Archive for the ‘Security Funds’ 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 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:


In prior postings I have described New York’s five (5) insurance security/guaranty funds: three non-life security funds administered by the superintendent of insurance (the property/casualty fund, the workers comp fund and the public motor vehicle liability fund); and two life funds. The Life Insurance Company Guaranty Corporation, a separate entity with its own Board of life industry representatives, administers the guaranty fund protecting current life and annuity policies. There is also a life guaranty fund covering pre-1983 policies that still remains extant. (Part III of my series of articles on the receivership process in New York, posted October 9, 2008, describes in detail the operation of and reporting requirements for these funds).

The P/C Security Funds

The p/c insurance security funds are accounts funded through industry assessments, with the commissioner of taxation and finance as custodian, and with the control of the funds vested with the superintendent as receiver. Although there is no detailed reporting by any of these funds or the superintendent, I have accumulated certain information over the years on the distributions from and recoveries to the funds on an estate-by-estate basis.
Following are schedules of the ten estates that have received the greatest amount of payments from the three p/c funds on a net basis (distributions less recoveries) for the past 11 years for the p/c fund and the past 7 years for the motor vehicle and w/c funds:


COMPANY ———————— COST TO FUND —— % of Total

Reliance Ins Co ——————— $315,954,788 ——- 27.09%
Group Council Mutual Ins Co —- $200,954,041 ——- 17.23%
First Central Ins Co —————– $117,736,140 ——- 10.10%
Legion Insurance Co —————- $88,451,306 ——– 7.58%
Transtate Ins Co ——————— $78,139,954 ——— 6.70%
Villanova Insurance Co ————- $73,655,030 ——– 6.32%
American Agents Insurance Co —- $51,956,695 ——— 4.46%
Galaxy Insurance Company ——– $28,211,496 ——— 2.42%
Home Mut. Ins of Binghampton — $28,183,527 ——– 2.42%
Union Indemnity Ins of NY ——– $26,526,835 ——— 2.27%

TOTALS ————————— $1,166,156,055 —— 100.00%


COMPANY ———————– COST TO FUND ——- % of Total

NY Merchant Bakers Ins. Co —— $47,211,782 ——– 49.95%
Capital Mutual Ins Co ————– $27,173,134 ——– 28.75%
Reliance Ins Co ——————— $10,969,398 ——– 11.61%
Legion Insurance Co —————- $3,972,573 ———- 4.20%
Acceleration National Ins Co ——- $3,690,371 ———- 3.90%
United Community Ins Co ———- $1,553,331 ———- 1.64%
Security Indemnity Ins. Co ———– $564,418 ———- 0.60%
Indemnity Insurance Co. ————- $469,670 ———- 0.50%
American Eagle Ins Co —————- $232,562 ———- 0.25%
Carriers Casualty Co ——————– $179,615 ———- 0.19%

TOTALS —————————— $94,517,565 ——- 100.00%


COMPANY ————————COST TO FUND —– % of Total

Reliance Ins Co ——————– $203,014,868 ——– 52.76%
Legion Insurance Co —————- $76,450,563 ——– 19.87%
Home Insurance Co —————- $34,006,976 ———- 8.84%
Fremont Indemnity Co ————- $14,632,437 ———- 3.80%
American Mut. Ins Co of Boston — $12,055,131 ———- 3.13%
American Mut. Liability Ins Co —- $10,636,047 ———- 2.76%
Realm National Insurance Co ——- $9,927,261 ———- 2.58%
Commercial Comp. Casualty Co —– $9,756,611 ———- 2.54%
First Central Ins Co ——————- $3,414,102 ———- 0.89%
Villanova Insurance Co ————— $3,004,611 ——— 0.78%

TOTALS —————————– $384,789,415 —— 100.00%

One caveat on recoveries: the department of taxation and finance keeps detailed records on payments from the security funds to each estate, but for some unexplained reason does not keep records of recoveries or payments to the funds from estates. The liquidation bureau has included a schedule of recoveries by estate as part of its annual report to the legislature. The 2008 schedule shows no repayments to any security fund from any estate, although the superintendent’s annual report states that $36 million was received from the Reliance estate and another $18 million from another source (Merchant Bankers) in 2008 that it were reimbursed to the security funds. These sums are not included in the charts above because they are not included in the bureau’s schedule of recoveries.

