NU Online News Service, Feb. 19, 12:03 p.m. – The Pennsylvania Insurance Department has approved a “corrective action plan” that allows two key subsidiaries of Penn Treaty American Corp., Allentown, Pa., to return to selling new long-term care insurance policies in Pennsylvania and 22 other states.

The plan is based on an agreement by Centre Solutions (Bermuda) Ltd., an affiliate of Zurich Financial Services A.G., to reinsure the subsidiaries’ in-force LTC insurance policies.

The subsidiaries are Penn Treaty Network America Insurance Company and American Network Insurance Company.

Centre Solutions also has an option to reinsure some of the subsidiaries’ new LTC insurance policies, Penn Treaty says.

The reinsurance agreement gives the subsidiaries room to write new LTC insurance policies by reducing their statutory risk-based capital needs, Penn Treaty adds.

Penn Treaty was one of the companies that helped establish the modern U.S. LTC insurance market back in the 1970s. The company reported growing sales, and earnings stated according to Generally Accepted Accounting Principles were strong.

The company ran into trouble in early 2001, when some state regulators questioned whether it had enough capital to support the LTC insurance policies it was selling. Penn Treaty suspended sales of new LTC policies in all states in September 2001.

In addition to Pennsylvania, Penn Treaty’s subsidiaries are now accepting LTC insurance applications in Alabama, Maine, Nevada, Washington, Delaware, Massachusetts, North Dakota, West Virginia, Hawaii, Minnesota, Oregon, Wyoming, Indiana, Mississippi, Rhode Island, Kansas, Iowa, Montana, South Dakota, Louisiana, Nebraska and Utah, the company says.

Penn Treaty is working with regulators to get permission to resume sales in other states, the company says.

Licensed agents in the states where Penn Treaty can sell new policies “are now authorized to solicit and market all previously filed and approved insurance products,” the company says in one of the three press releases discussing the approval of the corrective action plan.

Penn Treaty is paying Centre Solutions with a combination of reinsurance premiums and warrants to buy non-voting, convertible preferred stock. If the convertible stock were converted, Centre Solution’s would end up with 15% of Penn Treaty’s outstanding shares of common stock, Penn Treaty says.

Centre Solutions can exercise the warrants over the next six years at prices ranging from the equivalent of $4 to $12 per share of common stock.

Penn Treaty subsidiaries have an option to “commute” the reinsurance business on or after Dec. 31, 2007. If Penn Treaty does not exercise the option, Centre Solutions could end up holding as much as 35% of Penn Treaty’s outstanding shares of common stock, the company says.

Penn Treaty estimates it will report a charge of about $1.70 per common share for the fourth quarter of 2001 in connection with the reinsurance arrangement. The charge represents an impairment to unamortized deferred policy acquisition costs, the company says.

The company has about 19 million shares of common stock outstanding, according to its financial reports.