James Wrynn, New York's Insurance Superintendent, (Superintendent and/or Rehabilitator, and/or Liquidator) has petitioned the Supreme Court of Nassau County New York for an Order of Liquidation and Approval of a Restructuring Agreement for Executive Life Insurance Company of New York (ELNY).
In addition to the Petition, the Superintendent's September 1, 2011 court filing also includes an Affidavit by Ivy Chang , an Accounting Manager for the New York Liquidation Bureau (NYLB), a Memorandum of Law in Support of the Petition, a proposed Order to Show Cause plus numerous related Exhibits including the Proposed Restructuring Agreement and prior ELNY financial reports from 2006 to 2010.
In the Petition, the Superintendent requests the court to issue a Show Cause Order:
- Setting a hearing on the Petition;
- Approving a briefing schedule;
- Approving the form of notice and method of service for ELNY's policyholders and creditors;
- Ordering that payments to structured settlement and other annuitants be continued pursuant to the ELNY Rehabilitation Plan;
- Continuing the injunctions provided by the Rehabilitation Order.
ELNY entered rehabilitation in 1991 and has been operating under the supervision of the NYLB, as agent for the Superintendent, pursuant to a Rehabilitation Plan approved by the Nassau County Supreme Court in 1992. The Rehabilitation Plan permitted the sale of ELNY's existing policies to Metropolitan Life Insurance Company (MetLife) except for structured settlement annuities and certain other non-surrenderable contracts which MetLife has also administered under a separate servicing contract.
According to the Petition, ELNY will have obligations to approximately 9700 policyholders as of January 1, 2012. In a separate communication to its members, the National Structured Settlement Trade Association (NSSTA), which has been working closely with New York officials on the ELNY matter, estimated that approximately 4800 ELNY structured settlement annuities remain in force. Prior to entering rehabilitation, ELNY sold approximately 8000 structured settlement annuities. To date, all ELNY structured settlement annuities have been paid in full and on time.
As justification for ELNY's proposed liquidation, the Petition states: "ELNY's financial condition is progressively deteriorating" and "ELNY will be unable to pay its outstanding lawful obligations as they mature in the regular course of business and further efforts to rehabilitate ELNY are futile."
Ivy Chang's Affidavit adds:
- "ELNY experienced financial difficulties because of unfavorable investment results, with sustained low interest rates and poor capital market performance during significant periods."
- "The Rehabilitator began negotiating with various life insurance industry parties, and in 2007, he announced that he had secured a commitment, in principle, of funds that would permit the continuation of full benefit payments for all ELNY policyholders."
- "Until the financial crisis of 2008, it appeared that such a restructuring of the Rehabilitation Plan would be possible."
According to the Petition: "the unprecedented global economic crisis and resulting market collapse of 2008 had a significant negative impact on ELNY's retained assets and made continued implementation of the Rehabilitation Plan without a liquidation unfeasible." The most recent ELNY financial statements (as of December 31, 2010) show assets of $905,945,200 compared with liabilities of $2,474,317,342 resulting in a negative surplus of $1,568,372,142.
The proposed ELNY Restructuring Plan, which is subject to court approval, was jointly prepared by the Superintendent and the National Organization of Life and Health Guaranty Associations (NOLHGA). Key provisions:
- A formula to determine the present value of all ELNY annuity contracts using a 4.25% discount rate and a jointly-agreed upon mortality table.
- A liquidation value assigned to each annuity contract which will be reduced by a percentage based upon the ratio of the liquidation value of ELNY's assets to the aggregate liquidation value of all contracts.
- This restructured value for each annuity contract is expected to lower benefit payments to approximately 34% of any remaining obligations.
- The participating state guaranty associations (PGAs) will supplement the ELNY benefit payments for annuity contracts eligible for state guaranty association coverage up to the maximum allowable by their state guaranty association laws. This maximum can vary between $100,000 and $500,000.
- In addition, New York's Article 75 Guaranty Association (its second of two life insurance guaranty associations) has agreed to provide coverage for ELNY contracts on a pro rata basis up to its statutory cap of $50 million. The Article 75 Guaranty Association coverage applies to ELNY contracts issued prior to August 2, 1985, and not otherwise covered by the PGAs, regardless of where the owner, payee or beneficiary resides.
- A consortium of life insurance companies has agreed to provide hypothetical guaranty association coverage up to $100,000 for ELNY policyholders and/or payees who are not otherwise covered by a state guaranty association.
- The Superintendent and NOLHGA have reached an agreement in principle with these same life insurance companies for additional, supplemental benefit enhancements subject to the completion of definitive documentation.
- Assuming ratification by all PGAs (anticipated by October 1, 2011) and all of the above contributions, the Superintendent and NOLHGA estimate 84% of ELNY contracts will be fully paid under the Restructuring Agreement - or 79% without the supplemental benefit enhancements.
- To replace ELNY and administer ELNY's restructured contracts, the PGAs and life insurance industry will form a special purpose not-for-profit captive insurance company ("NEWCO") under the laws of the District of Columbia.
- ELNY policyholders will receive a policy certificate to evidence NEWCO's reinsurance and assumption of all or the appropriate portion of ELNY's contract liabilities.
- Although insurance company professionals and independent directors will manage NEWCO, the Superintendent (as Liquidator) will exercise additional oversight and will retain the ability to petition the Nassau County court for relief if NEWCO fails to honor its obligations.
- The Liquidator and NEWCO will attempt to facilitate the efforts of any owners of ELNY structured settlement annuities that decide to provide additional payments to payees and or beneficiaries.
- At defined future dates, NEWCO will attempt to transfer all of NEWCO's liabilities to a financially-strong third party life insurance company and remit the net proceeds back to the ELNY estate.
- Although creditors must present proofs of their claims within four months of the proposed Order of Liquidation, all policyholders who appear on ELNY's books and records will be deemed to have filed timely proofs of claims.
The Petition states the Superintendent proposes to give notice to ELNY policyholders, creditors and all other interested parties of the Petition and its requested relief and to allow such parties to present their objections. The Petition further proposes a court hearing on or about March 15, 2012 to consider the petition and a briefing schedule.
For S2KM's complete reporting and analysis of Executive Life and ELNY's anticipated liquidation, including an Executive Life timeline, see the structured settlement wiki.
Addendum (September 9, 2011): The Supreme Court of Nassau County New York has entered the Order to Show Cause requested by the Superintendent of the New York Insurance Department as Rehabilitator (now Liquidator) for ELNY. The Order sets March 15, 2012 as the date for hearing on the entry of orders described above and requires the Superintendent, following submission to the Court of the schedule to the Restructuring Agreement, to give notice to each ELNY policyholder that will show the projected liquidation plan treatment of benefits under individual ELNY annuities. The schedule is anticipated to be submitted later this month after state Guaranty Associations have approved the restructuring plan and agreed to specific funding commitments.