Pa. commissioner files to send SHIP into rehabilitation, declares it insolvent, in dire condition

With updates Jan. 28 from Pennsylvania Insurance Department.

Jan. 24, 2020 — After months of wrangling among industry experts, insurance regulators and board members, Senior Health Insurance Company of Pennsylvania, known as SHIP,  is now under a court petition for rehabilitation and has been declared by regulators to be insolvent.

This is according to an application for an order to place SHIP into rehabilitation by Jessica Altman, the Pennsylvania insurance commissioner to the Commonwealth Court of Pennsylvania filed Jan. 23.

“SHIP’s financial condition is dire,” the new application states.

SHIP’s most recent annual statement shows that the long-term care insurer is statutorily insolvent, the filing states. It now approximately 51,000 policyholders, regulators said.

The year-end 2018 annual statement stated SHIP was insolvent by $466,872,975 on assets of $2,186,058,273 and liabilities, of $2,652,931,248.

“SHIP’s liabilities plus its authorized and issued capital stock, exceeded its admitted assets by more than $474 million,” as of December 2018, the filing noted.

The insurer’s second quarter 2019 financial filing showed further erosion as the shortfall had increased to $496,240,035, based on actuarial projections.

The company was supposed to have filed a corrective plan by last summer. However, it did not provide one that would restore the company’s RBC above the company action level required, which his 43% or higher, according to the filing.

“Consultants have spent some time working with the Trustees and SHIP management to obtain as accurate as possible a financial picture of SHIP’s affairs. They have advised the Commissioner that it may be possible to devise and implement a plan … that would produce for policyholders a result no less beneficial than would be produced by a liquidation, and perhaps materially better than that,” the lawyers on the application stated.

However, they told the Commonwealth Court that because of the “gravity of SHIP’s financial difficulties,” they cannot guarantee that a rehab would be successful. If there were to be a liquidation, the payouts for claims would hit the state guaranty funds. 

The Commonwealth Court must decide to enter the rehabilitation order. 

As Fitch Ratings shared in an Aug. 20 note on overall LTC industry health, SHIP is among a few LTC companies with below-average reserve adequacy.

SHIP, the former Conseco Health Insurance Co., became an independent trust in 2008, with $3 billion in reserves to its name. Governed by five trustees including former insurance commissioners, SHIP was designed to run off the closed book of LTC business.

Fitch warned in its research note that it sees SHIP “as remaining on-track to becoming the industry’s next insolvent LTC writer requiring guarantee fund assessments from the industry.”

In various state rate filing requests seeking 40% premium increases, SHIP reported it had 76,165 active member policies comprised of 70 distinct policy forms including home health care, nursing home care, and comprehensive plans, covering both home health care and nursing home care back in 2016.

In SHIP’s second quarter report, it 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.

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.

There will be no 4th quarter financial statement for SHIP, so the latest financials are captured in the third quarter statement.

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 Fusion almost $15.5 million for services under this agreement in 2018 and $12.6 million in 2019, the quarterly report stated.

“SHIP is expected to continue paying for the services it receives in rehabilitation, including from its 100% subsidiary Fuzion Analytics.  At this point the department is unable to comment on the amount of those fees,” a spokeswoman for the Pennsylvania Insurance Department stated Jan. 28.

The trustees of SHIP include former insurance commissioners. Fuzion is a subsidiary of SHIP now. On Aug. 8, 2019, the insurance department approved a transaction whereby the trust would contribute by donation all its ownership interests in Fuzion. to SHIP. The Oversight Trust remains the sole owner of the company and Fuzion continues to operate as usual by providing comprehensive management services, according to the company’s second-quarter statement.

Pennsylvania has other LTC insurers in liquidation or facing rehabilitation and regulatory scrutiny over their solvency problems. Higher-than-expected claims duration coupled with an increase in the steepness of the morbidity curve — where more older policyholders are claiming more benefits — have vexed the LTC industry for the past decade.

These include the Penn Treaty companies, which were put into liquidation in March 2017 and whose multi-billion dollar guarantee fund tab has created squabbling among the health insurers who must pick up the tab under statutory guidelines. Life insurers are now expected to help shoulder the responsibility with the passage of an NAIC [National Association of Insurance Commissioners] model law.

