Archive for the ‘ELNY’ Category:


On August 8, 2013 the Restructuring Plan for Executive Life Insurance Company of New York (ELNY) closed.  Under the Plan all remaining assets of ELNY were transfered to a new District of Columbia captive, GABC, owned by participating state life insurance guaranty funds and run by the National Organization of Life and Health Guaranty Associations (NOLHGA).  GABC has now assumed responsibility for all the remaining ELNY annuity contracts, but on a restructured basis that reduces the value of the contracts by close to $1 billion.  Almost all of the reduced value falls on one category of contracts — structured settlement annuitants.  Now that ELNY is formally gone, it is time for regulators, legislators, guaranty associations, insurers and consumer groups to look back at what went wrong with ELNY and the lessons it can teach us about a flawed insurance insolvency process.  To do this, however, it is necessary to remove from the conversation certain postures taken in the court proceedings leading to the approval of ELNY’s liquidation and the Restructuring Plan.

My Insight column, “Gone But Not Forgotten,”  in the September 9, 2013 issue of Insurance Advocate magazine, discusses a number of myths about ELNY that need to be understood for there to be any meaningful discussion about changes to the insolvency process.  The myths discussed are:

  • The Plan is not discriminatory.  It is discriminatory in two major ways.
  • Guaranty Associations will pay out their full limits in many cases.  They will not pay out full limits on any contract.
  • ELNY was in financial decline when placed in rehab. It wasn’t.

A copy of the column, which explains these myths in more detail, can be accessed here.


The Final Straw

My Insight column for the February 18, 2013 issue of Insurance Advocate magazine, which I had titled “The Final Straw,” calls for the drastic remedy of dismantling of the NY Liquidation Bureau.  My column, which the editor of Insurance Advocate decided to turn into the cover story for the issue, describes how the Executive Life Insurance Company of New York (ELNY) fiasco has shown a bright light on the covert mismanagement of insolvent insurers by the Bureau, and discusses why the institution is beyond simple fixes and requires a full re-examination of the process.  A copy of my article can be accessed here.

In future columns, I will explore some dos and don’ts and some specific recommendations for a more efficient, effective and open process for handling insolvent insurers — not just for NY but for any US jurisdiction.  This is particularly important considering the concerns for Federal oversight of insurer solvency regulation, and the holes and inconsistencies that ELNY has exposed in the state guaranty fund structure.

Rethinking Insurance Guaranty Funds

The failure of Executive Life Insurance Company of New York under the management of the New York Liquidation Bureau has raised a number of issues regarding the insolvency process in New York.  Not the least of these issues is the fact that the court approved restructuring agreement addressing the $1.6 billion deficit has quite literally exhausted the funding available to the New York life guaranty funds for any future insolvencies.  The Executive Life failure has also exposed the shortcomings of the life guaranty fund structure nationwide, particularly as applied to structured settlement annuities.  My Insight column in the November 26, 2012 issue of Insurance Advocate ( discusses these issues and offers some suggested changes that should be considered by legislators, regulators and the life insurance industry.  A pdf copy of this column can also be downloaded from the publications page of my website at


Immunity For [All] Some!

My Insight column for the September 24, 2012 issue of Insurance Advocate ( explores the issue of whether a receiver should receive immunity for managing the estate of an insolvent insurer and if so, whether that immunity should be granted on a case by case basis by the supervising court or by statute for all receivers.  While the topic of immunity for receivers has been debated for many years, the issue is particularly relevant today in view of the court’s grant of judicial immunity to the receiver and his agents in the Executive Life Insurance Company of New York matter where the company was not insolvent when placed into rehabilitation in 1991, but is now insolvent by more than $1.6 billion.  Does this grant of judicial immunity effectively prevent exploring the causes of the insolvency and, if appropriate, holding those responsible accountable?  A copy of the column is available from my website at

The Elephant in the Courtroom

In March of this year an eleven day hearing was conducted in New YorkSupreme Court for Nassau County to consider the rehabilitator’s petition to liquidate Executive Life Insurance Company of New York (ELNY) and approve his proposed restructuring plan.  The court issued a decision on April 17, 2012 approving the rehabilitator’s petition, determining that ELNY is insolvent, ordering it liquidated, and approving the proposed restructuring plan. 

In an article appearing in the June 2012 issue of AIRROC Matters, the magazine of the Association of Insurance and Reinsurance Run-Off Companies, I contend that the court’s approval of the petition and plan is far from a final resolution of the long ELNY saga. The Court’s ruling is more about the allocation of pain than a solution to the underlying problem. My article, The Elephant in the Courtroom, examines this underlying problem — the lack of accountability in the receivership process in New York — an issue that that remains unaddressed by the court ruling, the order of liquidation or the restructuring plan.The full article can be viewed online at the AIRROC website.