The Life Funds

Unlike the p/c funds, the superintendent does not include any information on the life funds in the annual report to the legislature, and there is no financial information included on the Life Insurance Company Guaranty Corporation web site (, which contains more disclaimers than useful information. Also, while I have successfully obtained information on the p/c funds from the department of taxation and finance and the insurance department under the freedom of information law (FOIL), no useful information is accessible on the life funds through FOIL or through the funds themselves.

As I have pointed out in the past, it is ironic that there is more information available on the p/c funds – controlled by the superintendent and his agents at the liquidation bureau — than is available on the industry administered life funds.

Insolvency Process in New York — Encore!

Last month I posted the final installment in my series of articles on the insurance insolvency process in New York. Since completing the series I have received a number of requests for the entire series. To accommodate these requests I have combined the series into one document and have posted it in pdf format on my web site, which can be accessed here:

As I state in the introduction to this article, since the Mid-1980s I have represented managements, shareholders, policyholders, claimants, reinsurers (both as creditors and as debtors) and purchasers of insurance operations in liquidation or rehabilitation in New York. During that time I have observed the handling (or mishandling) of the receivership process spanning the administrations of five Governors and eight superintendents. Each new administration has vowed to “do something” about the system, and in particular address the “mess” at the Liquidation Bureau. What has been clear from these efforts over the years is that the “mess” has been largely misunderstood and the entrenchment and resilience of the Bureau grossly underestimated.

It is hoped that this article will help those trying to wend their way through the maze of the insolvency process to pursue their interests in an insolvent estate; and in the process spotlight the myths and misunderstandings surrounding the roles — statutory or de facto — of the superintendent, the Insurance Department, the Liquidation Bureau and the security funds.

If you have a problem in accessing the article through the link above, please e-mail me at, and I will send you the article by return e-mail.

The Liquidation Process in New York – Part VII: It’s a Wrap!

The last glimmer of hope for enlightened management of the insolvency process in New York by the current administration was dimmed at the end of February!

In Part II of this series (“The Right Stuff,” posted September 12, 2008), I applauded the one estate being run openly and efficiently by an agent of the receiver, free from the stifling and secretive bureaucracy of the Liquidation Bureau. This one estate, United Community Insurance Company, demonstrated that the tools necessary for an efficient, open and accountable process exist in the law today, requiring only the will of the administration to use that authority. Unfortunately, it appears that this will does not currently exist. Direct control of the United Community estate has been turned over to the Liquidation Bureau effective March 1st. There are no more agents of the superintendent as receiver independent of the Bureau!

But let’s look at the bright side! In the parlance of the market, you have to find the bottom before you can start to rebuild. With that possibility in mind, it is time to wrap up this series of articles on the receivership process in New York with some thoughts on how that rebuilding can occur.

As has been pointed out repeatedly (some may say ad nauseum) throughout this series, the receivership process in New York lacks meaningful transparency and accountability. Yet the tools to address these deficiencies are, for the most part, already in place. Following are some thoughts on the steps that can be pursued to restore confidence and integrity to the process, focusing on three principal areas:

  • Estate Management
  • Third Party Participation, including the Courts, Regulators, Policyholders, claimants and creditors, Guaranty funds, and Reinsurers
  • Legislation

Estate Management

As discussed on numerous occasions in this series, the Liquidation Bureau’s talk about transparency belies reality. The first step to achieving true openness, however, is relatively simple and uncomplicated: communicate material information on a regularly basis to all groups legitimately interested in an estate, including its policyholders, creditors, reinsurers, guaranty funds, the courts and, yes, even its shareholders. To accomplish this, the superintendent as receiver need simply direct all of his agents (unfortunately, at the moment that is only the Liquidation Bureau) to:

• Prepare regular periodic reports on a standard format, including a narrative on developments and standard (i.e. statutory) financial and cash flow statements;

• File those reports with the appropriate receivership court and post them on the agent’s web site;

• Invite input from all interested parties particularly policyholders, claimants, creditors, guaranty funds, and reinsurers; and

• Hold regular conferences with the receivership court, with notice to all interested parties.

