Pa. seeks court OK to close insurer
Penn Treaty, a provider of long-term-care coverage, can't continue without big rate hikes, the state said.
Pennsylvania regulators yesterday sought court permission to close Penn Treaty Network American Insurance Co., an Allentown provider of long-term-care coverage for 120,000 customers, in what may be the nation's biggest forced breakup of an insurer in at least five years.
Penn Treaty and a subsidiary, American Network Insurance Co., "do not have the ability to pay future claims without significant rate increases," Pennsylvania Insurance Commissioner Joel Ario said in a statement. "In the current circumstances, those rate increases simply would not be fair to policyholders."
The company's policyholders include 16,000 in Pennsylvania and 3,600 in New Jersey, the state said.
Penn Treaty faces billion-dollar losses due to bad investments and insufficient reserves for its policies.
Yesterday's request for a liquidation order, filed nine months after the state put the companies "in rehabilitation" in a last-ditch effort to reorganize them, came after years of struggling with higher-than-expected expenses.
"There could be a billion dollars in losses," Ario said in an interview.
The state's filing with Commonwealth Court said the losses could be $2 billion or more.
A request for comment from Penn Treaty was referred to Ario's office.
The insurer is among at least seven in the United States facing forced rehabilitation or liquidation by regulators this year as the recession cuts into the companies' capital, according to data collected by the National Organization of Life & Health Insurance Guaranty Associations, an industry group that protects policyholders. That compares with four in 2008.
A liquidation of Penn Treaty, with about $1 billion in assets, would be the largest in at least five years, said Sean McKenna, the association's spokesman. "Very few companies of any size have been liquidated in that period," he said. The association's data were based on reports from A.M. Best, an insurance ratings firm.
Guaranty funds are used to pay claims when regulated insurers are unable to meet obligations. Penn Treaty policies will remain active for customers who continue to pay premiums, and a state guaranty fund will take over claims payments, Ario's office said. Guaranty funds have the right to assess other insurance companies to raise cash.
Commonwealth Court will weigh Ario's request to liquidate the company, his office said in its statement.
Long-term-care policies provide insurance coverage to help pay for home-health aides or residence in a nursing home or assisted-living facility.
The company had about 300 employees as of the end of 2008 and has policyholders in all 50 states. Policyholders with questions may call 1-800-362-0700, extension 3270.