A Billion Here A Billion There

It is surprising enough that the $1.6 billion deficit in the Executive Life of NY rehabilitation receives so little media attention, but most people would also be surprised to know who will ultimately bear that loss. My current Insight column in the June 4 issue of Insurance Advocate magazine explores this issue as well as the consequences of ELNY on the NY State life guaranty funds. The column can be viewed on-line at:

The Trouble with ELNY

Soothsayer:  Beware the ides of March.
Caesar:  What man is that?
Brutus:  A soothsayer bids you beware the ides of March.

William Shakespeare, Julius Caesar, Act I, Scene 2

On March 15, 2012 a hearing will be held before Justice Galasso in New York Supreme Court, Nassau County, to consider a petition by the rehabilitator of Executive Life Insurance Company of New York (ELNY) to liquidate ELNY and to approve a restructuring plan of its remaining contracts. The stated reason for the rehabilitator’s action is to address a $1.5 billion shortfall that prevents the rehabilitator from continuing to pay 100% of ELNY’s contractual obligations, primarily under annuities issued in the 1980s to fund structured settlements.

Under the proposed restructuring plan, the remaining ELNY assets are to be transferred to a new entity owned and controlled by the participating state life insurance guaranty funds, which will contribute funds to the new entity in amounts based on their individual state fund laws. The ELNY contracts will be restructured to a level that can be supported by these assets, and the obligations as restructured will be assumed by the new entity. Because most of the annuities are relatively small and fall within guaranty fund caps, the rehabilitator has estimated that roughly 84% of all annuitants will continue to receive their full periodic annuity payments. Many annuitants, however, will see their periodic structured settlement payments reduced by up to 50% or more.

At the hearing, the Court will consider whether or not the proposed restructuring plan is in the best interests of ELNY’s policyholders, annuitants and the general public based on its current condition and existing laws.  Another but equally important consideration, however, is how the receivership process failed ELNY, its policyholders and annuitants, and in 20+ years of rehabilitation managed to take it from a solvent company to more than $1.5 billion in the hole.

In the hope of keeping this historic perspective as part of the current dialogue, I have written an article examining the circumstances of ELNY being placed into rehabilitation, the flawed rehabilitation plan and the mismanagement of the estate leading to its inevitable failure. The article is not an assessment of the proposed restructuring plan to be considered by the court on March 15; rather it is a call for a review of the flawed receivership process that brought it to this point. Here is a link to the Publications page of my website to access this article, which is titled “The Trouble with ELNY: Or How The Receivership Process Has Failed Executive Life Insurance Company Of New York, Its Policyholders And Annuitants.”

[Note: This article, without endnotes, is also the cover article in the February 20, 2012 issue of Insurance Advocate magazine.]

Caesar:  [To the Soothsayer] The ides of March are come.

Soothsayer: Ay, Caesar; but not gone.
William Shakespeare, Julius Caesar, Act III, Scene 1


This is an update to last week’s posting (see December 5, 2007 posting below) about Executive Life Insurance Company of New York (ELNY). I expect to continue issuing postings on this topic to raise questions about the premises behind the New York Liquidation Bureau’s bail out plan for ELNY so long as the Bureau continues to publicly tout its plan using justifications that are contrary to the facts.

This week’s issue of Business Insurance ( published a follow-up article on the ELNY deal reporting on statements by the head of the Liquidation Bureau, Mark Peters. According to the article, “ELNY would receive roughly $650 million to $750 million in cash contributions” from both state life guarantee associations and from certain p/c companies “that bought ELNY annuities to fund structured settlements of liability claims.” The p/c companies include Allianz, Fireman’s Fund, Allstate, State Farm and Travelers.

The article goes on to state: “The contributions will be enough to offset the $2 billion deficit that ELNY is predicted to face in 12 to 15 years, regulators say. The deficit results largely from an overly optimistic assumption in ELNY’s 1992 rehabilitation plan that the estate would earn 10% annually on its invested assets, Mr. Peters said. The actual return was between 7% and 8%. The Liquidation Bureau is now assuming a future annual return of just over 6%, he said. Most of ELNY’s contracts will run off within 35 years, with the last contract expiring in about 70 years, he said.”

Let’s see what’s wrong with the foregoing statements:

Inadequate interest rate assumptions cannot begin to account for the purported deficit. The assets simply have not decreased substantially in the past 16 years. In fact, prior to 2002, there was NO reduction in reported assets – all policy claims were being paid from current earnings.

The 1992 plan of rehabilitation does not include interest rate assumptions. It discussed an investment strategy summarized as follows: “. . . principal and interest realized upon maturity or recovery of ELNY’s bonds [none of which defaulted, by the way], as well as other cash flows derived from investments contained in ELNY’s portfolio, will be reinvested in long-term (thirty (30) year) investment grade corporate bonds and in Standard and Poor’s 500 common stocks. The reinvestment in common stocks will be limited.”

The 1992 plan of rehabilitation specifically stated that that the cash flows from investments “are projected to be sufficient to cover current [covered annuity] payouts for at least ten (10) years.” That is what happened. So how was the strategy wrong?

