Connecticut regulators are warning that they will probably have to liquidate a company that was once a major issuer of variable annuities and variable life insurance policies, rather than continuing with efforts to rehabilitate it.
The company, PHL Variable Insurance Co., entered rehabilitation in May 2024.
Officials there have been trying to get the company back on its feet by finding a buyer.
But, since the rehabilitation team began getting bids for PHL's blocks of business, "it has become clear that all of PHL's blocks of business are materially impaired," according to a report posted by Joshua Hershman, who is the interim insurance commissioner in Connecticut and the PHL rehabilitator. "As a result, the rehabilitation plan structure described above is not feasible."
PHL has about $2.2 billion in negative capital and surplus, according to a set of answers to frequently asked questions posted in December.
Insurers operate on the understanding that consumers and their agents should take responsibility for insurers' soundness by looking carefully at insurers' finances before making purchases.
State guaranty associations provide some protection for life and annuity customers when insurers fail. The limits in many states are $300,000 for life insurance death benefits and $250,000 in present value for annuity benefits, according to the American Council of Life Insurers.
Surviving insurers fund the guaranty association protection by paying assessments. Guaranty association rules protect the solvency of the surviving insurers by limiting how much they must spend to fund assessments in any given year. That means that, in some cases, the customers of large failed insurers may have to wait years to collect the cash that will come from the guaranty associations.
The rehabilitation team is talking to two entities that might provide protection beyond the guaranty associations' usual limits if the guaranty association will provide protection for the amounts under the limits, according to Hershman.
Under the guaranty associations' rules, the rehabilitation team believes it will have to start a liquidation process, rather than continuing with rehabilitation, to enable guaranty association participation in the process, Hershman said.
"The rehabilitator is in active negotiations with the National Organization of Life and Health Insurance Guaranty Associations to determine what assets may be available for use in providing limited ongoing benefits or other additional benefits to active policyholders whose policies would otherwise terminate by operation of law 30 days following a liquidation order," Hershman said.
The Phoenix Companies was acquired by Nassau Financial in 2016. Golden Gate Capital is the majority owner of Nassau. The rehabilitation team is pursuing claims against entities within Nassau and against Golden Gate Capital, Hershman said.
Nassau said in a statement that the potential claims in the rehabilitator's new report "follow the standard NAIC Receiver's Handbook approach of pursuing recoveries from prior affiliates."
"However, in this instance, the claims are without merit," the company said. "The transactions concerned were undertaken only after a thorough review, negotiation, and approval process with the Connecticut Insurance Department. As the rehabilitator itself acknowledges, PHL's financial challenges predate Nassau's involvement with PHL by a decade. The challenges are rooted in a block of universal life policies insuring older-age individuals that PHL issued between 2004 and 2008, now largely held by institutional investors."
Nassau is continuing to work with regulators to try to reach a resolution and provide PHL with administrative support, the company said.
"However, should the rehabilitator pursue litigation, we will vigorously defend ourselves and expect to prevail on the merits," the company said.
Correction: An earlier version of this article described the Phoenix Companies history and relationship to Golden Gate Capital incorrectly. Phoenix was acquired by Nassau Financial in 2016, and Golden Gate Capital is the majority owner of Nassau.
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