The receivership process should be about finding the greatest value for the policyholders, claimants and creditors of an estate. For this to be achieved, the process needs to be truly open and communicative with these parties and not just pay lip service to their concerns.

Third Party Participation

The Courts
For the most part, the liquidation and rehabilitation courts in New York have been minimally involved in the oversight of management of the estates before them. Although it often seems that the courts grant undue deference to the receiver, it would be unfair to characterize them as merely rubber-stamping the requests of the receiver. The courts have a difficult job with a matter that is not the typical court case, and which often has no clear time frame to reach a conclusion.

There have been a number of exceptions, however, including New York Supreme Court Justice Shackman for the Constellation Re estate, Justices Kirschenbaum and Cahn for the various insolvent New York Insurance Exchange syndicates, and more recently Justice Stallman for the Midland Insurance Company estate and Justice Williams for the United Community Insurance Company estate Upstate. The involvement of these judges demonstrates the value that an attentive judge can bring to bear on the effective management of an estate.

However, even the most involved judges are limited to addressing only those matters before them, and if the receiver is not providing the judge with meaningful and timely information on a regular basis, and other interested parties are not able or willing to pursue matters with the court, the courts can only provide limited protection from systemic abuse.

The Regulators
A continuing regulatory role by the Insurance Department – separate and apart from the Liquidation Bureau or any other agent of the superintendent as receiver – would help ensure that the estates will be run openly and pursuant to the same standards and rules promulgated by the regulators for the rest of the insurance industry. In other words, when the superintendent of insurance is appointed receiver of an insolvent insurer, the same standards he applies to the rest of the industry should be applied to his own conduct of the business of the company in receivership.

The regulatory oversight of a licensed company should not end with the entering of an order of liquidation or rehabilitation. It makes no sense that when an insurance entity is placed in receivership the commissioner ceases to be the regulator and becomes the manager of an unregulated insurance business. Why shouldn’t the superintendent as receiver be held to the same standards that he imposes on the rest of the industry as its regulator? Why shouldn’t he apply his own rules to himself? (For a fuller discussion of this point, see my November 2004 article presented at a conference on insurance insolvency titled “Who Protects us from the Receiver?” A pdf copy of this article can be accessed at

Policyholders, claimants and other creditors
Creditor representatives played a major role in the successful release of Constellation Reinsurance Company from liquidation in 1992, forcing the addition of significant value to the plan. Yet through the final hearing before Supreme Court Justice Shackman the Liquidation Bureau protested the involvement of the very people it was purporting to protect. Although he deferred to the Bureau by not formally approving the creditors’ committee, Justice Shackman allowed the active participation of the creditors’ representatives in all phases of the proceedings – much to the chagrin of the Bureau but to the benefit of the policyholders and other claimants. This attitude of the Bureau towards interested third parties is unproductive and contributes significantly to the outside distrust of the Bureau.

The Bureau’s justification for its position – that the involvement of third parties would interfere with the administration of an estate and be a waste of estate assets — is disingenuous in view of the Bureau’s lack of openness and accountability.

Guaranty Funds
Guaranty funds as a group generally become the largest creditor as they pay claims against an estate. While the Bureau is quick to pass off claims to the guaranty funds of the various states, it is not very quick to provide meaningful or timely information on the status of the estate, the likelihood of immediate access to funding for the payment of claims, or the long-term prospects for distributions. Cooperation of the funds of the various states is essential for the efficient and cost effective management of an estate, and the receiver’s agents must bring the funds into in dialogue on an estate at the earliest possible moment, and to keep them involved over the life of the estate.

Of course, as described in Part III of this series [posted October 9, 2008], the property/casualty funds in New York are not separate entities as they are in all other states: rather they are bank accounts funded by the rest of the industry and administered by the superintendent of insurance as receiver. This bank account approach concentrates all the authority in the receiver’s agent (the Bureau) and eliminates the insight and perspective of the people that have to pay the assessments to meet the guaranty funds’ obligations.

