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S&P Praises Penn Treaty, Leaves Ratings Unchanged

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NU Online News Service, July 8, 2004, 6:11 p.m. EDT

Penn Treaty American Corp., Allentown, Pa., has gotten a modest boost from a major rating agency.[@@]

Standard & Poor’s Ratings Services, New York, says the long term care insurer is doing better, but it simply maintained Penn Treaty’s CCC minus credit rating and the B minus financial strength rating on the Penn Treaty Network America Insurance Company insurance unit.

Penn Treaty helped develop the modern LTC insurance market, but it ran into trouble when state insurance regulators raised questions about whether it was building enough capital reserves to support its obligations to policyholders. The company temporarily stopped selling new LTC policies in 2001. It has been working ever since to strengthen its finances and rebuild its LTC insurance sales.

The outlook on Penn Treaty is positive, thanks to successful efforts to raise capital and improvements in the insurance unit’s underwriting and claims handling processes, S&P analysts report.

The analysts note that the insurance unit’s loss ratio improved to 71.9% in the first quarter, from 76.8% in the first quarter of 2003.

The parent company should report more than $12 million in operating earnings this year on more than $25 million in new long term care sales, the analysts add.

But the analysts contend that the insurance unit continues to have the characteristics of a new company.

“Should the company begin to consistently produce operating profits through proper alignment of its sales and expense levels, Standard & Poor’s would likely raise the ratings,” S&P says.