IN THE COMMONWEALTH COURT OF PENNSYLVANIA
In re: Penn Treaty Network America
Insurance Company
and
In re: American Network Insurance
Company
1 PEN 2009
and
1 ANI 2009
FORMAL COMMENTS OF THE POLICYHOLDERS COMMITTEE
ON THE SECOND AMENDED PLAN OF REHABILITATION
The Committee of Policyholders of Penn Treaty Network America Insurance
Company("PTNA") and American Network Insurance Company("ANIC"), by their
undersigned counsel, hereby submit formal comments on the Second Arnended Plan
for the
Rehabilitation ofPTNA and ANIC (the "Plan"), The Committee believes the Plan
should be
confirmed and that it should be implemented as soon as possible following eonfirmat
ien.
The Committee's comments largely concern iSsues of implementation and communic
ation
with policyholders concerning policyholder elections,
1,
The Plan does not provide adequate explanation of the nature and amount
of Uncovered Benefits Coverage to be provided to policyholders in Company B who
have claims in excess of Guaranty Association limits, Paragraph 5 on page 36 of the Plan
states:
The Uncovered Benefits Asset Allocations will bc used to procure
coverage actuarially determined to maximize funding of Uneovered
Benefits for each policyholder taking into account the expected probability
and severity of ciaims for such benefits (the Uncovered Benefits
Coverage). The form of coverage is expeeted to be an extension of the
period during whieh benefits will continue to be provided under the
existing terms of the Companies policies. It is possible that no such
coverage may be available in the market. In that case, or if it proves rnore
advantageous, such coverage may be provided by ANIC. If that does not
prove feasible, simple funding of benefits to the extent of each
policyholder's allocable share of the Uncovered Benefits Assets rnay be
the only option for providing Uncovered Benefits, TO PRESERVE
FAIRNESS AND EQUITY, A POLICYHOLDER'S UNCOVERED
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—1
BENEFITS WILL BE LIMITED TO THE AMOUNT OF COVERAGE
THAT CAN BE PURCHASED OR THE AMOUNT OF BENEFITS
THAT CAN BE FUNDED BY THAT POLICYHOLDER'S
PROPORTIONATE SHARE OF THE PTNA UNCOVERED BENEFITS
FUND OR THE ANIC UNCOVERED BENEFITS FUND, AS THE
CASE MAY BE,
The Uncovered Benefits Coverage and the Uncovered Benefits Asset
Allocations may be recalculated periodically after the Effeetive Date as
warranted by changing eircumstances, such as lapses and variations in
asset values, fluctuations in loss experience, claims costs, and expenses,
As a result, the extent to which a policyholder's benefits may continue
once Guaranty Association benefits are exhausted, or in cases in which no
sueh benefits are available, may change over time. However, once a
policyholder begins receiving Uncovered Benefits, bis or her Uncovered
Benefits Asset Allooation will no longer be subject to recaleulation, unless
limited by the exhaustion of available assets.
Policyholders will not be in a position to Make informed decisions about the elections or
options offered under the Plan without knowing the nature and amount of Uncovered
Benefits Coverage to which they have access under the Plan,
2.
Article IV, Section L ef the Plan states that "Virtually all of the
Companies insurance policies would be covered under the state Guaranty Association
system, subject to individual state statutory maxima and conditions, if the Companies
were, placed into liquidation with a finding that the Companies aro insolvent," However,
at the time of filing these objeetions, the Pennsylvania Life and Health Guaranty
Association has taken that position that it is not obligated to eover long term care
policyholders residing in New York state. There are approximately 600 such
policyholders. The Plan must make elm:how these policyholders will he treated, If the
claims of such policyholders aro treated 100% as Uncovered Benefits, then the nature and
amount of Unfunded Benefits Coverage under the Plan is critical for these policyholders.
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The Plan should provide that all policyholders who will not be covered by a Guaranty
Association because of their residence will be notified as soon as possible, including
policyholders residing outside the United States.
3,
The Plan currently provides that all policies determined to be self-
sustaining will be assigned to Company A, subject to the policyholders right to elect
Cornpany B. The Policyholders' Committee believes that self-sustaining policies that
would be fully covered within Guaranty Association Hmits should be assigned to
Company B instead, unless and until the funding for Company A is shown to be
sufficient to run off the policies in Company A under adverse conditions. This depends
in part on the assumptions related to future claims experience that will be used in the
projection model at the time when funding for Company A will be determined, Those
assumptions are expected to be developed before the confirmation hearings in July. If
those assumptions and sensitivity tests are satisfactory, the Committee is prepared to
withdraw this objection.
4,
The Plan indieutes in Article Iv, Section L that sorne Guaranty
Associations may decide to limit cOverage for a portion of a policy's inflation benefits
based on statutory provisions that limit Guaranty Association coverage of policy
provisions that are based on a rate of interest. These statutory exclusions are known as
Moody's provisions, because they employ the Moody's Corporate Bond Yield Average
to calculate the amount of interest the•Guaranty Associations must cover — usually the
Moody's Average less x percent for a specified number of years before the liquidation
date, and the Moody's average less y percent going forward after liquidation. E.g., 40
P.S. §991,1703(b)(2)(iii), The Plan advises that "Policyholders should evaluate these
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issues carefully in deciding whether to elect that their policies remain or be placed in
PTNA and should consider whether sueh provisions may make the coverage available in
PTNA, including applicable Guaranty Association Benefits, less valuable than the
coverage that would be available from ANIC," Policyholders cannot evaluate the abovementioned Moody's exclusion unless they know:(a) whether their Guaranty Association
has decided to apply the Moody's provision to their inflation benefits;(b)how much of
their aceumulated inflation benefits the Guaranty Association has decided to cover before
and after the liquidation date; and (c) the procedures for challenging the Guaranty
Association's decision, Each of these pieces of information ought to be included in the
Policyholder Election Package. The Cornrnittee is of the view that decisions to lirnit
Guaranty Association coverage of inflation benefits can be challenged, because inflation
benefits are additions to policy limits based on additional premium and are not
compensation for the use of money based on a rate of interest; and because a statute
intended to limit Guaranty Associatibn coverage of inflation benefits would employ an
inflation index rather than a bond yield average that is not related to inflation.