The failure of the life funds, which are separately run, to provide independent guidance is more a matter of inertia than anything. Life insolvencies have been few and far between over the past two decades, so that when a situation arises, there is no tested infrastructure in place to address the matter. This could be easily rectified by the superintendent invoking his authority over the life funds to require them to meet regularly, provide appropriate, publicly available reports, and establish procedures and protocols for the handling of claims, collection of assessments and involvement in plans for insolvent insurers.


All of the foregoing changes and improvements can be accomplished within the existing statutes. But the law should be revised to address some of its weaknesses, shortcomings and foibles, which have been addressed in the various parts of this series. Among the matters that should or could be addressed through legislation are the following – in no particular order of importance:

• Require the same standard of reporting (both as to timeliness and form) as is required of licensed insurers (i.e. based on statutory accounting principles); granting authority to the superintendent – as regulator – to waive by regulation or circular letter certain redundant, excessive or unnecessary requirements.

• Confirm the authority (and requirement) of the Insurance Department to maintain regulatory oversight over estates in receivership.

• Strengthen and standardize the requirement for regular, statutory statements and standardized reports to the liquidation or rehabilitation courts.

• Grant discretion to the Courts to recognize representatives of interested parties, including policyholders, creditor, guaranty funds and reinsurers.

• Eliminate the newly enacted audit requirements, and substitute a realistic oversight regimen over the receivership process and the agents of the receivership.

• Either eliminate the Liquidation Bureau altogether or clarify its status, standing and oversight.

• Place the p/c guaranty funds under the control of a separate entity with industry participation – similar to the funds in other states.

• Strengthen the reporting requirements and oversight of all the guaranty funds, p/c and life.

• Ultimately, allow for the appointment of receivers other than the superintendent of insurance, who would be held accountable on the same basis as any other licensee.

In other words, let the professional managers manage, and the regulators regulate!

Final Thoughts

Through this series of articles I have attempted to show the errant path taken by New York’s receivership process over the past several decades, and the need to repair and reshape the process. The system is not irrevocably broken, but it continues to move down a path that can only lead to eventual total mistrust and abuse. In view of the severe economic issues facing our industry today, the threat of massive insolvencies are not out of the question, and New York is ill prepared to handle such an event.

Throughout my 23+ years representing creditors, policyholders, reinsurers, managements, and other interested parties of insolvent insurance companies, I have been told by a succession of Liquidation Bureau personnel that my proposals to open up the process to greater scrutiny and oversight, and to allow the active participation of third parties, would interfere with the administration of the estates by placing an unnecessary burden on the receivers and add significant cost to the estates. The reality is quite the opposite. I seek nothing more than to apply the same rules of business conduct to insolvent companies as are applicable to solvent ones.

Finally, the cocoon of secrecy that the Bureau has wrapped itself in over the years, and which is being enhanced by the current administration under an Orwellian ruse of transparency, has resulted in a bloated, unresponsive and arrogant bureaucracy deeply mistrusted by those most directly affected. It does not have to be that way.

POSTSCRIPT: Last week The Liquidation Bureau announced a plan to seek a private buyer for Midland Insurance Company, which has been in liquidation in New York for 23 years. Definitive action on this estate is long overdue, and the plan may prove to be an appropriate course of action. However, one cannot help but question whether the plan is an admission by the administration that the Liquidation Bureau is not equipped to or capable of performing the responsibilities of a receiver for a substantial company – a sobering thought given the current financial climate.

By the way, in announcing its Midland plan, the Liquidation Bureau inaccurately claims that it “would be the first sale of a U.S. insurance company in liquidation.” Not so! (See, e.g., New York’s own Constellation Re).

The Liquidation Process in New York – Part IV-B: Information Highway or By-way?

As discussed in the first part of this installment (Part IV-A posted on November 13, 2008), the statutory reporting requirements on the receiver and his agents, including the Liquidation Bureau, are limited and not necessarily helpful to policyholders, claimants and other interested parties. Despite all the noise about transparency, the information available is generally what the Liquidation Bureau decides to disclose rather than what interested parties want to know. Is it any different for New York’s several insurance security/guaranty funds?