However, while the NAIC model law does promote splitting guarantee fund responsibility between life insurers  and  health insurers, Pennsylvania and other states have not adopted the model at this point. It does not apply to the Penn Treaty/PTNA liquidation.

The petition for liquidation for another distressed LTC insurer in Pennsylvania, Senior American Life Insurance Co., or SAIC,  was filed June 18th, 2019, and an amended petition was filed July 31.On July 31, 2019, the Pennsylvania department filed an amended liquidation petition, with  a Sept. 3 effective date. The order of liquidation was filed on Aug. 15, 2019, with an effective liquidation date for SAIC of September 3, 2019.

Meanwhile, SAIC’s affiliated company, AF&L‘s petition for liquidation has been stayed and the regulators in the state “continue to work with the company for a resolution,” a department’s spokeswoman said last year.

The Pennsylvania Insurance Department petitioned for liquidation of both SAIC and AF&L in April 2018.  



Passages: Genworth Chief Risk Officer Lori Evangel

Updated with statement from CEO, and interim assumption of  CRO by Genworth’s CFO, cause of death.

Genworth Financial Inc. Chief Risk Officer and Executive Vice President Lori Evangel died unexpectedly this past weekend, the company confirmed.  The veteran insurer joined Genworth six years ago this January. Evangel lived in Richmond, according to the company’s website, and had been a risk officer at AFLAC Inc. and MetLife, where she led the global enterprise risk management unit, before joining Genworth.

Kelly Groh, Genworth’s CFO, will be assuming her responsibilities as CRO in the interim, according to a spokeswoman for the insurer.

An obituary in the New York Times said  Evangel died of Crohn’s disease on Jan. 20, when she accepted her last assignment “to be with heaven’s angels.” She was 57.

She also lectured at Columbia University School of Professional Studies and was on the board of directors for the Richmond chapter of the Society for the Prevention of Cruelty to Animals.

Genworth, the nation’s largest long-term care insurer and a top mortgage insurance player, is in a prolonged merger process with China Oceanwide Holdings Group Co., Ltd.

Among other duties, Evangel was part of a team that would meet with state regulators quarterly on the Oceanwide deal, its implications and LTC financial results, according to earnings call transcripts. The $2.7 billion deal was initially announced in October 2016 and is still pending as the companies wait for renewals of approvals from regulators in New York, Virginia and possibly Delaware as well as the federal housing oversight agencies and clearance from China’s State Administration of Foreign Exchange, for the currency conversion and transfer of funds.

According to a note this week to her colleagues from Genworth CEO Tom McInerney, Evangel led the development and implementation of Genworth’s Own Risk Solvency Assessment (ORSA), a financial stress-testing structure, which he said had become an ingrained part of the company’s culture.

“It is with deep sadness that we confirm the passing last weekend of Lori Evangel … Lori was a great friend and exceptional Genworth colleague, and under her leadership, Lori and the Risk Team did outstanding work developing and implementing a strong Enterprise-wide Risk Management system at Genworth,” McInerney said in a statement provided by the company.  He detailed her love of animals and contributions to her community.

The online biography on Genworth’s site notes that Evangel, who was highly respected in the industry,  graduated from Middlebury College in Vermont and had MBA in Finance from the State University of New York at Albany.

Industry and other mourners have posted on LinkedIn how much she meant to them and how broken-hearted they are at the news of her passing.


Lori Evangel

Middlebury College in Vermont and had MBA in Finance from the State University of New York at Albany.  

Her husband is Chris Evangel, who is listed as managing director and Principal for CLE Global Partners and headed the Securities Valuation Office (SVO) for the National Association of Insurance Commissioners for years. 

Photo, courtesy of Genworth. 

Jan. 23, 2020

Consulting firm chosen to conduct data call of 19 insurers to assess LTC rate imbalances across states


The National Association of Insurance Commissioners has hired a consulting firm to survey 19 insures from seven states to gather and then analyze long-term care insurance premium rates, a process that the organization expects to furnish results by summer. 

The firm, which was not identified yet*, is set to begin the data call by the end of February and anticipates completing it by the end of June. The Jan. 6 notice says its executive-level Long-Term Care Insurance Task Force should an actionable report from the firm no later than the summer national meeting in August. 

