Longer life-spans, lower interest rates and near-total submissions of claims for life insurance have combined to create what could be one of the most expensive insurance failures in American history.
Penn Treaty American Corp.’s two insurance units focused on long-term care and are being liquidated after actuaries reportedly underestimated how much the company would need to payout. Filings from a state court in Harrisburg, Pennsylvania reveal the liquidation will take place in early 2017.
The companies’ assets lumped together total $600 million and long-term care claims are crossing the $4 billion line.
The closing of these companies in the red would happen through assessment, a process where policyholders’ premiums from other parts of the controlling insurer are used to pay for claims not coverable by the insolvent
organizations.
Though the assessment is still taking place, it looks as though Penn Treaty American Corp.’s two defunct subsidiaries will become at least the second-largest life-health-insurance collapses by assessment ever in America,
The Wall Street Journal reports.
Selling long-term care policies was popular from the 90s to the early 2000s.
It was a product aimed at middle class Baby Boomers worried about who would pay for their wellbeing in old age after a sizeable chunk of the US retires.
The policies cover what Medicare doesn’t, like personal aides and extended nursing-home stays.
Actuaries at the former companies failed to predict a near-0% interest rate in response to the 2008 crash.
The providers believed 5% of the insured would never claim when only 1% didn’t claim and actuaries predicted the men the companies covered would live to 81 and but they lived to 84-years-old.
Related stories:
Northeast Obamacare co-op folds, marking 13 of 23 to close