As discussed in part III of this series (posted October 9, 2008), New York has five (5) insurance security/guaranty funds. There are three non-life security funds administered by the superintendent of insurance: the property/casualty fund, the workers comp fund and the public motor vehicle liability fund. The Life Insurance Company Guaranty Corporation, a separate entity with its own Board of life industry representatives, administers the guaranty fund protecting current life and annuity policies. There is also a life guaranty fund covering pre-1983 policies that still remains extant.

The P/C Security Funds

The p/c insurance security funds are accounts funded through industry assessments, with the commissioner of taxation and finance as custodian, and with the control of the funds vested with the superintendent as receiver. Because the p/c funds are essentially bank accounts and not separate entities, there are no specific reporting requirements for these funds. The superintendent is required to include as part of his annual report to the legislature under Insurance Law Section 206 “[a] statement of the expenses of administering” the funds, and to include “[t]ables relative to liquidation, conservation or rehabilitation proceedings by the department . . .” In response to these requirements, the superintendent includes a one-page schedule summarizing receipts, disbursements and balances for each of the three p/c funds. That is the sum total of the regularly provided public information about these funds!

However, because the fund accounts are within the custody of the commissioner of taxation and finance, some additional records regarding the funds can be obtained under the Freedom of Information Law. Hence, as a result of FOIL requests over a number of years to the department of taxation and finance, I have obtained detailed information on the disbursements from the three p/c funds on an estate-by-estate basis.

Curiously, however, the taxation and finance department advises that it does not keep records on recoveries from estates. For that information I was referred to the Liquidation Bureau, which, of course, takes the position that it is not a state agency and therefore not subject to FOIL. Notwithstanding this limitation, the Bureau includes some information on recoveries from estates in its annual report filed with the superintendent and which is obtainable under FOIL.

As a result, by using the information obtained from the taxation and finance department about disbursements and the limited information from the Liquidation Bureau on recoveries, I have been able to construct schedules of the net disbursements from the funds on an estate basis for the past 10 years for the p/c fund and the past 6 years for the motor vehicle and w/c funds. The schedules are too extensive to include in this article, but to give an indication of the information that has been developed, here are the five estates with the greatest net drain on each fund over these periods:

P/C Fund Net Distributions (in millions) 1998 through 2007:

Reliance Ins. Co. — $298.2
Group Council Mutual — $184.4
First Central Ins. Co. — $113
Transtate Ins. Co. — $75.5
Legion Ins. Co. — $73
Total All Estates — $1,066

W/C Fund Net Distributions (in millions) 2002 through 2007:

Reliance Ins. Co. — $172.3
Legion Ins. Co. — $76.5
Home Ins. Co. — $34
Fremont Indemnity — $14.6
Amer. Mutual Boston — $12.1
Total All Estates — $354.1

PMV Fund Net Distributions (in millions) 2002 through 2007:

NY Merchant Bakers — $46.4
Capital Mutual — $26.7
Reliance Ins. Co. — $8.5
Legion Ins. Co. — $3.3
Acceleration Nat’l — $3.3
Total All Estates — $89.3

The information that I have been able to glean through FOIL, although not nearly providing a complete picture of the funds, still is enough to raise questions about the management of estates and the security funds provided by the industry. Unfortunately, however, this detailed information is simply not required to be disclosed on any regular basis nor made available for public analysis.

The Life Funds

Unlike the p/c funds, there is a specific statutory authority for “examination and regulation by the superintendent” of the Life Insurance Company Guaranty Corporation, the entity that administers the principal life guaranty fund, and a requirement that the Corporation file an annual financial report and “a report of its activities during the preceding calendar year.” (§7714). Because the superintendent is required to make annual reports and examination reports on licensed companies publicly available (see §§307 and 311), access to this information about the Life Insurance Company Guaranty Corporation and the life guaranty funds it administers must be readily available as well, right? Wrong.

The superintendent does not include any information on the life funds in the annual report to the legislature, and there is no financial information included on the Life Insurance Company Guaranty Corporation web site (, which contains more disclaimers than useful information.

