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Days late, dollars short: ELNY liquidation date set

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The regulatory saga of the Executive Life of New York (ELNY) is coming to an end of sorts, with the liquidation of the estate and the kick-off of the restructuring plan beginning Aug. 8, almost 22 years after it was seized — more than a day later and well more than a dollar short.

ELNY’s restructured liabilities are now being fully transferred to the not-for-profit captive insurance company, Guaranty Association Benefits Company (GABC), which is domiciled in Washington, D.C. 

GABC will assume those liabilities. Further funding will come from the guaranty association contribution and voluntary contribution commitments from a number of life insurance companies.

Although ELNY is smaller than some of the life insurers that were liquidated during the 1990s, such as Confederation Life and Mutual Benefit Life, ELNY is unique due to the large size of some of the structured settlement annuities, with their high cost of living benefits; the low amount of assets left in the ELNY estate; and the voluntary contribution from the life insurance industry that will help — but not patch the gap — in assets to be paid to hard-hit annuitants.

An annual report from the New York Liquidation Bureau (NYLB) shows that the gap has been widening as ELNY stagnated for a decade in the hands of the NYLB.

As of Dec. 31, 2010, ELNY had $905,945,201 in admitted assets, and $2,474,317,343 in liabilities, for a deficit of $1,568,372,142, after about eight years of declines.

The NYLB data shows that in 2011, ELNY had only $817,436,754, in assets and in 2012, it was down to 765,423,651 with liabilities at $2,757,877,769. 

The total ELNY estate capital and deficit as stated by NYLB for 2012 was $1,992,454,118 and $1,951,883,579 for 2011.

Under the restructuring plan, there is a separate $100 million special hardship fund fueled solely by major U.S. life insurers that will be run by JAMS, the largest private alternative dispute resolution provider in the world.

The disbursements — and even the creation — of the fund were dependent on the liquidation plan drawn up by New York Department of Financial Services (DFS) Superintendent Ben Lawsky, then-NYLB Chief Jonathan Bing, as well as the long-involved hand of the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA). The plan was then approved by the New York State Supreme Court, Nassau County, in April 2012. 

Policyholder lawsuits arguing the plan was unfair to shortfall payees, those whose structured settlement annuities, have been rejected by appeals courts. 

ELNY has about 1,500-plus payees, who stand to lose from 40 percent to 66 percent of the income originally due to them in part because of the junk bond positions and subsequent regulatory seizure of now-defunct parent, Executive Life of California (ELIC), and by the NYLB, sources have long alleged. Some estimate the whole to be about $1 billion.

Lawsky, according to sources, asked the industry for the entire amount of the shortfall, claiming this ELNY debacle is a black eye for annuities. But the industry, unhappy with one of its own, finally settled into the $100 million amount.

This fund is in addition to the other funds the industry is paying into on a voluntary basis, such as a so-called top up and top down fund to bolster the guaranty associations and provide for policyholders in “orphan” states where ELNY was not licensed, in addition to state assessments.  

NOLHGA stated it “believes that the restructuring plan offers the best possible outcome for ELNY’s payees and certificate holders, given the status of the ELNY estate and the laws that govern receiverships, and we are pleased that the plan is scheduled to be instituted soon.”

Earlier articles reported on the vast saga of ELNY.

GABC will be in contact directly with payees by mail and will provide information about the implementation of the restructuring plan on its website, which will be live soon. 

Plaintiff lawyer Ed Stone, who represented shortfall payees, has questioned the receivership process in New York, and the DFS and NYLB handling of the case repeatedly, in public and in lawsuits, calling foul on a process that has driven benefit cuts to the shortfall victims of approximately $920,000,000. 

“I do find it ironic that Superintendent Lawsky is openly critical of private equity investments in annuity businesses in New York, requiring strict guidelines and additional reserving while his very own captive agent, the NYLB, gets away with wasting estate assets and putting unsuspecting structured settlement victims in harm’s way.  … And as soon as someone attempts to peek behind the curtain: Wham! Contempt of court for violating anti-suit injunctions,” stated Stone in an email, referencing his own case and promising more feedback on the details of the plan after the trigger date.
The American Council of Life Insurers (ACLI) says that the upgrades in solvency regulation make an ELNY repeat unlikely. The group pointed to the 1991 Investment in Medium Grade and Lower Grade Obligations Model Regulation; the Standard Valuation Law and the 1993 Risk Based Capital Model Act, all passed in the aftermath of ELNY’s seizure.
“Solvency oversight of life insurance companies is continually upgraded as lessons are learned from past failures. Overly risky investments have been curtailed and monitoring of insurers’ financial condition enhanced,” an ACLI spokesman stated.
“At the same time, we must point out that life insurers are strong. In fact, a recent GAO report notes that as the nation faced a great financial challenge during the crisis of 2008, its impact on life insurers’ policyholders was limited,” he said.
The NY DFS declined to comment. 
Of interest, the Federal Insurance Office (FIO), is supposed to examine the potential consequences of a federal liquidation system, including its effects on state insurance guaranty funds and the loss of guaranty fund coverage and how that would impact policyholder protection in its yet-unpublished modernization report, reminded an Insurance Information Institute (III) whitepaper on insolvencies. 


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