The NAIC is formally considering changes to state guaranty fundsto address the way long-term care insurance company insolvencies are handled,including which businesses might be responsible for paying for them in thefuture.
The stakes are crucial now, as , with itslong-tail LTC claims, gears up to become the largest insolvency in insurance ever and , suchas Aetna Inc.,Cigna Corp. andUnited Healthcare,who have intervened in court liquidation proceedings, are facing huge bills inthe form of assessments to the state guaranty funds. Penn Treaty's two companies have liabilities near $5billion and an estimated potential guaranty fund tab running at more than$2.5 billion, based on 2015 figures.
Any changes in the state guaranty funds could shiftfuture LTC liquidation payments to other insurance business lines, such as lifeinsurance.
The NAIC's Receivership and InsolvencyTask Force confirmed that it voted to adopt twoLTC-related charges during a phone conference Oct. 3: one proposed by NAICPresident and Missouri Insurance Director John Huff, and the other by veteraninsurance company receiver and liquidator Patrick Cantilo of Cantilo &Bennett LLP in Austin, Texas. Cantilois the special deputy rehabilitator in the PennTreaty rehabilitation case, which may soon become liquidation, pending courtapproval. Huff had revealed that the NAIC could address LTC insolvency issuesunder the task force during an interview in San Diego at the NAIC SummerNational Meeting in August.
Broadly, as the charges describe,the task force will review the potential guaranty fund impact of the LTC landscape and consideradding amendments to the NAIC's Life andHealth Insurance Guaranty Association Model Act to address "issues arisingin connection with the insolvency of long-term care insurers."
Issues that could be reviewed include what lines ofbusiness should be assessed for LTC liabilities, and in what proportion, andthe role of the National Organization of Life& Health Insurance Guaranty Associations, according to Cantilo.
The NAIC will likely try to see if there is a way to raisepremiums or reduce or change the benefits of LTC policies, or both, once thecompany is in liquidation, to reduce the overall strain on the funds. Thatwould also insure coverage, albeit on a modified and more expensive scale, forpolicyholders.
The NAIC also is expected to look at the role of thecourts, state regulators and other parties, such as the life insuranceparticipation in funding LTC failures in future liquidations.
Asked about themove to open up guaranty fund and receivership model acts to changes, theAmerican Council of Life Insurers responded through a spokesman: "We look forward to working with the NAICas it develops a uniform, coordinated and national approach to this issue."
The NAIC might want to developstandards that make it clearer what is and is not a covered claim, and perhapsset up some rules for the receiver to apportion who pays if the losses are wayabove guaranty funds' limits, according to one industry lawyer.
However, any state regulatory actionis expected to come too late for Penn Treaty, given the time it takes to changeor create NAIC model laws and have them enacted in most states across thecountry, industry participants have said.
Penn Treaty'scompanies, Penn Treaty Network America Insurance Co. and ,were put into rehabilitation in 2009. They are expected — if therehabilitator, the Pennsylvania Insurance Department, prevails — to be placedinto liquidation on or about Jan. 1, 2017. In the meantime, the combinedcompany's assets have diminished greatly and are expected to run dry, in thecase of the larger PTNA, as early as 2018.
Liabilities are also deepening. A previous attempt to put thecompanies into liquidation failed.The case is tangled up in the Pennsylvania court system now, with a varietyof intervenors. A request to respond to the liquidation petition wasextended until Oct. 28 by the Commonwealth Court of Pennsylvania.
Pennsylvania Insurance Commissioner Teresa Millerfiled petitions requesting liquidation for both PTNA and ANIC on July 27.