Because the annual financial report and examination reports are filed with the superintendent, they should be available under FOIL. However, in response to my FOIL requests, I was informed that no examinations have been conducted and the annual reports contain “confidential” information and are therefore exempt from disclosure. After an appeal, I eventually received copies of the last couple of “annual reports”, but they were so heavily redacted as to make them useless (the redacted documents reminded me of a 1950’s HUAC era spy movie!).

Ironically, there is more information available on the p/c funds – controlled by the superintendent and his agents at the Liquidation Bureau — than is available on the industry administered life funds. The cost to the industry for funding these funds is substantial, yet there is no hue and cry demanding greater disclosure or accountability. Perhaps, therefore, there should be little surprise that the receivership process in New York is translucent at best, and that the Liquidation Bureau can claim transparency with so little disclosure.

The Liquidation Process in New York – Part III: [In]Security Funds

This seems like a particularly good time to discuss insurance security funds as part of the review of the insurance insolvency process in New York. While every state has some form of security or guaranty fund coverage for both property/casualty and life insurance products, New York does it differently – not necessarily better, but definitely differently.

Guaranty Fund Overview
The various state insurance guaranty funds generally provide coverage to resident policyholders against the failure of any carrier admitted to do business in the state. There are limitations and caps on coverage that vary from state to state. For information on any particular states coverage, go to the web sites of the National Conference of Insurance Guaranty Funds ( for information on property/casualty funds, and the National Organization of Life and Health Insurance Guaranty Associations ( for information on life and health funds. Both of these organizations make available detailed information on the coverages, caps and limitations on a state-by-state basis. The NCIGF site also has some excellent publicly available summary charts comparing coverages and limitations by state.

Even though these associations make information publicly available about the funds, the insurance guaranty funds are little known to or understood by the insurance consumer. There are many factors contributing to this lack of understanding including:

  • Insurance claims are not as readily determined, for instance, as the balance in a bank account covered by Federal Deposit Insurance;
  • The caps, coverages and exclusions are not uniform but vary greatly from state to state; and
  • Most insidiously in this age of instant communication and “openness,” the laws of most states specifically prohibit the advertising of the existence or coverage of the insurance security and guaranty funds, particularly the life insurance funds (see my June 18, 2008 post, “Outing Life Guaranty/Security Funds”).

This series of articles, however, is about the insolvency process in New York and, of course, the insurance security funds in New York have their own quirks and distinctions from the rest of the universe.

New York has five, count ‘em, five insurance security funds — three property/casualty funds and two life funds. The three New York p/c funds are the Property/Casualty Insurance Security Fund, the Workers’ Compensation Security Fund and the Public Motor Vehicle Liability Security Fund. The two life funds are the Life Insurance Guaranty Corporation, which was replaced (but not eliminated) by the Life Insurance Company Guaranty Corporation of New York in 1985.

The New York P/C Funds
There are two main differences between New York’s three p/c funds and the p/c funds in all other states:

  1. The New York funds are pre-assessed rather than post-assessed; and
  2. The New York funds are controlled directly by the superintendent of insurance as receiver rather than by separate guaranty associations.

By statute, the New York p/c funds are funded by annual assessments of all licensed carriers writing the kinds of business covered by each fund. For the largest of these funds, the Property Casualty Insurance Security Fund, all licensed p/c insurers are assessed 0.5% of “net direct written premiums” in any year where the balance in the fund falls below $150 million. According to the 2007 Annual Report of the Superintendent to the Legislature, the balance in this fund at March 31, 2007 (the latest published report) was $180,903,187. Although this balance is in excess of $150 million, it is likely that the annual calls will continue without break for the foreseeable future because of the extensive demands against the fund in recent history, including the solvency concerns with the other two p/c funds.

The other two funds are not only smaller, but they are financially stressed to the point of having required legislative intervention to support them – particularly the Public Motor Vehicle Liability Security Fund, which at March 31, 2007 had a balance of $92,760. The Workers’ Compensation Security Fund had a March 31, 2007 balance of $52,748,854, but this balance was supported by loans in excess of $17 million from assets of estates in liquidation. These loans were authorized by legislation adopted in 2005 as part of emergency measures taken by the New York Legislature to shore up the stressed funds — measures that raise a number of unanswered questions about the long term viability of the funds and the proper or improper use of estate funds.