5.
• The Plan provides for the continuation of agents commissions on policies
in Company A (Section T of Article IV), even though Company A will not be a going
concern (Section Q of Arti ele-IV) and will operate in run-off mode unless it is sold. Most
agents have ceased to advise and'Service PTNA and ANIC policyholders. In a run-off,
the payment of commissions does'not benefit either the company or the policyholders and
should not be ineluded in the funding for Company A. To the extent that commissions on
policies in Company A remain a debt of Company A, payment thereof should be
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postponed until the assumption of Company A's block of policies by a solvent, operating
insurer, or the recapitalization and re-licensing of Company A.
6.
The definition of Uncovered Benefits Reserve and Article IV, Section E
indicate that the reserve will be determined by cornparing a policy's GPR to the
applicable Guaranty Association limit, after present-valuing the Guaranty Association
benefits and expenses. The Committee understands that the same discount rate used to
compute a policy's GPR will be used to present-value the Guaranty Association benefits
and expenses. If that is not the case, the Plan should so state. Likewise, Article IV,
Section E indicates that separate Guaranty Association limits will apply to policies in
Company 13 that were issued by ANIC and policies in Cornpany B that were issued by
PTNA. If that is not the case, the Plan should so state.
7.
The definition of Plan Preparation Period should be limited to six months,
subject to extension by the Court,
8.
•
The mailing of Policyholder Election Packages Should be phased so as to
control.the volume of-calls to the Policyholder Services Department each week and
thereby make it easier for policyholders to speak with a Policyholder Services
representative on a timely basis,
9.
Because the Policyholder Election Package and Election Form will be of
critical importance to policyholders and to the implementation of the Plan, the Election
Package and the Election Form should be informed by the engagement of consultants
experienced in the communication of insurance matters to seniors as well as consultants
experienced in creating effective media-based communications, including on insurance
matters. The Election Package should state the costs and benefits of each option, tailored
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as much as possible to the policy and the potential Guaranty Association benefits, in a
format that allows easy comparison of the available options. The Election Package
should include written materials and one or more video elements made available on DVD
and via the web (e.g., a web-page "decision-tree" combining short, simple explanations
with links to more detailed tex't and/or short video explanations). If feasible, the Plan
should provide for policyholders to obtain advice free of charge frorn independent
advisers who have no financial interest in the policyholders elections. In any event,
policyholders should be advised to review the Election Package with a family member or
trusted adviser. Policyholders should be advised that neither the Rehabilitator nor the
Company nor the Policyholders Committee can tell a policyholder what would be the
best choice for him or her.
WHEREFORE,the Committee respectfully requests that the Rehabilitator modify
the Plan or otherwise provide for implementation of the Plan in accordance with the
Committee's formal comments.
Respectfully subrnitted,
13y:
Thomas A. Leonard, Es uire
Richard P. Limburg, Esquire
Obermayer Rebmann Maxwell & Hippel LLP
One Penn Center, 19th Floor
1617 John F. Kennedy Blvd.
Philadelphia, PA 19103-1895
(215)665-3000
Dated: February l 3, 2015
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CERTIFICATE OF SERVICE
I certify that on February 13, 2015, I caused a true and correct copy ofthe
forogoing Application to be served on the following persons by email at the email
addresses indicated below:
Patrick H. Cantilo
Special Deputy Rehabilitator
Cantilo & Bennett, LLP
11401 Century Oaks Terrace, Suite 300
Austin, TX 78758
lteP.acilg@s12:firimom
Carl Buchholz
DLA Piper LLP (US)
One Liberty Place
1650 Market Street
Philadelphia, PA 19103-7300
[email protected]
Stephen W. Schwab
DLP Piper LLP (US)
203 North LaSalle Street
Suite 1900
Chicago, IL 60601-1293
stcubstn.schwabgdylpip_er co m,
Douglas Y. Christian
Ballard Spahr LLP
1735 Market Street
51s1 floor
Philadelphia, PA 19103
thristian dgibaliardspahr.com
Charles T. Richardson
Faegre Baker Daniels
1050 k Street NW,Suite 400
Washington, DC 20001-4448
Q5,11,13
Paul M. Hummer
Saul Ewing LLP
Centro Square West
1500 Market Street, 38th floor
Philadelphia, PA 19102-2186
PI)iflIIITIPI@AP4S01:11
Harold S. Horwieh
Bingham McCutchen LLP
OM State Street
Hartford, CT 06103-3178
11,41:0A,11TY
Andrew Parlen
O'Melveny & Myers, LLP
1625 Bye Street, NE
Washington,DC 20006
[email protected],CNITI:
Richard Lirnburg
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