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Penn Treaty America, the Pennsylvania-based long-term care insurance provider, is more likely in the short-term to enter into a joint venture or sell assets than to sell outright, sources said.
A source familiar with the NYSE-listed company, which on 31 December retained Friedman Billings Ramsey to evaluate strategic alternatives, said that while Penn Treaty could see an offer from a strategic looking to pick-up a block of business relatively cheaply, there could be potential obstacles to a near-term sale. Those complications could include issues related to reserves, financial reporting of results, and an order barring Penn Treaty from selling policies in Florida, which is a key market for long-term care insurance products.
The source, as well as a sector analyst, said a joint venture transaction with Alabama-based and NYSE-listed Protective Life, which has previously been successful with what the analyst referred to as “dead books of business,” is a substantial possibility.
The analyst said a logical structure for a joint venture would be one in which Penn Treaty would give distribution, pricing, and management services over to a new entity jointly held by Penn and another company.
The analyst suggested, and the source agreed, that European companies such as London-based Aviva, which have the resources to make an acquisition now and a desire to increase their presence in the US, could also be potential acquirers or joint venture partners for Penn Treaty.
Aviva, the UK’s biggest insurance group and the fifth-largest in the world, which serves individuals and small and medium-sized businesses with life and pension products, is among several European firms which the analyst described as having “money burning a hole in their pocket.”
Aviva acquired AmerUS, the US insurance firm, in 2006. It aims at realizing the full potential of its existing business in the US, a spokesperson for the UK listed insurance group said. “We could look at external growth opportunities there, but the company’s priority is organic growth.” The spokesperson declined to comment on Penn Treaty specifically.
The source familiar with Penn Treaty noted that in the past, Massachusetts-based John Hancock Life Insurance Company purchased a long-term care business, and suggested it could possibly be interested in some or all of Penn Treaty’s business.
According to regulatory filings, Penn Treaty may have to increase its claim reserves and is undergoing an actuarial analysis that it expects to have completed during the first quarter of 2008.
It also is in the process of determining whether or not it needs to restate financial results for 2003, 2004, and 2005. It has yet to file its annual report for 2006 with the NYSE, according to the filings.
In December 2007, it received an extension from the NYSE until 16 February to file its annual report. The company has said that it expects to make a decision regarding any financial restatements by later this month, according to regulatory filings.
Also according to regulatory documents, Penn Treaty’s right to sell policies in Florida was suspended for at least one year for failure to file its 2006 financial results by 1 June.
Penn Treaty said at the time that the suspension would not be material to its financial performance, as its right to sell policies represented 6% of its new business applications for the first five months of 2007.
Florida sales, however, accounted for approximately 15% of the company’s direct premium revenue last year, according to company figures. Penn Treaty’s market capitalization is USD 138m.
Additional reporting by Beranger Guille in London
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