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Pennsylvania Court Denies Liquidation of Two LTC Insurers

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The Pennsylvania Insurance Department (PID) will not be allowed to liquidate Penn Treaty Network America Insurance Company and American Network Insurance Company, providers of long-term care (LTC) insurance, according to a court decision on May 3.

The two companies had been placed into voluntary rehabilitation in January 2009, and within a short time thereafter the decision was made by the PID to liquidate them. At the time, the PID said that when the two companies, both monoline insurers, entered the market in the 1990s, it had priced policies aggressively and that resulted in policies written prior to 2000 being underpriced. Subsequent attempts to win approval for rate increases resulted in denials, not just in Pennsylvania but in numerous other states.

Penn Treaty American Corp. (PTAC), parent company of the two insurers, said that the court’s decision signaled “an unprecedented decision of significant national consequence” and cited areas in the court’s ruling that accepted testimony from one of PTAC’s experts, Dr. Stephen Holland, that “medical, lifestyle, and other advances are expected to benefit the companies’ claim costs in the future” and “that the medical advances he [the expert] identified together with lifestyle changes and new treatments will ameliorate the companies’ future claim payments.”

The court also heard testimony from Dr. Holland in October 2011 that “a breakthrough in the treatment of Alzheimer’s was imminent.” However, in an April presentation at an insurance conference, Dr. Holland cited a statistic that said, “Alzheimer’s is the only cause of death among the top 10 in America without a way to prevent or even slow its progression.” In an April interview, he had said that new blood tests intended to detect early signs of Alzheimer’s are not yet commercially available.

Rosanne Placey, press secretary for the PID, said in an interview, “We’re looking at our options to challenge the decision.” She added, “While Mr. [Penn Treaty CEO Eugene] Woznicki is chairman of the board of directors, we are still in charge as the statutory rehabilitator and would have responsibility for a rehabilitation plan. His [press] release makes it sound like things are heading back to business as usual. This decision does not return the company to an active status.”

Placey also said, “We are currently able to pay claims as they come due. So policyholders should not notice any chance in status at this time. Also, while the Penn Treaty action started in the prior administration, policyholder protection is still our No. 1 priority. So we will continue to seek the best result for policyholders.”

Although the court rejected the testimony of the PID’s expert witness concerning the rate of premium increases that would be necessary to adequately cover the policies should the companies remain in business, PTAC’s own actuary testified that cumulative premium increases over time would total 300%—a substantial amount.

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 future obligations.” She added that Pennsylvania was far from the only state to deny rate increases to the two companies, nor was it even the state in which the largest number of those policies were written.

The court also expressed frustration with the fact that the PID did not file for rate increases, and it accepted that as a sign that the PID “has treated the rehabilitation as a conservatorship to give him time to prepare for liquidation.”

However, according to Placey, “The frustration referred to by the Court relates to the rehabilitator [the PID] not pursuing rate increases once a liquidation petition was filed. 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.”

She concluded, “The court’s opinion is not a rehab plan—no rate increases are pending—nor would I be able to comment on what a rehab plan might even offer at this point.”