State regulators are abandoning a plan to rehabilitate PHL Variable Insurance Co. and may pursue liquidation instead, after finding that the struggling life insurer — acquired by private equity firm Golden Gate Capital a decade ago — is in worse shape than previously thought.
Authorities said they may also sue Golden Gate and its Nassau Financial Group insurance arm on claims including breach of fiduciary duty if the firms don’t agree to an acceptable settlement. In a statement, Nassau called such accusations “without merit.”
Seeking rehabilitation no longer appears feasible, Joshua Hershman, the interim head of Connecticut’s insurance department, wrote in a court filing on New Year’s Eve. PHL doesn’t have enough assets to make sure that such a strategy — selling viable operations and restructuring other parts — would result in larger payouts to policyholders than a liquidation, said Hershman, who also serves as the rehabilitator.
PHL — acquired by Golden Gate’s Nassau as private equity firms expanded into life insurance and reshaped the industry — is now a cautionary tale. While some of PHL’s struggles predated the takeover, authorities later said investments under its new ownership didn’t perform as well as anticipated and that deals with captive reinsurers failed to safeguard enough capital. In court updates last year, authorities estimated PHL faced a $2.2 billion shortfall.
Initially seeking to overhaul PHL’s finances, the Connecticut regulator steered the business into a rehabilitation process that limited payments to customers, withholding more than $500 million of their nest eggs as of last September.
When US life insurers and annuity providers can’t meet their obligations, customers may still collect at least some of their benefits from a state guaranty association funded by assessments on other insurers.
But those backstops are capped — typically at around $250,000 for an annuity. PHL’s regulator said it’s still trying to eke out larger payouts through a partial sale or a reinsurance transaction with third parties.