Specifically, the company will update the regulators draft data call and then conduct its own to ferret out where rate imbalance issues are and how to correct them.

Virginia confirmed it will be one of the seven jurisdictions involved. It is home to Genworth Financial, the largest of the LTC providers. Virginia State Cooperation Commission, Bureau of Insurance Commissioner Scott A. White now heads the Financial Condition Committee of the NAIC.

The NAIC budgeted $110,000 for the initiative. It reviewed proposals from eight companies in the process and chose one based on a standard array of professional factors. 

The standard-setting group’s LTC task force has been working on right-sizing premium increases across the states. This is occurring so that policyholders in some jurisdictions aren’t subsidizing those in others because state regulators are granting different levels of rate increases for a company based on decisions that could be arbitrary, political, negotiated or just habitual.

For example, a 2016 40% rate increase request for Senior Health Insurance Company of Pennsylvania’s (SHIP) policy forms in Minnesota noted that it had to leave Florida out of its calculations for a standardized nationwide rate increase request. That’s because it didn’t; want all other policyholders to in effect subsidize Florida policyholders, which are much more expensive for the company. LTC claims in the Sunshine State appear to be costly and SHIP suggested its regulators don’t allow premium increases to offset this.  

“Florida experience is excluded from nationwide experience to eliminate the subsidy Florida would require due to its unfavorable experience and difficulty in getting rate increases approved,” stated the actuarial memo supporting the rate revision plan from SHIP’s actuarial firm. Milliman.

This kind of state-by-state variety of regulatory response can produce inequities for policyholders and hard feelings between states that feel they are taking the brunt of the rate request burden for an insurer’s long-term solvency while others strain to keep premiums affordable for the elderly; as part of the dual regulatory’ mandate of solvency and consumer protection, both considerations are considered, to varying degrees.

This state-by-state variation is part of an overall effort to rehabilitate and possibly recharge the LTC industry. Combination annuity and life insurance LTC products may represent the future of LTC, but the NAIC must simultaneously grapple with the industry’s past actuarial very long-tail shortcomings.

A report presented to the Treasury Department’s advisory committee on insurance by one of the centers of the Gerontology Institute at the University of Massachusetts, Boston, using data from trade association and other sources shows premium rates have largely doubled over the two decades from 1995 to 2015. The 2018 report shows claims incurred in just the short period of 2013 to 2015 totaled about a third of all LTC claims paid in the previous 20 years, from 1992 to 2012.

The stated goal of the NAIC work stream is to achieve “actuarially appropriate increases” given to insurers in a “timely manner.” The selected consulting firm will “describe to the NAIC Members the current level of rate inequity among states’ policyholders” when it completes the project.

Currently, in some cases, LTC rate filing requests among different states do show some insurers asking for increases below what is truly actuarially justified presumably to avoid sticker shock for the consumer and to make the request more palatable to the state regulator. In other cases, insurers ask for increases staggered over several years. 

For example, Continental General Insurance Co., which has been filing rate increase requests in many states, recently stated in an Ohio rate increase request filing that the rate increase justified would be 66% but the request is for only 15% because it “believes this is in line with the Department’s requirements for the expedited review process.” However, Continental added that it might ask for more premium rate increases at a later date on the filed policy forms. 

Some insurers with closed LTC blocks are simultaneously raising rates while offering reduced benefits for maintaining premiums, or converting coverage to “paid up” status with a reduced benefit account value. 

Others are looking to improve health outcomes, which could reduce claims over time.

Prudential Financial, which stopped selling LTC in 2012, recently proposed wellness plan initiatives for LTC policyholders o promote safe independent living in their homes and quality of life.

“Initially our plan is to offer this to insureds not on claim, but we may expand these offers to even insureds who are on claim at a later date,” Prudential said in a recent regulatory filing. To address low participation rates, the company suggested a nominal gift card or souvenir of $25. If the effort is successful in New Mexico, New Jersey and other sample states, Prudential would seek to expand the program, it said. 

“Other than the possibility of containing future claim costs to some extent by making these programs available to our insureds there is no financial incentive here to benefit Prudential,” the company told regulators about its voluntary, non-underwriting-related wellness plan concepts.

