Penn Treaty liquidation (2017)
The 2017 liquidation of a US long-term care insurer that had underpriced its policies: the premium increase needed exceeded 300%, and state guaranty associations took over the policies.
US long-term care insurance written in the 1980s and 1990s was priced on assumptions that all proved optimistic: policyholders kept their coverage far longer than expected, claims lasted longer, and interest rates fell. Because premiums are level and paid decades before claims, the error shows only when policyholders reach the age of needing care, when it is too late to fix through pricing. Penn Treaty is the extreme case: placed in court-supervised rehabilitation in 2009, it could not obtain from regulators the massive increases that would have saved it. Its liquidation shows how a long, mispriced risk is passed on to the guaranty system, funded by assessments on other insurers in proportion to their market share.
On March 1, 2017, the Commonwealth Court of Pennsylvania ordered the liquidation of Penn Treaty Network America and its subsidiary American Network, after eight years of rehabilitation. The state insurance department had concluded that the premium increases required, above 300% on average, would harm policyholders and would not be approved. Analysts put liabilities near $4 billion against about $700 million of assets; California's guaranty association alone projected $400.6 million in costs.
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