Senior Health Insurance Company of Pennsylvania (“SHIP”) was placed in rehabilitation in Pennsylvania in January. As required by the Order of Rehabilitation, the Rehabilitator filed a Proposed Plan of Rehabilitation (the “Plan”) in April.1 Several interested parties, including three state insurance regulators, intervened in the rehabilitation proceedings in the Commonwealth Court of Pennsylvania (the “Court”). Other interested parties filed formal comments with the Court, generally expressing concerns about or opposition to the Plan. On October 21, the Rehabilitator filed an Amended Plan of Rehabilitation (the “Amended Plan”). When filing the Amended Plan, the Rehabilitator stated that it “addresses most or all of the material and substantial concerns raised in response to the initial Proposed Plan.”
The core of the Plan is charging policyholders the “If Knew Premium” for the benefits under their policies. The If Knew Premium is the rate that, if charged since inception, would have produced the greater of the initial target loss ratio or the minimum loss ratio applicable to the policy form. Policyholders would be offered options to increase premiums or reduce benefits so that they are paying the If Knew Premium for the benefits provided. Many objections to the Plan asserted that the Rehabilitator does not have the authority to implement rate increases without seeking approval from state insurance regulators. Under the Plan as originally filed, no such approval was contemplated.
The Amended Plan provides a mechanism for state insurance regulators to “opt out” with respect to policies issued in their states. If a state opts out, the Rehabilitator will file for approval of the If Knew Premium rate increase in that state. If the full rate increase is approved, the policies issued in that state will be treated as if the state did not opt out. If the full rate increase is not approved, policyholders of policies issued in the state will be provided with different options under the Amended Plan. The default for such policyholders will be for their benefits to be reduced to benefits supported by the premiums approved by the state regulator (on an If Knew Premium basis).
Another significant change in the Amended Plan relates to policies that are indemnity reinsured by SHIP.2 As originally filed, the Plan treated the indemnity reinsured policies the same as policies directly issued by SHIP. In response to objections from insurance regulators, the Rehabilitator changed course, and the Amended Plan does not apply to those policies. The Amended Plan states, “SHIP will not be financially responsible for claims and commissions owed under these policies and will not have the right to treat premiums paid by these policyholders as assets of SHIP.” Several other changes and clarifications were made in the Amended Plan.
Parties that submitted formal comments in response to the Plan have until November 30 to submit formal comments to the Court in response to the Amended Plan.
1 The documents referenced herein can be found on the SHIP Rehabilitation website.
2 These policies were indemnity reinsured by SHIP but were not assumed by or novated to SHIP, meaning the ceding company retains the direct contractual relationship with the policyholders.