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Penn Treaty Policies Could Wind Up With Former Conseco Unit, Ario Says

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Pennsylvania Insurance Commissioner Joel S. Ario says his goal is to get Penn Treaty America Corp.’s troubled long term care insurance businesses out of rehabilitation and that he is “still optimistic” that he will be able to do so.

But he might even consider placing Penn Treaty’s older LTC policies with a new state-sponsored entity that his department created in November to take over older policies from Conseco Inc., Carmel, Ind., Ario said in an interview.

On Jan. 6, the Pennsylvania Commonwealth Court gave Ario permission to take over Penn Treaty Network America Insurance Company and American Network Insurance Company, the two principal subsidiaries of Penn Treaty, Allentown, Pa. The units had been teetering on the edge of bankruptcy since October, when company officials announced a reinsurer had pulled out of a deal to back their older LTC policies.

Penn Treaty executives say they asked the state regulator to put the units in rehabilitation after they were unable to secure replacement financing or to find a buyer for the units or for their policies.

It was the second time in recent months that Ario was forced to act to rescue financially troubled LTC insurance carriers. In November, he approved Conseco Inc.’s spinoff of its LTC insurance unit, Conseco Senior Health Insurance Company, as an independent trust. This converted the subsidiary into a new entity, Senior Health Insurance Company of Pennsylvania, thereby relieving Conseco, Carmel, Ind., of responsibility for 140,000 older policies.

Ario acknowledges he is concerned that the financial woes of Penn Treaty and Conseco could undermine consumer confidence in the LTC insurance industry. He drew a distinction, however, between the old business written by the 2 companies and other carriers in the 1980s and 1990s, which he said were “underpriced,” and policies being written by LTC carriers today.

“Now there are new [National Association of Insurance Commissioner] standards to ensure new business written since 2002 is subject to more strict review by the states, to make sure pricing is adequate,” he says.

As for Penn Treaty, Ario says he still thinks the LTC units either will find a buyer or be returned to solvency. His department, which is effectively running most departments of Penn Treaty, is negotiating with an unnamed potential buyer that Penn Treaty had been talking with before going into rehabilitation.

“I don’t know of anyone who’d buy the whole business,” he says. “That’s all part of the discussion. Our first priority is to get a full accounting.”

The state court has directed Ario to present a plan of rehabilitation by Apr. 6. Meanwhile, day-to-day activities of the company are being overseen by Joseph DiMemmo, a deputy commissioner. Although the company’s claims operations are still functioning, units such as marketing and underwriting are not active, and the company is no longer selling new policies according to a spokesperson for the department.

As for Conseco’s former subsidiary, Ario says it would “probably” take additional rate increases to make their policies profitable. “Anyone given a rate increase will be given the option of reducing benefits,” he adds. “It would still not be as good a deal, but it’s an option that may be better for some people.”

Ario says he decided not to put Conseco’s Senior Health unit under rehabilitation “because we feel we can make the business work.” In Penn Treaty’s case, he chose to take the company into rehabilitation “because financially it was in such a hazardous condition that we needed to take full stock,” he says.

Ario does not rule out bankruptcy but emphasizes that he is “still optimistic, guardedly” that owners of Penn Treaty policies would get their full benefits, whatever happens.

If Penn Treaty’s LTC earnings turn positive, Ario says he could put the subsidiaries back into the market. “If they don’t have the resources, they will go to liquidation,” he says. In either case, “policyholders will still be made whole.”

If the company were to go bankrupt, it is likely some people to whom it owes money would not be paid in full, he observes. But if anyone is to be shortchanged, however, “we’d hope that would be creditors and not policyholders,” he adds.

In bankruptcy, Ario says he would call on state guarantee funds to assess other carriers to cover Penn Treaty policyholders up to certain limits. Ario notes that just last year, Pennsylvania raised its own guaranty fund limit for LTC insurance from $100,000 per policy to $300,000. Some states, however, only back policy values up to $100,000, he notes.

Penn Treaty officials say they are still hopeful they can sell the 2 subsidiaries and substantially all their LTC policies. A company spokesman declines to identify a prospective buyer but says an entity with which company executives had been talking before entering rehabilitation has provided a non-binding letter of intention to buy the units.

The rehabilitation does not include either the parent company or another Penn Treaty LTC subsidiary, American Independent Network Insurance Company of New York.


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