Pennsylvania regulators are mulling options that include selling or liquidating long-term care insurer Penn Treaty American Corp. ( PTYA), two days after a judge ordered two of its subsidiaries into rehabilitation.

According to court order issued by the Commonwealth Court of Pennsylvania, the rehabilitator will continue to pay claims on all existing policies held by Penn Treaty Network America Insurance Co. and its much smaller subsidiary, American Network Insurance Co. Rosanne Placey, a spokesperson for the Pennsylvania Insurance Commissioner, said that in these very early stages their goal is to decide what is viable for the company.

No new policies will be sold under the rehabilitation although the intention is to renew existing policies, she said.

Both companies are monoline insurers in the long-term care insurance market. When Penn Treaty entered the long-term care insurance market in the 1990s it had a reputation for very aggressive pricing in order to rapidly build up its business. Placey explained that policies written prior to 2000 were underpriced and the company had difficulty getting approval for rate increases from the various states in which it sold policies.

Placey explained that pricing difficulties across the industry in the past few years, as the definition of long-term care and the expectations of its policyholders evolved, had a negative impact on the company.

She said the company's existing financial difficulties leading only worsened in the current economic environment, when it became impossible to raise new capital.

According to its third-quarter statutory financial statement, Penn Treaty lost $2.4 million for the first nine months of the year and had negative capital of $44.8 million at Sept. 30. From Jan. 1 to Sept. 30, capital had declined $11 million from unrealized capital losses and $54.5 million from a decrease in its liability for reinsurance in unauthorized companies.

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