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Financial Planning > Tax Planning > Tax Loss Harvesting

Reinsurance Account Loss Hits Penn Treaty Earnings

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NU Online News Service, Nov. 11, 2003, 10:36 a.m. EST – Penn Treaty American Corp., Allentown, Pa., says a $35 million loss on the market value of a notional experience account contributed to a net loss for the third quarter.

The long term care insurer is reporting a $25 million net loss for the latest quarter on $59 million in revenue, compared with a net loss of $24 million on $161 million in revenue for the third quarter of 2002.

Penn Treaty has resumed selling new LTC policies 36 states, but premium revenue fell to $81 million, from $84 million.

The notional experience account, which is set up so that decreases in interest rates produce a gain and increases produce a loss, generated $63 million in gains in the third quarter of 2002.

Penn Treaty helped created the modern LTC insurance market, but it ran into trouble in 2001 when regulators questioned whether it had enough capital to back its obligations to policyholders. Penn Treaty suspended new LTC policy sales that year while it set up a reinsurance arrangement to support its existing LTC policies. One component of the arrangement is the notional experience account, which gives Penn Treaty the ability to share in the effects of investment market shifts on the assets that back the old LTC policies.

In addition to suffering the loss on the notional experience account, Penn Treaty says it lost $2.5 million due to state insurance department delays in approving requests for rate increases. The company also says it had to retain $2.2 million more in policy benefit reserves than it had expected because the expected persistency rate was only 86%, but 91% of the policyholders actually kept their policies in force.

“If this level of persistency is sustained, the company expects that future premium collection will also be greater than anticipated,” Penn Treaty says.

The company says it expects to save $650,000 per year as a result of the “elimination of certain staff functions.” The elimination of the staff functions led to “immaterial severance amounts,” the company says.

In related news, Penn Treaty says it believes it will get the approvals it needs to resume selling LTC insurance in California by early 2004.


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