Senior Health Insurance Company of Pennsylvania (SHIP) has been running off the long-term care (LTC) insurance business of Conseco Senior Health Insurance Company (CSHI) since 2008. CSHI had been running off the business since 2003.
For many years, SHIP's financial condition has been worsening. In March 2019, SHIP filed with the Pennsylvania Insurance Department (Department), SHIP's primary regulator, the company's statutory financial statement for the year ended December 31, 2018. (The statement was signed on February 26, postmarked on March 1, and received by the Department on March 5.) The statement showed that SHIP's liabilities of $2.653 billion exceeded its assets of $2.206 billion by $447 million. The Department at that time took no action to place the company in rehabilitation. I wrote about the insolvency in No. 308 (April 11, 2019).
The insolvency grew to $462 million at the end of the first quarter of 2019, to $477 million at the end of the second quarter, and to $524 million at the end of the third quarter. I wrote about the expanding insolvency in No. 342 (November 25, 2019).
In the quarterly statements, SHIP said it is "actively working with the Pennsylvania Insurance Department to develop a corrective plan." During 2019, because of SHIP's failure to maintain sufficient capital, at least three states suspended the company's certificate of authority: Idaho on May 15, Iowa on July 8, and Alaska on November 6.
On January 23, 2020, Jessica E. Altman, the Pennsylvania Insurance Commissioner (Commissioner), filed with the Commonwealth Court of Pennsylvania an "Application for Order Placing Senior Health Insurance Company of Pennsylvania in Rehabilitation." The application contains numerous exhibits, one of which is a "Proposed Order of Rehabilitation." Here, without citations, is part of the introduction to the application:
SHIP has committed one or more acts which constitute grounds for rehabilitation. Specifically, SHIP's most recent annual statement demonstrates that the company is statutorily insolvent. Additionally, SHIP's most recent risk-based capital ("RBC") report indicates that the company's total adjusted capital is substantially below its mandatory control level RBC, therefore triggering a "mandatory control level event." Finally, the Trustees of the Senior Health Care Oversight Trust and SHIP's directors have consented in a signed writing to the company being placed in rehabilitation and have waived a hearing.
A section of the application discusses rehabilitation. That section includes comments such as these:
SHIP's financial condition is dire. The Commissioner's staff and 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 for the rehabilitation of SHIP that would produce for policyholders a result no less beneficial than would be produced by a liquidation, and perhaps materially better than that.
Because of the gravity of SHIP's financial difficulties, there can be no assurance that the rehabilitation efforts will be successful....
It is probable that the plan, when implemented, will require modification of existing contracts, premium rate increases, and other measures that in combination will reduce or eliminate SHIP's deficit.
Attached to the application as an exhibit is SHIP's statutory financial statement for 2018. The application and the proposed rehabilitation order, but without the other exhibits, are in the complimentary package offered at the end of this post. (See Altman v. SHIP, Commonwealth Court of Pennsylvania, Docket No. 1 SHIP 2020.)
The Milliman Role
Milliman Inc., an actuarial consulting firm, played a pivotal role in the 2008 transfer from CSHI to the Senior Health Care Oversight Trust in Pennsylvania. In public documents filed at the time, Conseco said Milliman had concluded in a financial report that SHIP would have enough assets to run off the LTC insurance business. I did not believe it. I asked Conseco and the Department for the report, so that I could see what assumptions Milliman had made. Both denied my request. I hope the report becomes public some day so we can find out whether Milliman used assumptions that were inappropriate or Conseco characterized the report inaccurately.
For all practical purposes, SHIP has been in rehabilitation under the supervision of the Department since the filing in early 2019 of its statutory financial statement for 2018, and probably for several years before that filing. The problem is that the rehabilitation, as far as SHIP's premium-paying policyholders and claimants are concerned, was in essence a secret. Thus they did not have the opportunity to take actions that might have provided them with some protection against the consequences of SHIP's "dire" financial condition. What form of disclosure will now be made to them, and when the disclosure will be made, remain to be seen.
I am indebted to Elizabeth "Liz" Festa. She is a long-time business and financial services reporter with a specialty in insurance regulatory and legislative coverage at the federal and state level. She is based in Washington, D.C. Her January 24 article in the Washington Insurance Rider was my first knowledge of the Commissioner's court application regarding SHIP.
I am offering a complimentary 27-page PDF consisting of the Commissioner's application (without exhibits) for the rehabilitation of SHIP (14 pages) and the proposed rehabilitation order (13 pages). Email email@example.com and ask for the January 2020 package about the application for the rehabilitation of SHIP.