Pennsylvania Puts LTCI Issuer in Rehabilitation

Regulators in Pennsylvania have put a midsize long-term care insurance (LTCI) issuer, Senior Health Insurance Company of Pennsylvania (SHIP), in rehabilitation.

Judge Mary Hannah Leavitt, a judge at the Commonwealth Court of Pennsylvania, approved a rehabilitation order last week.

The judge appointed Jessica Altman, the Pennsylvania insurance commissioner, to be the rehabilitator.

Resources

Links to SHIP’s official rehabilitation guidance documents are available here.
A tool you can use to see the latest SHIP rehabilitation case filings is available here. (Enter 1 SHP 2020 in the Docket Number box.)
A tool you can use to see SHIP’s statutory filings for 2018 is available here. (Enter Senior Health Insurance Company in the Company Name box.)
An article about Conseco’s effort to create SHIP is available here.
An article about the creation of the trust that owns SHIP is available here.

The commissioner appointed Patrick Cantilo, who has been the special deputy rehabilitator in charge of managing the Penn Treaty Network American Insurance Company insolvency, to be the special deputy rehabilitator in charge of the SHIP rehabilitation.

Penn Treaty and a sister company, American Network Insurance Company, helped create the modern U.S. long-term care insurance market.

The trustees of the Senior Health Care Oversight Trust, the entity that owns SHIP, and SHIP’s own board have approved the action to put SHIP in rehabilitation, Altman said in a comment accompanying the rehabilitation order announcement

“This action was necessary to protect the interests of SHIP’s policyholders and creditors,” Altman said.

The Pennsylvania judge has asked Altman to file a rehabilitation plan for SHIP by April 22.

Rehabilitation is a process that gives state insurance regulators a chance to save a troubled insurance company. Some insurance companies survive rehabilitation and go on to operate as ordinary insurers. Others enter a liquidation process and go out of business.

The SHIP rehabilitation could be somewhat smaller than the Penn Treaty rehabilitation process. Penn Treaty and American Network entered rehabilitation, in 2009, with about 126,000 policyholders and about $3 billion in total liabilities.

SHIP ended 2018 with about 54,000 LTCI insureds and about $2.7 billion in liabilities.

SHIP’s History

Conseco Inc. — the Carmel, Indiana-based company now known as CNO Financial Group Inc. — entered the LTCI market back when interest rates were much higher and knowledge about how aging Americans would use long-term care services was sparse.

The company agreed to take on other issuers’ LTCI risk through reinsurance arrangements.

By 2008, however, company managers were saying that the unit had added volatility to Conseco’s earnings, and that the company had contributed $915 million to the unit to shore up its capital levels.

Conseco managers worked to limit losses in 2008, by transferring control of what was the Conseco Senior Health Insurance Company subsidiary to the Senior Health Care Oversight Trust.

When the trust took control of SHIP, SHIP had 142,000 LTCI insureds and $2.9 billion in assets, including $121 million in Conseco Senior Health adjusted capital and $175 million in extra capital from Conseco.

The list of original trust board members included former U.S. Surgeon General C. Everett Koop; Julianne Bowler, a former Massachusetts insurance commissioner; and Gregory Serio, a former New York state insurance superintendent.

Trust and SHIP managers said the new company would be operated solely for the benefit of the LTCI policyholders and without a profit, to ensure that any benefits from rate increases or policy changes would go to the policyholders.

SHIP Today

SHIP now has a statutory address in Harrisburg, Pennsylvania, and uses Pennsylvania as its official state of domicile.

Fuzion Analytics Inc., a company controlled by SHIP and based in Carmel, Indiana, now runs SHIP, through a management services agreement.

Annual statement documents for 2018 show that SHIP reported $228 million operating loss for 2018 on $2.2 billion in assets, compared with an operating loss of $181 million on $2.8 billion in assets for 2017.

The amount of LTCI claims paid increased to $399 million in 2018, from $199 million 2017.

The company ended 2018 with a $466 million surplus deficit, compared with a $5.1 million surplus in 2017.

The surpluses deficit made the company statutorily insolvent, according to the Pennsylvania department.

The company’s risk-based capital report shows the company’s total level of adjusted capital is substantially below the company’s mandatory control level RBC, and that has triggered a “mandatory control level event,” department officials say.

The Impact

The Pennsylvania department has posted collections of answers to questions about the solvency on SHIP’s website.

“At this time there will be no immediate changes to the company’s insurance policies,” Altman said in the rehabilitation order announcement. “But such changes may be part of any rehabilitation plan.

“Pending the rehabilitation plan, claims and benefits will continue to be paid as they were before the order. It is important that policyholders continue to pay their premiums to avoid cancellation or their policies and loss of valuable insurance coverage.”

In an answer sheet aimed at policyholders, SHIP “rehabilitation management team” officials note, for example, that moving will not affect a policyholder’s SHIP policy.

Eventually, once the court approves a rehabilitation plan, it’s possible that SHIP could be placed in liquidation, rehabilitation team officials say.

If that happens, “it may then be necessary to cancel at least some of SHIP’s policies, or parts of those policies,” rehabilitation team officials say.

Rehabilitation team officials also answer the policyholder question, “What are insurance guaranty associations?”

“Guaranty associations are organizations created by statute in each state that are responsible for paying at least some of the amounts owed by insurers in liquidation under their policies,” according to the rehabilitation team officials.

SHIP has been paying agent and broker commissions and will continue to do so, but, after the court approves a rehabilitation plan, SHIP may suspend payments of commissions until policyholders are made whole, according a rehabilitation team answer sheet aimed at agents and brokers.