Judge OKs liquidation of Lehigh Valley insurance company, Penn Treaty American

Morning Call (Allentown, PA)

March 03--A judge has ordered the liquidation of Penn Treaty American Corp., the Salisbury Township provider of long-term care policies.

The ruling from Commonwealth Court Judge Mary Hannah Leavitt was not unexpected. After nearly a decade of legal wrangling, Penn Treaty and its affiliate American Network Insurance Co. raised the white flag at a November hearing, essentially consenting to liquidation, and Leavitt indicated she'd issue a final order sometime after Jan 1.

"After a long and difficult eight-year legal process, the Court's decision to approve the liquidation recognizes the companies' financial difficulties are too great to be remedied, and that consumers are best protected through the state guaranty association system," Pennsylvania Insurance Commissioner Teresa Miller said in a news release.

Penn Treaty and American Network have about 76,000 policyholders nationwide, with 9,000 in Pennsylvania. The Wall Street Journal recently described Penn Treaty's expected demise as "one of the nation's costliest insurance failures ever" in the life-health category. The company has $500 million in assets to cover long-term care claims projected to be $4.6 billion, according to Insurance Commission spokesman Ron Ruman.

Nonetheless, employees of the Lehigh Street company should be able to hold onto their jobs, at least for a little while, and many customers will still receive most, if not all, of their expected benefits.

Penn Treaty and American Network specialize in long-term care insurance that helps pay for certain medical and personal expenses, such as nursing-home care. Nearly a decade ago, Penn Treaty's financial problems became a matter of public record. Essentially, regulators concluded that the company didn't have enough money and other assets to pay customers what it had promised.

In January 2009, the Commonwealth Court placed it into "rehabilitation," appointing the Pennsylvania Insurance Department as the rehabilitator. Later that year, after an analysis showed Penn Treaty would need an additional $1.3 billion to cover future claims, the Insurance Department filed papers to liquidate the company.

In 2012, Leavitt not only denied the state Insurance Department's petition, but took the agency to task. Concluding that Penn Treaty was sufficiently funded, she said the department's decision to shut down the company was based on "unreliable" and "wildly fluctuating" actuarial projections.

Penn Treaty said at the time that the ruling was the first time a petition to liquidate an insurance company had been defeated in Pennsylvania -- but that was not the end of the story. In July, the Insurance Department made another push to liquidate Penn Treaty, leading to its new date in court.

"There were no objections" to liquidation this time, Peter Gallanis, president of the National Organization of Life & Health Insurance Guaranty Associations in Herndon, Va., told The Morning Call shortly after the November hearing.

Like a zombie company, Penn Treaty, not quite dead, will continue to function under the control of the Pennsylvania Life & Health Insurance Guaranty Association. And though Penn Treaty will not sell new insurance policies, its employees will keep working for the foreseeable future, processing existing customers' claims.

Despite the company's projected financial shortfall, claims will be honored up to at least $300,000 for most customers nationwide, including those in Pennsylvania. In this state, as in others, the long-term care policies of failed insurance companies are guaranteed by fees assessed to other insurers.

Actuarial models show about 50 percent of policyholders are expected to have claims in excess of what will be paid by the guaranty association covering their policies, the Insurance Commission said in its news release.

"Policyholders should continue to file claims as they have been in the past, and must continue to pay their premiums in order to be eligible for guaranty association coverage," Commissioner Miller said.

For four years running, Penn Treaty has made it onto The Morning Call's Top Workplaces list, which is based on a survey of more than 8,000 area employees.

Penn Treaty employees said they feel a sense of camaraderie and cited as benefits the company's flexible workplace policy and tuition reimbursement. To motivate and recognize employees, the company offers a "Star Award Program," where employees can nominate their co-workers when they see someone exhibiting one of four core values. Then, four times a year, there's a reception/ice cream party to honor the winners.

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610-820-6130

PENN TREATY NETWORK AMERICA

Founded: 1975

Ownership: Public

Sector: Insurance

Employees: 177

Website: penntreaty.com

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