The New York Liquidation Bureau (NYLB) has released its 2012 annual report stating that the Bureau distributed a record $345.6 million in estate assets to insurance policyholders, claimants and creditors, while also significantly reducing the number of outstanding policyholder claims by nearly one-third.
“The Bureau is making significant progress in resolving claims so that money gets out the door faster to the policyholders and claimants. We are closing a number of longstanding estates and accelerating the pace of newer estates closings,” stated Benjamin Lawsky, Superintendent of Financial Services.
Significant events of the past year include Financial Guaranty Insurance Co. being taken into rehabilitation in July, and Frontier Insurance Co. liquidating in November — it had been placed under rehabilitation in October 2001 and was a major estate the NYLB has been managing in all its complex relationships.
The $345.6 million distributed in 2012 – a record high – compares to $84.7 million distributed in 2011. The distributions included $192.7 million paid from five domestic estates in liquidation which were closed in 2012, plus $152.9 million in early access and interim distributions from an additional 15 domestic estates in liquidation.
But, through the years, under various agency heads and superintendents of insurance, there have been contentions of mismanagement, reorganizations, firings, sealed investigations and fumblings at the agency, which reports to the DFS but cannot be subpoenaed as a state agency.
Related story: The aborted New York Liquidation Bureau investigation
Historically, a portion of the NYLB employees have been represented by the Civil Service Employees Association (CSEA) but the NYLB is not part of the New York State Civil Service System.
As of Dec. 31, the NYLB had 252 employees, approximately half were represented by the CSEA. This is almost half of former high staffing numbers at a time when there was much concern about the inner dealings of the agency.
The NYLB carries out the duties of the superintendent of the Department of Financial Services (DFS) in his capacity as receiver of impaired or insolvent domestic insurance companies under New York Insurance Law Article 74.
The NYLB is responsible for managing the affairs of insurers that are financially impaired or insolvent.
Much of this was reported in earlier articles on the vast saga of ELNY, the failed and now insolvent Executive Life of New York insurer whose failure is leaving some hard-hit annuitants without full payment benefits.
When ELNY was taken over in 1991, it was a rehabilitation project, but a decade or more later, sank into insolvency. Some call the company’s failure a regulatory problem because it got so much worse while parked at the NYLB. Some say it is a failure of a life insurer from loose industry investment practices of the late 1980s (junk bonds) that spurred subsequent reforms.
Some say state regulators stepped in to stop a run on the company. In early 1991, ELNY received considerable adverse publicity relating to the distressed asset portfolio of its parent company, California’s Executive Life Insurance Company (ELIC.)
The insurance department saw that the publicity accelerated cash surrenders by policyholders, according to reports, accounts from the time and interviews. An order of rehabilitation was issued by the New York Supreme Court on April 23, 1991.
ELNY was licensed to write various lines of life insurance and annuities, including traditional life policies, single premium deferred annuities, single premium immediate annuities and closeout qualified retirement accounts.
After almost 10 years, with liabilities outstripping assets, Lawsky filed a court order on Sept. 1, 2011, seeking to convert the rehabilitation to a liquidation on the grounds that ELNY was insolvent and further efforts to rehabilitate the company were futile, the NYLB states in its report.
Lawsky also filed a restructuring agreement, which was negotiated with interested state guaranty associations, the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) and the life insurance industry for the purpose of maximizing benefits to ELNY policyholders and creditors, the report states.
ELNY was one of three rehabilitations targeted to close or convert to a liquidation in 2012. Only Frontier Insurance Co. was converted to a liquidation.
A petition to convert the rehabilitation to a liquidation for the other two, ELNY and Professional Liability Insurance Co. of America was filed.
The ELNY liquidation plan has been the subject of some policyholder litigation — with appeals — that have only now been exhausted. At the time of the liquidation report’s drafting, the case was still open.
However, over the time of the litigation, the ELNY estate’s assets have continued to erode, as Lawsky and others warned if the liquidation plan was not put in motion sooner rather than later.
The NYLB shows that in 2011, ELNY had $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 is $1,992,454,118, $1,951,883,579 in 2011.
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. At that point, and across two different superintendents, there were attempts to come up with an industry-funded rescue plan.
“We did not produce the reported ELNY statements, but we do not find it surprising in general that the deficit increased somewhat from the end of 2011 to the end of 2012,” stated Peter Gallanis, NOLHGA’s president.
“Because of the appeal from [New York Supreme Court, Nassau County] Judge [John] Galasso's order of April 16, 2012, all annuity payments since then have continued to be made at 100 cents on the dollar, which has inevitably reduced the estate's remaining capital,” Gallanis noted.
“Once the restructuring plan has closed, additional funding has been contributed through GABC, and payment levels have been adjusted in light of available estate capital, further material changes are not anticipated,” Gallanis said.
With appeals from plaintiff’s attorneys for the shortfall annuitants exhausted, the liquidation is expected to begin in the third quarter of this year.
Money contributed from the life insurance industry for a $100 million needs-based fund administered by mediators, as well as those state guaranty funds, must all be collected and placed into a captive insurer, GABC, set up in Washington, D.C., and overseen by regulators there.
According to the plaintiffs’ lawyer Ed Stone, close to 1,500 ELNY annuity beneficiaries stand to lose more than $900 million dollars in benefits they were promised when they “settled” their personal injury or wrongful death claim using a structured settlement.
The anticipated shortfalls resulting from the liquidation of ELNY are expected to total $920,641,977 on a present value basis. That is, assuming promised state guarantee association payments and enhancements, but prior to any possible payments from the ELNY Hardship Fund and/or from structured settlement defendants who negotiated and promised to pay future periodic payments funded with ELNY annuities, stated a reckoning by the Beyond Structured Settlements blog writer Patrick Hindert.
The entire anticipated shortfall will be allocated among approximately 15 percent of the ELNY annuitants with an average present value loss of more than $600,000 per annuitant. The remaining ELNY annuitants are not expected to experience any reduction in their payments, Hindert wrote last year. Statutes require the state guaranty funds to be paid out on a proportional basis — thus, the industry hardship fund as a supplement for those not made whole was created.
Additionally, the NYLB resolved more than 6,000 policyholder claims in 2012, reducing the total number of outstanding policyholder claims by 29 percent.
The NYLB has targeted at least 10 additional domestic estates for closure by the end of 2013.
The total population of open estates has begun to decline over the last couple of years as the pace of estate closures has exceeded the number of new estates opening.
The NYLB, created in 1909, was responsible for the administration of 34 domestic estates, 21 ancillary estates, four rehabilitations, five conservations, and 46 fraternal benefit societies.
Lawsky said that the NYLB will continue to build on that foundation and work hard to handle claims and make distributions to stakeholders in a responsible and expeditious manner.