Happy Sunday! Welcome to this week’s edition of the Insights newsletter, where we break down the “so what” behind the latest actuarial news.

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ACTUARIAL NEWS

LTC Market Faces Challenges as Regulators and Insurers Debate Rate Review Strategies

The Rundown:
The long-term care insurance market continues to face big challenges due to historically inaccurate pricing assumptions. In recent years this has led to repeated rate hikes and market exits by carriers.

Recent proposals aim to balance the financial burden between policyholders and insurers but are not satisfying regulators and industry stakeholders.

The Details:

• Market Exit and Rate Hikes: Many LTC carriers have either left the market or sought repeated rate hikes in recent years due to unprofitable pricing and escalating costs.

• Minnesota's Proposal: A new approach from Minnesota seeks to protect long-term policyholders from steep rate hikes while requiring insurers to absorb some of the financial burden, a move opposed by the American Council of Life Insurers.

• Need for Cohesion: Regulators stress the importance of a cohesive multi-state approach to encourage new entrants into the LTC market, which is crucial for its sustainability.

Why it Matters:

The LTC situation highlights the difficulty in maintaining actuarial soundness in a market plagued by unprofitable products with a long tail. The need to balance fair and adequate pricing with regulatory constrains is something many actuaries will be familiar with and will be crucial here to ensure the future viability of long term care products

FUTURE OF ACTUARIAL

Key Drivers of 2025 Health Insurance Premium Changes

The Rundown:
The American Academy of Actuaries has released an analysis identifying the factors likely to impact health insurance premiums for 2025. While the pressure on ACA-market premiums remains mild compared to previous years, rising prescription costs and inflation are expected to contribute to some increases.

The Details:

• Prescription Costs and Inflation: Rising prescription drug prices and inflation are expected to exert upward pressure on health insurance premiums for 2025.

• Risk Pools: Changes in risk pools are not anticipated to have a significant impact on overall premiums, though individual insurers may be affected by local market conditions.

• Educational Outreach: The Academy’s analysis aims to inform public policymakers, regulators, and the public about these trends, offering insights without serving as specific rate-filing guidance.

Why it Matters:

The relatively mild pressures on ACA-market premiums will means that smaller price increases may be needed for customers in 2025. Actuaries have an important role to play in providing affordable options for customers.

FUTURE OF RISK

PFAS Remediation Costs in U.S. Water Systems Could Reach $175 Billion

The Rundown:
Milliman has estimated that the cost to remediate PFAS contamination in U.S. drinking water systems could range from $120 billion to $175 billion.

The Details:

• PFAS Overview: Perfluoroalkyl and polyfluoroalkyl substances (PFAS) are man-made chemicals used for their water- and grease-resistant properties, but they persist in the environment and human body, posing health risks like cancer and endocrine disruption.

• Insurers' Concerns: The potential for substantial liability claims due to PFAS-related health risks and environmental damage is a big concern for insurers, with parallels drawn to past latent claims from asbestos and lead paint.

• Cost Estimation: Milliman’s model estimates that PFAS remediation costs for U.S. drinking water systems will be between $120 billion and $175 billion

• Comprehensive Modelling: Milliman’s model uses detailed data from over 140,000 water districts, considering around 30 different PFAS compounds

Why it Matters:
For actuaries working in liability insurance, these estimates highlight the potential for substantial future claims. The financial burden of PFAS remediation and associated health claims could lead to increased premiums and higher reserve requirements on older accident years.

Understanding these risks is crucial for actuaries and exposure management professionals to set appropriate pricing and ensure financial preparedness.

ACTUARIAL INSIGHTS

Persistent Hard Reinsurance Market Amid Rising Claims and Complex Risks

The Rundown:
AM Best indicates that the hard reinsurance market is likely to endure longer than previous cycles, driven by sustained high claims and increasingly complex risks. Despite strong technical results, reinsurers are expected to uphold firm pricing for several more years due to factors such as the rising frequency of medium-sized disaster losses and secondary perils.

The Details:

• Sustained Hard Market: Reinsurance pricing is expected to remain firm due to ongoing high claims activity, especially from medium-sized natural disasters and secondary perils, which are becoming more frequent and harder to model.

• Investor Reluctance: Unlike previous hard market cycles, there has been a lack of new entrants into the reinsurance market, as investors are deterred by historical underperformance, higher interest rates, and more attractive short-term investment alternatives.

• Reserving Concerns: While the global reinsurance sector shows resilience, there are concerns about the performance of legacy U.S. casualty and some life reinsurance books, with social inflation in the U.S. liability line leading to stricter underwriting and price adjustments.

Why it Matters:

The sustained hard reinsurance market highlights the need for underwriting discipline and strong risk management throughout the entire insurance cycle. It’s important to understand the impact that softening of rates may have on net profitability if reinsurance costs remain high.

Along with the reinsurance costs, the potential for further adverse reserve development, particularly in casualty lines, is a real risk to calendar year profitability in the next couple of years.

Quick Hits

Humana has agreed to pay $90 million to settle a whistleblower lawsuit under the False Claims Act, alleging the company submitted fraudulent bids for Medicare Part D prescription drug contracts – the whistleblower was an actuary

Corebridge Financial report that many Americans have a good understanding of key life insurance principles, yet nearly 6 in 10 either do not have coverage (50%) or do not know if they do (9%)

Global healthcare utilization and rising medical inflation are driving growth in health reinsurance, with premiums increasing, especially in the commercial and stop-loss segments, though overall demand remains modest compared to other reinsurance sectors.

The IFoA’s Actuarial Data Science Working Party published research on how they used advanced machine learning techniques to predict a life insurer policyholder’s likelihood to lapse

Actuaries in the life sector may need to factor in the impact of climate change on malaria transmission, as warmer temperatures could expand malaria-prone areas and increase mortality risks, particularly in regions like sub-Saharan Africa.

Thanks for reading! I hope you find this summary useful. If you have specific feedback or anything interesting you’d like to share, please let me know by replying to this email.