The 2005 legislation required the superintendent of insurance to evaluate the funds and make recommendations to the Legislature for “long term” solutions to the fund issues. This resulted in a May 2006 report by then Superintendent Howard Mills supported by an extensive evaluation by the consulting firm of RSM McGladrey, recommending a number of statutory and administrative reforms. Among the more significant recommendations were proposals to eliminate the cap on assessments; reduce the $1 million cap on claims to either $500,000 or $300,000 consistent with other state funds (NY is the only state with a cap in excess of $500,000, and most states cap claims at $300,000); excluding claims of large commercial insureds (again, consistent with the restrictions in many other states); and the merger of the Public Motor Vehicle Liability Security Fund with the more broadly funded Property/Casualty Insurance Security Fund. To date, however, I am not aware that the current administration has actively pursued these or other reform changes with the Legislature.

The pre-assessment/post assessment dichotomy between New York and other states is probably not terribly significant today. While it might have been argued in the past that pre-assessments allow greater flexibility in addressing insolvencies on a timely basis, the mere volume of insolvencies and the resulting claims, and the financial stress on the funds, has de facto made even the New York funds close to being post-assessment funds.

The second significant difference between the p/c funds in New York and those of other states is that in the rest of the country, each state’s fund is managed by a separate entity – generally a guaranty association that is independent of the receiver and that include industry representation (the funds are, after all, the funds of the contributing insurers!). In New York, however, there is no separate entity managing or overseeing the funds. The New York p/c funds are nothing more than general accounts accessed by the sole authority of the superintendent of insurance. There is no industry representation, no separate claim handling function and no separate oversight.

The existence of guaranty associations provides an excellent check and balance in the insurance insolvency system. Receivers benefit from the expertise of the associations and their members in the management and payment of claims, and the associations provide an opportunity for the industry to have a better understanding of potential fund requirements and the unique issues facing particular insolvent estates.

In New York, however, the industry has limited if any involvement in the management or review of claims of an estate, and very little input to estate specific issues that may arise except in the context of costly and time consuming adversarial proceedings.

Finally, and of most significance, the absence of separate p/c guaranty associations in New York results in even more authority over the control and management of insolvent estates residing with the Liquidation Bureau as the superintendent’s agent – a Bureau that, as I have previously pointed out in earlier installments in this series, is not a state agency (it just acts like one), has no clear statutory foundation, is subject to no central regulatory or judicial oversight, and despite its claims of transparency, is not obligated to provide any significant information on its operations to any regulatory, judicial, consumer or industry body. In effect, the New York p/c funds are pools of funds collected from the industry with unfettered check writing authority granted to the superintendent’s agents – the Liquidation Bureau — who are accountable to no one!

The New York Life Funds
The principal life insurance guaranty fund in New York is the Life Insurance Company Guaranty Corporation of New York, which was created by special legislation in 1985. The creation of the Life Insurance Company Guaranty Corporation of New York in 1985, however, did not terminate the Life Insurance Company Guaranty Corporation, which continues to cover claims on policies issued before August 1985 that are not covered by the “new” fund.

The life fund in New York bears a much closer resemblance to the funds in other states. Assessments from the industry are made only on an “as needed” basis so there is no pre-funding involved. Also, unlike the New York p/c funds, the New York life fund is actually managed by a separate not-for-profit corporation whose members are all New York licensed life insurers. The members in turn select the directors of the corporation who are charged with its management.

The pre-1985 fund remains relevant because the “new” fund has limitations and coverage distinctions quite different from the pre-1985 fund. Most significantly, the “new” fund has a $500,000 cap on claims, and covers only New York resident policyholders of licensed companies, while the pre-1985 fund covers claims under any policy issued by a domestic life insurer. These distinctions are likely to play a significant role in addressing the Liquidation Bureau’s work-out plan for Executive Life Insurance Company of New York in Rehabilitation, whose remaining book of business consists primarily of single premium deferred annuities issued before and after August 1985.

