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It seems the Pennsylvania Department of Insurance (PDI) has opened up its own satellite Betty Ford rehab center for insurance companies over the last year. California and Pennsylvania currently seem to have the corner on rehabilitations, conservations and liquidations. The latest became effective April 1, when Legion Insurance Co. and Villanova Insurance (The Legion Group) entered voluntary rehabilitation under the direction of the PDI.

Both companies are subsidiaries of Bermuda based Mutual Risk Management. It hasn’t been a good year for Mutual Risk whose stock you can pick up right now for about six dimes per share. The company is already bracing itself for OTC Bulletin Board trading when its common stock is de-listed from the New York Stock Exchange.

Mutual Risk reported a loss of $99.2 million for 2001, and is currently in default on its 9.38 percent convertible exchange debentures, its bank credit facility and its letter of credit facility. The company said it is negotiating a restructuring plan with creditors and plans to sell many of its assets to cover its obligations.

A statement from its filing of the restructuring plan according to the Dow Jones Newswire said, “It is unlikely that any proceeds of the liquidation would remain after the claims of the general creditors were satisfied.”

The loss development for these companies has been blamed on the inability to collect on reinsurance recoverables that the companies relied heavily on.

The Legion Group transacts business in all 50 states and mainly writes commercial lines. The group also specializes in structuring self-insured programs for mid-sized corporations and associations.

Pennsylvania Insurance Commissioner Diane Koken said in a press release, “The first order of business is to undertake a thorough, independent financial analysis of Legion Insurance Group.” This will help her determine the feasibility of rehabilitation versus liquidation.

The Insurance Department Act of 1921 in Pennsylvania spells out the conditions of rehabilitation, which differ from the conditions of liquidation. The board of directors is suspended, not dissolved. Rehabilitation is a temporary action that puts the commissioner in charge. The financial activity runs through the company rather than the Liquidator’s office. The company pays claims, not the guaranty fund; and payments are based on a court order not on a statute. And finally, assets are marshaled, and all suits are stayed.