SHIP’s proposed rehab plan could bring a lot of hands on decks while cutting some reinsurers cut loose

Sept. 16, 2020

Updated with Washington state’s permission from the court to join as an intervenor, Sept. 18 .

The court overseeing the rehabilitation plan for insolvent insurer Senior Health Insurance Co. of Pennsylvania, (SHIP) has some items of note to consider now that the deadline for comments and extended intervenor applications closed Sept. 15. 

The Maine superintendent of insurance and the Massachusetts commissioner of insurance have asked to intervene in the SHIP case and court documents reveal there are concern about rate increases in the future and ones not granted in the past from various insurance regulators involved.

Also, the rehabilitation plan is seeking to exclude some reinsurance polices from joining in. 

LTC insurers face solvency challenges now because rates set in the past do not match the towering costs of paying claims now for a variety of reasons, including higher longevity accompanied by chronic and expensive health problems, suppressed interest rates and lower lapse rates than anticipated when policies were underwritten.

The quandary facing many state insurance regulators was and remains whether to allow enormous rate hikes that could eat into the pensions of aging policyholders or to help LTC insurers achieve loss ratios that would keep them afloat. Keeping rates artificially low to help policyholders avoid rate shock as liabilities mounted and outstripped assets brought about the insolvency of SHIP. 

Maine and Massachusetts insurance regulators have requested intervention on behalf of all other state regulators, according to documents filed with the Commonwealth Court of Pennsylvania. The proposed rehabilitation plan won’t be implemented until it is approved by the court. 

The rehabilitator appointed by statute Jan. 29, when the order of rehabilitation was filed, is the insurance commissioner of Pennsylvania, Jessica Altman.

The rehabilitator said she accepts Maine and Massachusetts regulators involvement “for the limited purposes of calling or examining witnesses or introducing exhibits at the hearing.”However, she asked the court that all other requests for relief be denied.

Her lawyers are refuting other states’ claims that her plan “purports to set aside laws and replace them for a process for setting rates on a nationwide basis.” 

Instead, the plan “is designed to protect the interests of the insureds, creditors and the public by proposing corrective action to restore SHIP as a financially self-sustaining long-term care insurance company. The Proposed Plan seeks to achieve these goals and objectives in a fair and equitable way for over 45,000 policyholders,” Altman told the court.

In a filing Aug. 21, the rehabilitator argues that SHIP, in business in Maine from 1991 until its license was suspended this March, had sought approval there for LTC policy rate increases between 2011 and 2019 but hadn’t gotten them for the most part.

 “SHIP’s proposed rate increases for 2011 and 2019 were disapproved by Maine, Altman’s filing pointed out. She argued the rate requests were not excessive and denied claims that SHIP “failed to demonstrate that the requests met required standards and/or applicable regulations.” 

Altman also noted that the Maine superintendent approved SHIP’s 2016 rate increase but at a at a level lower than requested. 

The top insurance regulators from Maine and Massachusetts have requested that the court “extend the time for other state insurance regulators to join” beyond the deadline, with a letter attached from Washington State Insurance Commissioner Mike Kreidler addressed to Maine Superintendent Eric Cioppa and Massachusetts Insurance Commissioner Gary Anderson.

Washington state’s intervention request was approved by the court Sept. 18. The judge ordered that Washington can join with the intervention of the Maine superintendent of insurance and the Massachusetts commissioner of insurance.

It has submitted comments, which reflected the same policyholder premium increase concerns as Massachusetts and Maine.

“The Court should permit Maine and Massachusetts to intervene in this proceeding, but the Court should deny their eleventh-hour request (purportedly on behalf of all other state insurance regulators) to extend the Court’s deadline for seeking intervention,” she argued. 

The intervening states are concerned about the effect of the rehabilitation on policyholders, and want to delve into the actuarial models used to find out more about how customers in their states would be impacted –and have a say in any changes.

The rehabilitator said she wouldn’t oppose the Washington commissioner’s application to intervene if it filed by Sept. 15, 2020.

Legal representatives for Maine and Massachusetts and the special deputy rehabilitation did not return emails request for comment.

It is unclear from the docket whether he has. 

Other groups that have filed to intervene include policyholders, agents and brokers, the health insurers Aetna Life Insurance Co., Anthem, Inc., Health Care Service Corp., Horizon Blue Cross Blue Shield of New Jersey, and UnitedHealthcare Insurance Co., as well as the National Organization of Life and Health Insurance Guaranty Associations and Transamerica Life Insurance Co. Transamerica did not return an email query.

The health insurers point out that the guaranty associations will be triggered upon a liquidation order and they will together be responsible for 27% of assessments from that liquidation. 

A SHIP liquidation will cost the companies “hundreds of millions of dollars,” in guarnaty fund assessments, the health insurers stated in their July 31 application to intervene. 

Liquidation will occur if the rehabilitation plan can’t close the liability funding shortfall of between $500 million and $1 billion. 

Of interest, the Pennsylvania Insurance Commissioner Jessica Altman and the Special Deputy Receivers for SHIP, Patrick Cantilo, have changed the proposed rehabilitation plan to exclude the reinsured LTC insurance policies of Transamerica Life, Primerica Life Insurance Co. and American Health & Life Insurance Co

SHIP currently reinsures and administers these policies and the original plan filed in April said they would be treated the same as policies issued by SHIP, the notice on SHIP’s website stated. 

