Long-term care insurer Penn Treaty to be liquidated

Pennsylvania's insurance department today filed petitions to liquidate embattled long-term care insurer Penn Treaty Network America Insurance Co. and American Network Insurance Co. The petitions are subject to approval from the Commonwealth Court of Pennsylvania. Insurance commissioner Joel Ario and his staff filed the petitions following a nine-month on-site analysis of the Allentown, Pa.-based companies' assets, liabilities, reserves and surplus. Back in January, Mr. Ario seized control of both companies, which are subsidiaries of Penn Treaty American Corp., and placed them in a rehabilitation program. Since then, the commissioner's office has been overseeing the companies and examining their viability. “Our comprehensive, independent evaluation has determined that 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,” Mr. Ario said in a statement. “In the current circumstances those rate increases would not be fair to policyholders.” Penn Treaty isn't cash poor, but it can't pay future claims without significant rate increases, said Roseanne Placey, a spokeswoman for the Pennsylvania insurance department. Through the liquidation, paying off the clients' claims would be the first priority, and policies that are active won't be canceled so can be shifted to the states' guaranty funds, Mr. Ario said in his statement. How much a state can provide to policyholders through guaranty funds, exactly, depends on the jurisdiction. Policyholders will be notified of the liquidation when the court enters the liquidation order. The companies have more than 120,000 policyholders across the country. The insurers' troubles go back to the summer of 2008, when Penn Treaty and American Network were embroiled in a contractual dispute with reinsurer Imagine International Reinsurance Ltd. The company had backed away from reinsuring a group of long-term care policies, arguing that the carriers hadn't received regulatory approval to hike policy rates. To settle, the carriers recaptured all of the policies that were backed by Imagine and then sought to raise capital by trying to sell a majority interest in American Network last year. However, the company failed to find a buyer, and shortly thereafter Mr. Ario took Penn Treaty Network and American Network into rehabilitation. A spokeswoman at Penn Treaty had no comment and referred all calls to the commissioner's office.