Look for a liquidation hearing close to the onset of summer for one Pennsylvania long-term care insurance company, a little more than two years after the Commonwealth Court of Pennsylvania issued orders placing Penn Treaty and American Network into liquidation. A hearing for an affiliated LTC company could be waiting in the wings.
The liquidation hearing for Senior American Life Insurance Co. is slated for June 18. This follows from a case management order issued by Pennsylvania’s Commonwealth Court.
However, a liquidation hearing for AF&L Insurance Co. has been stayed, pending the results of an actuarial analysis of reserves being performed by the Pennsylvania Insurance Department (PID) and the financial results of year-end operations, due March 1, according to the state insurance regulatory body.
The Insurance Department petitioned for liquidation of both companies in April 2018.
Both AF&L Insurance and Senior American have the same address in Fort Washington, Pa. and have the same CEO, Benedict Iacovetti, named. They are both subsidiaries of AF&L Inc. A.M. Best withdrew the credit ratings for the subsidiaries in May 2017, citing insufficient financial data provided, according to a press release at the time.
Neither company has been taking new business since 2005. All claims are being paid as they come due, according to a department spokesperson.
The Department originally petitioned for liquidation of both companies in April 2018 but the petitions for both companies have been contested by the companies, according to the spokesman. Senior American has not conceded that grounds for liquidation exist, according to regulators. An email to AF&L’s parent group/client services was not returned. AF&L was formerly known as American Fidelity and Liberty, Inc.
If AF&L and Senior American do hit the state guaranty associations, they present a much smaller issue than the Penn Treaty companies, according to information from the National Organization of Life & Health Insurance Guaranty Associations.
In fact, AF&L was termed a “smaller version of Penn Treaty,” although it had “avoided formal rehabilitation proceedings this far,” in a paper delivered at the Society of Actuaries’ 2017 Life & Annuity Symposium, back in May 2017.
The SOA paper is titled Addressing Unprofitable Closed LTC Blocks.
The authors concede in the paper that in closed LTC blocks, losses are hard to overcome because LTC premium base decreases while claim costs increase and the need for rate increases grows “dramatically” even as regulators resist increases over 25% when much more may be needed. To try and stave off more losses, LTC companies reduce benefits and take reserve corrections, the paper notes. A graph provided shows a rate increase requests spike much higher in most states than the granted increase, based on information compiled for each state by the California Department of Insurance.
Together, AF&L and Senior American have fewer than 8,600 policies, as of mid-2018, and have reported liabilities of about $134 million, based on the companies’ 2017 annual statements and other information.
In comparison, Penn Treaty and ANIC had about 73,000 policies and liabilities over $4 billion. If the petition for AF&L and SAIC are ultimately approved, it will trigger the state guaranty associations.
“They’ll be ready if they’re needed, but right now we’re following the court proceedings,” a spokesman for NOLHGA said.