Although the New York life funds are closer to the traditional separate entities found in most other states, they seem to fly under the radar to a greater extent than the New York p/c funds. For example, information on the p/c funds is included each year in the Superintendent’s annual report to the Legislature, but there is no information included regarding the life funds. This is the case even though Article 77 of the insurance law covering the new fund requires an annual report be filed with the Superintendent.

The New York insolvency process is fraught with inconsistent and ineffective reporting requirements. Explaining these requirements and how they affect the effectiveness of the process will be the topic of Part IV of this series.


The Federal Deposit Insurance Corporation (we all know the FDIC) ran full page adds in national papers earlier this week with a picture of a $100,000 gold certificate and a penny. Their pitch — “Insuring deposits up to $100,000 without anyone losing a penny.” The protection provided by the FDIC is well known and publicized, and regularly used in financial planning, even by people of relatively modest means. Most of us know that it often makes sense to spread funds among various accounts rather than exceed the $100,000 limit to make sure there is maximum insurance coverage in the event of the failure of a financial institution. This insurance has proven to provide confidence in our financial institutions, even when there is a threat of financial strains. How different is the life insurance world!

In the life insurance world the existence of life guaranty or security funds is generally not publicly known. In fact, publicizing the existence of these funds by companies and agents is statutorily taboo! Even where information on these funds may be available, the burden is on the consumer to initiate the inquiries, and once located the information is complex and confusing with different limits and coverages state by state. Many, many decades ago, in a less controlled and less sophisticated financial environment, it was believed that allowing brokers or companies to mention the existence of guaranty funds would lead to the sale of cheap or non-existent life policies without concern for the financial stability (or existence) of the companies, hence leading to increases in fraudulent policies or life company failures. The time has come, however, to bring the life guaranty and security funds out from the closet into the light of day, and to have these funds be as much a part of financial and estate planning involving life insurance and annuities as the FDIC is for financial accounts.

To illustrate: Given the accumulation of wealth by baby boomers coupled with increases in longevity, more and more people are considering the purchase of annuities to insure that they do not outlive their means. Without knowing about the limitations of the life guaranty funds in your state (and with your broker or agent prohibited from telling you!), you might not even consider purchasing annuities from more than one carrier to maximize guaranty/security fund coverage. In New York, for instance, the limit of the life security fund for contracts issued after August 2, 1985 is $500,000 (there is no limit on contracts issued before August 2, 1985). Shouldn’t you know this before you place your life savings into the purchase of an annuity? Shouldn’t your broker be able – no, required – to give you this information? Shouldn’t information about life security be as widely available as information on Federal Deposit Insurance?

Who are we protecting by keeping this information in the closet?

Insurance Exchange Update

Because of the recent interest in reviving the insurance exchange in New York, and the numerous requests I have received for materials on the old New York Insurance Exchange, I have posted a new section of articles, studies and publications relating to the old Exchange to my website. these materials can be accessed at

One of the articles at this site is my 2004 article presented at a Practicing Law Institute seminar on run-offs and commutations, “What Ever happened to the New York Insurance Exchange (and why do we care?).” In that article I stated that the Exchange’s Security Fund’s plan for the distribution of about $81.8 million against obligations of $112.5 million had been approved by the Court in February 2004, but that no distribution had been made under the plan as of the date of the article in November 2004. Several people have asked whether a distrbution was ever made. the answer is yes, but it required some pressure to accomplish.

In December 2004, I brought a further motion before the Court to force the Security Fund to comply with its own plan and distribute the funds available for distribution immediately. As a result of this motion, in early January 2005 the Security Fund made a distribution of $81.6 million, or 72.05% of approved claims. this was followed in June 2005 with a second and final distribution of an additional $4.1 million, or 5.29%, to the same claimants. Following these distributions, which constituted substantially all of the assets of the Security Fund less administrative and closing expenses and reserves, the Security Fund filed a final report with the Court. the Court approved the final report and discharged the Security Fund from any further obligations to claimants in May 2006.