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PA: Insurer Penn Treaty faces $1 billion + loss

After years on life support, the Pennsylvania Insurance Department wants to liquidate troubled Penn Treaty Network America Insurance Co.

    by Joseph N. DiStefano
    Published 

UPDATED: The Pennsylvania Insurance Department wants Commonwealth Court to let it end life support for troubled Penn Treaty Network America Insurance Co. and its affiliate, American Network Insurance Co.

The company faces billion-dollar losses from bad investments and insufficient reserves. They'll be paid by more solvent life and health insurers, and the insurance-buying public, through the insurers' guaranty-fund system.

Meanwhile the state will ensure payments continue for Penn Treaty policies covering 120,000 mostly senior citizens around the U.S. against longterm-care expenses. The company employs around 200, after layoffs in March, said state spokeswoman Rosanne Placey. They'll work as long as needed as the company slowly winds down operations.

(Biggest state takeover of a US insurance company since at least 2004, says Bloomberg here.)

Insurance commissioner Joel Ario asked the court to approve a liquidation order, nine months after the state put the companies "in rehabilitation" in a last-ditch effort to reorganize them, after years of struggling with higher than expected expenses. "There could be a billion dollars in losses" to be reimbursed by the guaranty funds, Ario told me this afternoon.

Said Ario in this statement, "The companies do not have the ability to pay future claims without significant rate increases that would have to be requested and approved in all 50 states... Those rate increases simply would not be fair to policyholders." The state wants to stop Penn Treaty from paying sales commissions so the company doesn't run out of money; that's typical, when insurers fail, Placey said.

"I think the guarantee funds are going to be able to handle it," since life and health insurer failures have been modest in recent years, Ario told me. The state's petition here says the company had a deficit of $269 million at June 30, due to investment losses. But the company is also badly "under reserved," and the deficit could top $2 billion.  More info for policyholders at 1-800-362-0700, ext. 3270.