The Pennsylvania Insurance Department is looking at the options it has for challenging a court ruling in favor of parties who are trying to keep a long-term care insurance (LTCI) company out of liquidation, a department representative said Wednesday.
The Pennsylvania department representative, Rosanne Placey, was responding to a ruling issued last week by a Pennsylvania state judge, Mary Hannah Leavitt. In the ruling, Leavitt blocked efforts by the Pennsylvania department to liquidate Penn Treaty Network America Insurance Company and a Penn Treaty Network America subsidiary, American Network Insurance Company, (ANIC).
“This decision does not return the company to active status,” Placey said in a statement. “We still serve as rehabilitator.”
Penn Treaty was one of the pioneers in developing the modern LTCI industry. It ran into trouble when policyholders proved to be more likely to keep their policies than the company had expected. The Pennsylvania department has been acting as the rehabilitator for Penn Treaty and ANIC since January 2009, before Tom Corbett, a Republican, succeeded Ed Rendell, a Democrat, as governor of Pennsylvania and appointed Michael Consedine to be insurance commissioner.
Leavitt agreed with the companies’ directors that the department might be able to rehabilitate the companies by increasing coverage prices and by getting court permission to reduce policyholders’ benefits.
Penn Treaty Chairman Eugene J. Woznicki said the decision could give the company and its subsidiary the flexibility they need to emerge from rehabilitation and could make the LTCI market more attractive to insurers.
Placey noted that the Pennsylvania department is in charge of the day-to-day operations of Penn Treaty and ANIC and would have responsibility for implementing any rehabilitation plan.
Today, the company can pay claims as they come due, Placey said.
“While the Penn Treaty action started in the prior administration, policyholder protection is still our number one priority,” Placey said. “So we will continue to seek the best result for policyholders.”
Leavitt observed in her ruling that the Pennsylvania department has not taken steps to improve Penn Treaty’s financial standing by increasing LTCI rates, as many other LTCI carriers have done in recent years.
“The frustration referred to by the court relates to the rehabilitator not pursuing rate increases once a liquidation petition was filed,” Placey said. “In a liquidation, many policies would have reduced benefits because of the state guaranty association limits. Rate increases were not sought while the liquidation petition was pending because of the potential reduction in benefits.”
The actuarial expert working for the parties seeking to keep Penn Treaty out of liquidation has predicted that Penn Treaty would have to quadruple the premiums to allow the companies to meet their obligations, Placey said.
“That would represent the average rate increase, but the increases would vary between policy forms and states,” Placey said. “We, as rehabilitator, believe that even higher rate increases would be required, on average, to generate sufficient funds to allow the companies to meet their obligations.”
Elizabeth Festa contributed information to this story.