Penn Treaty May Need More Than $1 Billion for Claims

Many long-term care insurance agents have clients who they placed with Penn Treaty and others have asked to be kept aprised. I thought the following would be of interest and value.
Jesse Slome
American Association for Long-Term Care Insurance

Summarized from a Bloomberg Report: Penn Treaty Network American Insurance Co., facing the biggest insurer failure in at least five years, may need more than $1 billion in additional funds to pay claims, a state regulator said.

Penn Treaty “is far more insolvent than originally believed,” Pennsylvania Insurance Commissioner Joel Ario’s office said in an Oct. 2 request for liquidation. Penn Treaty American Corp., the Allentown, Pennsylvania-based parent of the insurer, included the document in a regulatory filing yesterday.

Sellers of long-term care coverage, including Penn Treaty, suffered after underestimating expenses, while the broader life insurance industry has reported losses on declines in stocks and bonds. Penn Treaty, with about 120,000 customers, was hurt by investment losses in the recession and “seriously under- reserved” for claims in previous years, the regulator said.

“It’s potentially a big deficit mostly that will come from guarantee funds,”a spokeswoman for Ario’s office, said in an interview. Policyholders pay Penn Treaty about $249 million in annual premium for coverage, and the regulator ruled out using rate increases to bridge the potential $1.3 billion gap between assets and future claims. That deficit will be left to state guaranty funds, which are funded by solvent insurers.

Penn Treaty is among at least eight carriers in the U.S. facing forced rehabilitation or liquidation by regulators this year, according to data collected by the National Organization of Life & Health Insurance Guaranty Associations. That compares with four in 2008.

Ario, who seized Penn Treaty in January, didn’t find an insurer to purchase or assume any of its policies. According to Nolhga, Penn Treaty has about $1 billion in assets. Cash from premiums will be sufficient to pay claims for several years, Placey of the Pennsylvania regulator said.

“There’s enough money to pay claims going forward and get the guaranty associations ready for the transition,” Placey said. 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. A state court will weigh Ario’s request to liquidate the company, his office said in statement last week.