lines, assumption errors wash out at renewal. In LTC and similar long-tail products, errors accumulate without a correction mechanism until the block is deeply inadequate.

Second, behavioral assumptions must reflect the option value of the product. Policyholders are not passive. A policyholder holding a guaranteed-renewable LTC policy with $300/day benefits and no premium increases has an embedded option worth hundreds of thousands of dollars. Assuming they will voluntarily surrender that option at historical lapse rates derived from products without comparable embedded value is an actuarial category error.

Third, adverse correlation between assets and liabilities requires conservative pricing. The worst interest rate environments (low yields) tend to coincide with economic conditions that reduce family caregiving capacity and increase formal care demand. Pricing that assumes independence between asset returns and claim costs will understate risk capital requirements in the tail scenarios that actually threaten solvency.

Further Reading

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