Pennsylvania commissioner seizes insurer

Pennsylvania’s insurance commissioner yesterday seized control of Penn Treaty Network America Insurance Co., a foundering long term care insurer, because it’s having difficulty maintaining appropriate capital levels. The Commonwealth Court of Pennsylvania in Harrisburg yesterday granted commissioner Joel Ario permission to take statutory control over Allentown-based Penn Treaty Network and American Network Insurance Co. Both are subsidiaries of Penn Treaty American Corp., also of Allentown. Mr. Ario’s seizure of the company is the first receivership action the department has taken in more than four years. Penn Treaty Network provides long term care coverage to more than 126,000 policyholders. The two companies will enter a so-called rehabilitation program, in which the commissioner’s office will oversee their finances and operations, continue to pay policyholder claims and then determine whether they are viable. If not, then the companies will be liquidated by the department and state guarantee funds will back each policy up to $300,000. Over the summer, the parent company was embroiled in a heated dispute with Hamilton, Bermuda-based reinsurer Imagine International Reinsurance Ltd., which had withdrawn its agreement to back long term care policies written by Penn Treaty and American Network prior to 2002. At the time, Imagine said that Penn Treaty failed to get state regulators’ approval to raise rates on the policies. In November, the insurer and reinsurer settled: Penn Treaty agreed to release $112 million in letters of credit from Imagine and it agreed to recapture all the policies once backed by the reinsurer. In an attempt to raise capital late last month, Penn Treaty had announced a non-binding letter of intent to sell a majority interest in American Network. If there were indeed a sale, parent Penn Treaty would retain ownership of the long term care policies issued prior to 2002 and then transfer substantially all long term care insurance operations to the American Network’s prospective purchaser. Such a sale would require approval from the commissioner.