Penn Treaty Executives Working On A Turnaround
Executives at Penn Treaty American Corp. say they are more optimistic than they were earlier this year about their ability to turn the company around.
The Allentown, Pa., long-term care insurer recently called off plans to sell its Medicare supplement business, disability business and New York subsidiary to Universal American Financial Corp., Rye Brook, N.Y., for $13 million.
Penn Treaty thought the deal was the best it could get in April, when it sorely needed cash, but it raised $26 million through a public offering in May.
“The success of the rights offering enabled the company to pursue and enter discussions with other insurance companies,” Penn Treaty says.
The company is hoping it can get a better deal by selling units separately.
The company also hired Bruce Stahl, a respected long-term care expert, as its chief actuary.
Hiring Stahl “underscores our continuing efforts to build a strong management team with the skills needed to grow in the future,” Irving Levit, the chairman, said in a statement.
Levit helped build the modern long-term care insurance industry in 1972, by pushing Penn Treaty into the market. The company competed against bigger carriers in the 1980s and 1990s by offering generous benefits at low rates.
The company won a contract just nine months ago to market LTC coverage to 160,000 employees, dependents and retirees through the Public Employees Retirement Association of Colorado.
But Penn Treaty says it has had trouble raising enough capital to keep up with its growth.
Although the company reported $23 million in net income on $393 million in revenue for 2000, state insurance regulators questioned whether it had enough reserves, according to a report Penn Treaty filed with securities regulators in March.
Penn Treaty responded to the regulators concerns by suspending sales of new LTC policies in Colorado, Florida, North Carolina, Tennessee and Virginia.
A year ago, investors might have rushed to provide capital, but “theres a credit crunch right now,” says Jack Reichman, an insurance analyst at Standard & Poors. “Its a very skittish market.”
The Pennsylvania Department of Insurance has not taken any official action on Penn Treaty. The “public offering gave them a bit of a cushion,” says department spokeswoman Rosanne Placey.
Randy Stewart, a long-term care insurance planner and co-founder of the LTC Group, Chattanooga, Tenn., is one of the brokers rooting for Penn Treaty.
Although the company has irritated some by competing on price, it has played a key role in educating brokers about LTC insurance, and selling products for applicants with health problems, Stewart says.
“There has to be an alternative” for LTC applicants with health problems, Stewart says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 20, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.