For the first time in Pennsylvania's history, a court blocked state regulators' bid to liquidate a long-term care insurance company (LTCI) and its subsidiary.
The company, Penn Treaty Network America Insurance Company, (PTNA) (OTC: PTYA.PK), heralded the decision as a possible turn-around for the LTCI industry.
The decision may add pressure for state regulators to approve premium rate increases, rework benefits and consider the tax deferral status of placement of policies in plans, the company says.
Eugene J. Woznicki, chairman of the board of directors of Penn Treaty and a subsidiary, said the company's intention now is to rehabilitate his companies and put them back into the market to serve policyholders. He said he hopes other LTC companies also are able to reemerge after this decision.
The court, which said that the regulators hadn't looked at all the things that could be done to rehabilitate the companies, issued a decision that could be an "impetus for those companies to take another look at things, and the industry to look at this and maybe come back in," Woznicki said in an interview.
"It is more than just rate increases" that may have more to do with politics in some states than actuarial information, he said.
For Penn Treaty, he said, regulators might be able to start working to change some of the benefits.
"A lot of these policyholders have been around for a long time," some of their benefits are large, and some of the policyholders might need all of the benefits they originally purchased, he suggested.
Woznicki said the court went after states for sometimes acting politically and not on a sound actuarial or legal basis.
The decision by the Commonwealth Court of Pennsylvania to deny the Pennsylvania Insurance Department's petitions to liquidate Penn Treaty, Allentown, Pa., and a major Penn Treaty subsidiary, American Network Insurance Company, (ANIC), was announced May 3.
Both Penn Treaty and ANIC are subsidiaries of PTAC, Frisco, Texas. The companies' policyholders reside in 49 states and the District of Columbia.
In a lengthy decision, Judge Mary Hannah Leavitt described the case as presenting "a serious indictment of the existing system of rate regulation of long-term care insurance." She held that the Pennsylvania insurance commissioner (the current commissioner is Michael F. Consedine but the rehabilitation and liquidation petition actions were taken under former Commissioner Joel Ario) has "not undertaken a meaningful effort to rehabilitate the Companies and, to the contrary, has acted to frustrate rehabilitation."
The Commonwealth Court, agreeing with the companies, affirmed that insurance rehabilitation plans may include a reduction of benefits paid under certain policies, describing benefit reductions as an "important tool of rehabilitation," and stating that "there is no support for the rehabilitator's position that this court cannot modify policyholder benefits as part of an approved rehabilitation plan."
Michael F. Consedine, Insurance Commissioner of the Commonwealth of Pennsylvania vs. Penn Treaty Network American Insurance Company, is available at http://www.penntreatyamerican.com/investornews.asp
The Pennsylvania department filed petitions that sought orders of liquidation for Penn Treaty Network America Insurance Company and ANIC Oct. 2, 2009, under then-Insurance Commissioner Ario. Penn Treaty and ANIC had initially entered rehabilitation in January 2009.
"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. In the current circumstances, those rate increases simply would not be fair to policyholders," stated Ario.
The court rejected as "unreliable" and "too pessimistic" the projections of the Pennsylvania department's actuarial expert, Milliman, Inc., on which the department had relied to support the petitions to liquidate: "The court rejects Milliman's projected surplus. In the space of six months Milliman increased its projections [of future claims] for PTNA by over $1 billion, a revision of a magnitude never before seen by any of the experts who testified."
The court, finding, "pessimism is seen throughout Milliman's projections, whether intentional or coincidental," and rejected the Pennsylvania department's argument that it would be futile to continue the rehabilitation largely because it was premised upon Milliman's projections, scathingly calling it "a proverbial house of cards" in which the Pennsylvania department "shoots down the various proposed rehabilitation options based primarily upon speculation about what state regulators will or will not do in the context of a court ordered rehabilitation."