The wellness plan for group and individual LTC policyholders in some states could commence 60 days after Prudential’s Nov. 26 letter to New Mexico Insurance Superintendent John Franchini — so presumably by the end of January.

(On the compliance front, Prudential wrote informed state regulators it had reviewed its wellness plan offering with its domiciliary regulator, the New Jersey Department of Banking and Insurance, and it had okayed “the two programs discussed in this letter and the gift card incentive program we would also like to use.”)


Environment right for VA, pension risk transfer deals in 2020, but LTC blocks might be left in the wings

More risk transfer deals are in the works for 2020, according to insurance and retirement industry experts.

Analysts see variable annuity block risk transfer transactions this year in part because of new reserve and capital standards created by state  regulators under the auspices of  the National Association of Insurance Commissioners.

Over the past few years the NAIC has developed a variable annuity reserving and life risk-base capital framework to make reserving more transparent and truer to the risk involved. The beginning of the year not only ushered in the new standards but an expectation that they would standardize interest rate reserve assumptions and policyholder actions.

These “changes put buyers and sellers on a more level playing field and as a result will lead to at least 1-2 transactions in 2020,” wrote Evercore ISI equity analysts led by Thomas Gallagher in a research report Jan. 7.

Evercore’s team identified AXA Equitable Holdings, Brighthouse Financial and Prudential plc (London-based corporate owner of  U.S. variable annuity subsidiary Jackson National Life Insurance Co.) as candidates for suitors for some of their legacy or earnings-pressured variable annuity businesses. 

The Voya Financial Inc. transaction with Resolution Life Group Holdings, announced Dec. 18th, perhaps provides a proxy template for these transactions.

In this deal, Voya is divesting its individual life and legacy fixed and variable annuities business and pension risk transfer liabilities so it can focus on its high-growth, high-return businesses of retirement, investment management and employee benefits, it said. These require less capital while the move also sheds some of the interest rate and mortality risk associated with the life and annuity business. Voya gets $1.5 billion of deployable capital in the deal from Resolution Life and $200 million from a previous reserve financing deal in the fourth quarter. 

According to the Secure Retirement Institute (formerly LIMRA SRI) in a Jan. 8 column,  What’s Next for the Pension Risk Transfer Market, these transfer deals will continue to grow, with the year-end 2019 tally of new contracts expected to be over 500 by the end of 2019. That amounts to  sales in the $20-$25 billion range compared with   single-premium pension buyout sales of $26 billion in 2018.  “All evidence indicates that the future of the pension risk transfer market will be positive, and SRI fully expects this market will continue to grow in 2020 and beyond,” the researchers said.

While discussion of divestments of long term care insurance blocks appears to have slowed, some hope that companies that have been interested in variable annuity blocks could come calling to help offload some legacy LTC blocks.  

LTC insurance blocks are receiving higher premium rate increases from state regulators, as analysts and companies themselves have noted, especially in the wake of a unified NAIC effort task force to look at LTC business vulnerabilities through a national lease and coordinate state efforts into tackling the problem. 

“We see a healthy level of rate increases offsetting a sizable part of the morbidity deterioration for most,” Gallagher’s research note stated in reference to the LTC business.  However, one company formerly interested in LTC said it was not scouting such deals.

Annuity-rich retirement savings business segments may get a boost from the passage and recent enactment  of the SECURE Act, which seeks to expand retirement savings vehicles for workers at smaller businesses and in wider age ranges.

However, consultants at Deloitte cautioned in their 2020 insurance outlook that the New York Department of Financial Services best interest standard could hamper individual annuity sales segments.

NY standards have influence beyond the Empire State in insurance regulation and other jurisdictions that seek to toughen up their sales standards for annuityawd life products as well after the fall of the U.S. Labor Department’s now-vacated fiduciary rule. For example, Massachusetts Securities Division held a hearing Jan.7 on its proposal to bolster the guardrails of financial advice.

Wayne Chopus, president and CEO of the Insured Retirement Institute, told state regulators during the hearing to wait for the national standard from the Securities and Exchange Commission, known as Regulation Best Interest, to take effect and then proceed. Reg BI takes effect July 1, 2020. Chopus said the Massachusetts proposal c”limit consumers’ access to valuable financial planning services and products,” according to the trade association.

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