Philly Deals: Pa. judge sides with pair of troubled insurers

Jay S. Sidhu’s Customers Bancorp Inc. has “postponed” its planned $115 million initial public stock offering, which had been expected this week.
Jay S. Sidhu’s Customers Bancorp Inc. has “postponed” its planned $115 million initial public stock offering, which had been expected this week.
Posted: May 11, 2012

A Pennsylvania judge has sided with company owners in a fight over rate hikes at two troubled insurers that cover long-term care for older people with Alzheimer’s and other diseases.

In an unusual rebuke, Commonwealth Court Judge Mary Hannah Leavitt has refused the state’s request to liquidate the Allentown companies and their $1 billion in assets, and has instead ordered Insurance Commissioner Michael F. Consedine to draw up a “rehabilitation” plan that would allow big rate increases for Penn Treaty Network America Insurance Co. and American Network Insurance Co.

“I’ve never heard of a request for an insurance-company termination to be turned down,” said Greenville, Del., investor Gary Hindes, Penn Treaty’s largest shareholder and ex-chairman. “But the facts are egregious. You had an insurance department that, frankly, was lazy. They were shirking their statutory responsibility to give this company rate increases. This company has no debt, it’s cash-flow positive, it’s at least 10 or 12 years before it runs out of money,” even at current rates. Hindes said he hoped Penn Treaty and its affiliates “could be writing new business within a year.”

Eugene J. Woznicki, Texas chairman of the group that owns the two companies, told me he’s “looking forward to working” with Consedine on a plan “so the companies can stay in business. We have 300 people employed at this company in Allentown. It can be viable.” A team of Ballard Spahr L.L.P. lawyers headed by Douglas Y. Christian represented the owners.

The two firms were declared insolvent by state regulators in 2009. At the time, then-insurance commissioner Joel Ario said, the companies needed “significant rate increases” in all states, which “simply would not be fair to policyholders.” The owners’ actuarial expert, Karl Volkmar, projected that an initial 40 percent rate increase from the current average of $2,200 a year, followed by 10 percent rate increases until 2024, could allow Penn Treaty to meet its obligations, according to the judge’s decision.

But Consedine’s department “has not undertaken a meaningful effort to rehabilitate the companies,” as required for court-ordered liquidations, “and, to the contrary, has acted to frustrate rehabilitation” by refusing to boost fees for policies more than 10 years old, which were sold at unsustainably low prices, wrote Leavitt, the Insurance Department’s chief counsel in the 1980s.

Penn Treaty had promised not to raise rates if customers’ health got worse — but company owners said that guarantee didn’t apply if its own costs rose.

“We are reviewing the opinion and looking at our options regarding our appeal rights,” department spokeswoman Rosanne Placey told me.

Woznicki told me he expected that some policyholders may accept “reduced coverage” instead of much higher premiums. Their average age: 77.

No sale

“Due to market conditions,” Customers Bancorp Inc., the $2 billion-asset Wyomissing bank cobbled together by former Sovereign Bancorp boss Jay S. Sidhu, said it had “postponed” its planned $115 million initial public stock offering, which had been expected this week. Customers said it may try to raise the money privately. Sidhu previously raised about $150 million for the bank from investors in the United States, United Kingdom, and India.

Unfair to Chinese?

Former U.S. Sen. Arlen Specter (R., Pa, then D., Pa.), now a lawyer in private practice, is representing CleanTech Innovations, a Chinese wind-energy company that sued the Nasdaq stock market after it was delisted from trading last year, Inquirer columnist Erin Arvedlund told me.

CleanTech sued Nasdaq in federal court in New York last winter, alleging that the stock market showed a “racial motivation” and discriminated against CleanTech and other Chinese firms. Nasdaq, like other stock markets, kicks out companies that fail to comply with price limits or governance rules.

CleanTech hired New York law firm Fensterstock& Partners, along with Specter. But in March, Fensterstock sued CleanTech — its own client — seeking more than $400,000 in unpaid fees.

Did Specter, at least, get paid? His office won’t say.

Contact columnist Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, or follow @PhillyJoeD on Twitter.

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