Citing the need to treat policyholders fairly, Pennsylvania’s insurance commissioner has petitioned that the Penn Treaty Network America Co. and its subsidiary, American Network Insurance Co., be liquidated.

Joel Ario

Joel Ario filed the petition in Commonwealth Court Oct. 2, following an analysis of the business’ operations by the Pennsylvania Insurance Department. In January, the Commonwealth Court placed Allentown, Pa.-based Penn Treaty into rehabilitation under the statutory control of the PID, following financial troubles by the insurer.

In the petition, Ario says as of Dec. 31, 2008, Penn Treaty reported a negative total statutory capital and surplus of $224 million, making the insurer insolvent.

Ario said in a statement that the PID has been analyzing Penn Treaty’s assets, liabilities, reserves and surpluses since that time.

“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,” he said. “In the current circumstances, those rate increases simply would not be fair to policyholders.”

In the petition, Ario argues that “even under optimistic projections,” for premiums to be sufficient to support the coverage provided and for Penn Treaty to be solvent, it would need rate increases of 153% approved and in effect by July 2010, plus additional rate increases after that of 60% over 10 years.

Indicating that policyholder claim payments “are our number one priority,” Ario said the petition was filed instead.

“Keeping [Penn Treaty] in rehabilitation will cause substantial losses to policyholders which can be reduced an, in some cases avoided, in liquidation,” the petition states. “[Penn Treaty] if it remains in rehabilitation, even if it could raise rates by 60% over the next 10 years, will exhaust its assets in 2025 and will leave $2.2 billion of remaining policyholder liabilities.”

He added that long-term care policies will not be canceled, except by the policyholder, and will be transitioned to the states’ guaranty funds once an order takes effect. Guaranty funds have the right to assess other insurance companies to cover policyholder claims up to coverage limits that vary by state, Ario noted.

A spokesman for the National Organization of Life & Health Insurance Guaranty Associations told Bloomberg that the liquidation of Penn Treaty would be the largest in at least five years.

Penn Treaty Network America and American Network provide long-term care insurance to more than 120,000 policyholders in all 50 states and the District of Columbia.