By the beginning of 2002 the number of outstanding contracts had already declined by over 40% (now over 50%), yet the asset base remained constant. Over-stated interest assumptions simply cannot explain the Bureau’s publicly announced conclusions.

So if it is not the interest rate assumptions causing the purported deficit, what is causing it? Potential investors have made proposals to the Liquidation Bureau over the past several years supported by pro forma statements using interest rate assumptions at or below the Bureau’s current assumption without showing any significant deterioration based on known liabilities. These investment proposals all failed to obtain the Bureau’s “approval” because of continual increases in liabilities – not because of a decline in the assets. This precipitous increase in liabilities – which is not mentioned at all in the Bureau’s statements about ELNY — is counter-intuitive to the conservative actuarial assumptions in place for the life of the estate, the nature of the business, and the decline by half in the number of active policies.

A couple of other points are also worthy of note. It is interesting that this publicly touted agreement with the industry is not publicly available, and all the participants are unable to discuss the agreement because they were each required to enter into a confidentiality agreement with the Bureau. If the bail out plan is so beneficial for everyone, why does the Bureau feel compelled to keep it hidden?

In the Business Insurance article, Mr. Peters also stated that the bail-out plan “would be cheaper for the insurers [how this is so is not explained] and avoids the ‘chaos’ that would come with a liquidation.” One thing that liquidation accomplishes is to remove the company from the hands of the people that caused it to become insolvent. Because ELNY was solvent when it was placed in rehabilitation, if it is now insolvent it became insolvent under the Liquidation Bureau’s watch. Can anyone imagine the industry voluntarily contributing $750 million to bail out a company’s management so that it could avoid liquidation and remain in charge?


New York’s Governor Spitzer issued a press release on Monday (December 3) followed by a widely reported press conference announcing an agreement in principle “that will protect nearly 11,000 accident victims and other individuals receiving annual payments from structured settlements and pensions.” The release goes on to praise the Superintendent of Insurance and the head of the Liquidation Bureau for aggressively pursuing an agreement with the life and property/casualty companies and the guarantee funds that “resolved a significant deficit from a defunct insurance company.” (The press release can be found on the Insurance Department’s web site at

Before jumping on the bandwagon of kudos to the Governor, the Superintendent of Insurance and the Liquidation Bureau, however, there are a number of factual issues that one might want to consider.

The “defunct” company in question is Executive Life Insurance Company of New York (“ELNY”), which was placed into rehabilitation in 1991. According to the 1992 court approved Plan of Rehabilitation, ELNY was placed in rehabilitation because of the New York Insurance Department’s concerns that the adverse publicity regarding the seizure of its parent company, Executive Life Insurance Company of California, could result in an excessive number of cash surrenders. It was NOT placed in rehabilitation because it was insolvent! In fact, ELNY has never been determined to be insolvent. Consider also the following:

  • At year-end 1994 (the first year the Liquidation Bureau was required to publish financials for the estates under its control), ELNY had almost 24,000 annuity contracts in force and reported assets of $1.65 billion.
  • At year-end 2006, there were only 11,300 policies in force and reported assets of $1.37 billion – a 53% decline in outstanding policies and only a 17% decline in assets.
  • In that 13 year period 1994 through 2006, ELNY continuously met all outstanding policy obligations to the tune of almost $2 billion.
  • Throughout that same period, ELNY had the same major life insurer as administrator, the same nationally known actuarial firm as its actuarial consultant, and the same prominent financial firm as investment advisor.
  • Over 90% of the outstanding obligations are fixed obligations under structured settlement agreements. There are no potential “long tail” obligations to cause a sudden and precipitous inflation of ultimate liabilities.

Notwithstanding these facts, the current administration has apparently “sold” the industry and the life guarantee funds on the premise that “ELNY would have a $2 billion deficit,” that continued payments to policyholders is at risk, and that an industry bail out is necessary and appropriate (Announcing a $2 billion deficit at this time is also curious in view of the fact that the Liquidation Bureau has engaged an audit of ELNY that is not expected to be completed until the middle or end of January 2008).

If there is in fact a $2 billion shortfall the big question is: How did it happen? It cannot be blamed on the former management of ELNY because the company was solvent when it was placed in rehabilitation. It has been under the Liquidation Bureau’s watch with the same prestigious advisors for over 16 years – through both Democratic and Republican administrations — paying all obligations on a timely basis, and has received a number of investment suitors that have all been rejected by the Bureau.

Now we are being told that there is a $2 billion shortfall that can only be resolved on the backs of the industry. If true, someone needs to explain how that happened and hold those responsible accountable. Given the prosecutorial background of the Governor, his Superintendent of Insurance and the head of the Liquidation Bureau, can we assume that as bright a light will be aimed at the causes of this development as is being shined on the bailout agreement?

(In the interest of full disclosure, I have represented various investor groups over the past ten years interested in restoring ELNY to the marketplace. I do not represent any such group at this time, however, although I am aware of continued investor interest based primarily on the belief that any significant deficit defies fact and logic.)