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.  



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