SHIP’s Q2 exhibits further erosion while a regulatory update on a corrective action is expected soon

The negative surplus of struggling long-term care insurer Senior Health Insurance Company grew in the second quarter 2019 to almost half a billion dollars from about $466.9 at year-end 2018, while certain permitted practices appear to push the negative surplus to $608 million for 2019 in a statutory accounting calculation. 

However, according to regulators, there may be a plan to address this unveiled soon.

“We are hopeful we should be able to provide a more detailed update in the very near future,” the Pennsylvania Insurance Department said in a short statement in response to an inquiry.

“We continue to work with the company to address its negative surplus.  We will provide policyholders and interested parties an update when company management and the Department agree on a path forward. Currently, all claims are being paid when due and policyholders are encouraged to continue to pay premiums to keep coverage in place,” the state regulatory body said.

The SHIP quarterly statement to the Pennsylvania Insurance Department signed in mid-August acknowledges that it has suffered “recurring losses from operations and has a net capital and surplus deficit,” so is working with regulators to “develop a corrective action plan.”

This work has been underway for some months now, and meetings with the regulators have been ongoing.

SHIP’s net admitted assets for the second quarter are $2,072,200,204 and its liabilities are $2,568,440,242, leaving a negative $496,240,038 on its balance sheet. 

In a note to the financial statement, SHIP described an NAIC [National Association of InsuranceCommissioners] SAP permitted practice that allowed the release of an interest maintenance reserve of $192.5 million, which increased SHIP’s 2019 reported net income and negative Surplus balances by $111,868,692, bringing the 2019 surplus deficit to $608.1 million compared with a deficit of $575.9 million for 2018. 

The company stated in the report that as of June 30, it has a $259.5 million operating loss carry-forward with expiration dates between 2028 and 2031 and an almost  $156 million  operating loss carry-forward.

The quarterly report also describes ongoing litigation with the liquidators of Platinum Partners, in which it had investments made through reinsurer Beechwood Re Ltd. 

For example, in June, Platinum Partners Value Arbitrage Fund filed against the SHIP alleging that several transactions involving Agera Energy resulted in its interests in Agera Energy in exchange for allegedly worthless Platinum Funds. 

The plaintiffs allege that the allege the Agera-related transactions were created by Beechwood and Platinum Partners insiders to benefit alleged Beechwood preferred investor clients, including SHIP. 

SHIP stated that it plans to vigorously defend this suit but noted that a bad outcome in the case could have an adverse impact on its financial position.

The LTC insurer, which was first incorporated in 1887 and was part of Conseco Senior Health Insurance Co, no longer writes new business. It is run by its affiliate, Fuzion Analytics under a contract. SHIP paid Fuzion almost $15,5 million for services under this agreement in 2018 and will pay $12.6 million in 2019, the report stated. The trustees of SHIP include former insurance regulators. 

An insurance academic who reviewed the document noted that the company’s gross reserves are about what they were in December, or almost $1 billion if losses come in as projected, which this person said would be optimistic. The assets are not earning much and there is almost no reinsurance, this person said. 

Fuzion executives did not comment on the corrective plan progress, if any, being made or on any updated numbers.

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*From SHIP’s quarterly statement for quarter ending June 301, under Notes on Significant Accounting Practices in which the financial statements of Senior Health Insurance Company of Pennsylvania are presented on the basis of accounting practices prescribed or permitted by the Pennsylvania Commissioner of Insurance.

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