“However, although the rehabilitator wants them out, the notice said it remains possible that SHIP, or its subsidiary Fuzion Analytics, Inc., will continue administering these reinsurance policies.

If this amended exclusion is granted, Transamerica, Primerica, and American Health & Life policies the reinsured policyholders will not be asked (or have the ability) to make elections under the Plan and SHIP will not be financially responsible for claims arising under these policies, according to the note. Also, SHIP won’t be able to count their policy premiums as assets if they are excluded. 

 If SHIP does indeed enter liquidation, policyholders won’t be getting benefits from any life and health insurance guaranty association. Instead, the companies themselves will be responsible for these policies and any claims covered by these policies.

After a series of high profile, multi-million unpaid benefits regulatory settlements, The Principal pays $145,000 for exam-related costs

Updated with number of remaining exams, per California.

Sept. 13, 2020 — Principal Life Insurance Co. and Principal National Life Insurance Co. and state regulators quietly settled a death benefits exam underway for seven and a half-years for $145,000, a small cost amounting to housekeeping compared with the multi-million dollar settlements incurred by other life insurers undergoing similar exams.

Without admitting “any liability whatsoever,” The Principal agreed to the amount to cover the “examination, compliance and monitoring costs incurred by the departments associated with the multi-state examination. 

The Principal’s exam began in December 2012, a spokesperson for the company and the California Department of Insurance confirmed. 

The action could indicate that the unpaid benefit exams for life insurers are now winding down after the enormous settlements and high-profile cases that emerged at the outset of the state regulatory process.

A settlement was reached in June and a copy filed with state insurance departments in July. The $145,000 remittance covered “the examination, compliance and monitoring costs incurred by the departments associated with the Multi-State Examination.”

A handful of state insurance departments launched Social Security Administration’s Death Master File targeted examinations of life insurers beginning back in 2011 to review practices into whether policyholders’ beneficiaries were getting paid when the contract holder died. 

The lead states in the DMF initiative are California, Florida, Illinois, New Hampshire, North Dakota, and Pennsylvania. •

They sought unpaid death benefits due under the insurers’ life insurance policies and annuity contracts as well as unpaid proceeds due under matured annuities.

These state regulators, with the use of the auditing firm Verus Financial LLC, combed through insurers’ policies and procedures and use of the DMF database for unclaimed property.

In the case of The Principal, the regulators stated they found only “potential concerns regarding the adequacy of the company’s policies and procedures” in getting insurance policies paid in timely manner to beneficiaries, according to the settlement. 

The company said it disputes any potential concerns identified by the Departments and denies any wrong-doing or engaging in any activities but said it wished to resolve and differences instead of creating or prolonging any further proceedings. 

The company agreed to use its best efforts to find and contact the beneficiary, making at least two attempts to contact the beneficiary in writing at the address maintained in the company records and other standard protocols as a matter of course. 

Life and annuity insurers had paid over $9.7 billion to life insurance beneficiaries nationwide,” as a result of the multi-state exams as of August 2018, the California department trumpeted in 2018 in detailed report of the multi-state exam process. The group of “insurers have escheated approximately $33 million in unclaimed benefits to state unclaimed property officials, the report stated.

The outside firm who auditing insurance companies to identify unclaimed property also got a percentage of the remittances to states’ unclaimed property funds. 

The first such multi-state settlement, in February 2012, was with Prudential Financial for $17 million, to be split among the states participating in the settlement. MetLife’s settlement followed, reaching $40 million, in August 2012.

State regulators in the lead states alleged that the life insurance industry “selectively used” the DMF database to cut off their payments to deceased annuity holders but did not use the database when it came to seeking information on the death of policyholders to whose beneficiaries they would owe payouts. 

In general, if insurers cannot not find the beneficiaries after searching for them, they are required to send the money to the state controller as unclaimed property. 

Many insurers adamantly denied they had done anything intentionally and vowed to proactively check the DMF database regularly. 

Over the next few years, many life insurers, representing 80% of the market followed Prudential and MetLife in settlements with the lead state regulators. 

“As a result of the state insurance regulator settlements, in addition to paying benefits to beneficiaries, insurers have paid approximately $180 million to states that participated,” the Californiadepartment said in its report. It has listed the many life insurance companies with which it had negotiated settlements. The report noted that the lead states had wrapped up, by then, exams and settled with 25 insurers. Lead state regulators have five remaining exams on life insurers still open, a spokesperson from the California department said Sept. 17.

California’s report identified two “small life insurers” who it accused of fighting regulators’ attempts to settle and instead, turning to litigation. The plaintiff insurers in these cases have said they felt there was no justification for an audit because there was no reason to believe they weren’t in compliance with state unclaimed property laws to begin with.

Thrivent Financial, one of these two life insurers referenced, prevailed in its lawsuit against the state of California in 2018 after arguing “that two California unclaimed property regulations were invalid,” according to JMS Advisors. This decision had repercussions for other states’ guidance.