"The Trouble with ELNY"

In an article titled "The Trouble with ELNY" and published this week on his website, New York attorney Peter Bickford describes "how the receivership process has failed Executive Life Insurance Company of New York [ELNY], its policyholders and annuitants." Bickford calls for a review of the "flawed receivership process" in New York that he claims has resulted in ELNY's proposed liquidation and restructuring.

On its ELNY web page, the New York Liquidation Bureau (NYLB), the entity responsible for day to day management of ELNY's rehabilitation, blames ELNY's failure on "adverse economic conditions" including the financial and stock market collapse of 2008. However, as Bickford points out:

• Neither the 1991 ELNY rehabilitation order nor the 1992 order approving the ELNY rehabilitation plan declared ELNY to be insolvent; and
• Based on ELNY financial reports (including unaudited reports prior to 2006 that Bickford obtained through Freedom of Information Law requests), ELNY was "de facto insolvent" long before the 2008 economic downturn.  
• Note: Bickford's article features a chart that shows ELNY's surplus turned into a deficit in 2002, ten years following ELNY's plan of rehabilitation was approved and six years prior to the 2008 economic downturn.

According to Bickford, "[t]he 1992 ELNY rehabilitation Plan, like the Titanic, was doomed the moment it left port..." (emphasis added) How was it doomed? Bickford points out ELNY's original rehabilitation plan "stripped out all the traditional life and annuity business and transferred it to Met Life with the supporting, statutory reserve assets. These contract holders received an equivalent policy from Met Life and suffered no material financial consequences..... [F]or whatever reason the most volatile, long-tailed book of ELNY business [single premium immediate annuities (SPIAs) including all structured settlements] was left in ELNY together with its weakest assets."

ELNY's 1992 rehabilitation plan included an assessment that projected ELNY's bond investments and common stock dividends would "be sufficient to cover current SPIA payouts for at least ten years" which turned out to be accurate until ELNY's started running deficits in 2002. Given the fact that ELNY was not declared insolvent in 1992 and was not subsequently audited until 2006, Bickford asks why proper accounting and reserve levels were not maintained? Even before ELNY's first external audit in 2006 (resulting in a substantial increase in reserves), the NYLB, according to Bickford, acknowledged that the reserve standard used in its annual statements “substantially understate[d] reserves when compared to reserves that would be required to satisfy regulatory requirements for a going concern insurance carrier.”

To explain how ELNY was allowed to pay full annuity benefits for a decade after becoming de facto insolvent in 2002, Bickford blames the receivership process in New York. Counter intuitively, according to Bickford, when an insurance company enters rehabilitation in New York, it ceases to be regulated. "The rigorous statutory requirements for filings, reports or certifications imposed on other licensed companies are no longer imposed on estates in rehabilitation; there are no periodic regulatory reviews, examinations or communications; there is no regulatory oversight of the operations, assets or finances; and there is no mechanism for regulatory oversight of financial condition or compliance with the insurance law or regulations."

If ELNY had never entered rehabilitation, and had been required to continue to file statutory financial statements, annual independent accountings and actuarial certifications, Bickford argues:

• Insurance regulators would never have allowed ELNY to reach its current status;
• ELNY's management might have proposed a recovery plan and been allowed to correct its financial problems; and/or
• ELNY's officers, directors, independent auditors, actuaries and other agents, could have potentially been held accountable for their actions or inactions contributing to ELNY failure.

Bickford points out, however, with ELNY in rehabilitation, the New York Superintendent of Insurance (Superintendent) and the NYLB (the same parties charged with managing ELNY since 1991) are also the proponents and overseers of ELNY's proposed liquidation and restructuring plan. To add insult to injury, they are also seeking court-ordered immunity for their past actions and omissions even though, according to Bickford, no statutory immunity exists for the New York Superintendent or his agents in their roles as ELNY's receiver.

Note: New York Governor Cuomo merged the New York State Department of Insurance with the New York State Banking Department to create the New York State Department of Financial Services as part of the 2011-2012 State Budget.

As an additional source of recovery, the NYLB has suggested that ELNY structured settlement annuity recipients may have recourse against the owners of ELNY annuity policies or others who may still be liable under the original settlements. But even if true, Bickford asks: why should ELNY structured settlement annuitants have the burden of pursuing litigation to recover their loses for a second time? And why is there no recourse against the parties responsible for ELNY's insolvency?

Bickford also argues that the logic behind the state insurance guaranty fund caps is "upside down" in the ELNY scenario. Instead of fully protecting annuitants with the greatest need (structured settlement recipients who have the largest annuities), the guaranty funds are more likely to fully protect investors with relatively smaller ELNY annuities. In this respect, however, Bickford's argument is incomplete, if not partially incorrect, because he does not address the uncertain status in ELNY's proposed liquidation and restructuring of investors who have purchased ELNY's structured settlement payment rights via factoring transactions.

Addendum (February 15, 2012): apologies to Peter Bickford for comments in the concluding paragraph above. S2KM overlooked footnote 12 in Bickford's article which states: "Many of these [structured settlement] claims have been sold by SPIA beneficiaries to factoring companies, which raises a whole other set of issues that are not covered by this article."

For additional ELNY reporting, including links to other ELNY articles by Peter Bickford plus an ELNY timeline, see the structured settlement wiki.

 

Comments

[New York Real Estate Agents]

More of a question rather than a comment... is there any mechanism for a class action lawsuit to be filed against either ELNY, NY Liquidation, or any other State agency that was supposed to protect the recipients of structured settlements that were to paid out by Executive Life?

[janet gibson]

I'm wondering the same thing......if there is any mechanism for class action law suit out there? If so, I'd like to be a part of it. I was under the assumption that the state of NY was the responsible party.

[Bill]

The insurance industry has made sure that all laws are in their favor & that they have a cap on what they pay out(they call it the max amount allowed by law but in reality it means the most they have to pay out to in order to tell future customers that they are protected) The truth is they want to spin this by saying 84 percent were made full & that small percentage had a reduction in payouts. The state of New York, the insuracne industry & most of all, lawyers want us to go away & die. By paying us out in installments, they will just give us just enough to make us poor but not poor enough to collect government help. So here is the inducement for our federal & state to do nothing & help this along. They are off the hook too. Sweet for all concern. We live on a pitance, and then most likely die early than there is no Medicade or SSI to worry about. We make too much for help. Mr Darer is one of the few who is trying to shed light on us. I have written the President and CBS, guess what. No reply. No one wants to be a part of kicking a cripple or blind person out into the street. They want us to go away. My lawyers promised they would be there if I had any trouble, guess what, "there is nothing they can do & I knew the risk". They never told me options to SSA or anything. They collected so now I am fast food wrapper to toss in the street. So, Janet, we are going down but I do care what happens to us. I pray that someone will help us, but I expect, like those of Executive Life of Californina, we will die and fade away as the theifs enrich themselves as the lawyer's fees & insurance industry pick over ELNY bones in liquidation(its called cherry picking, Met Life maybe has already had the best pick first). Janet this had been a rigged outcome, the minute your attorney let you sign your rights aways, it only took years for us to see the truth. He got rich & you got more suffering & pain. Everyday I am in pain so what do they feel each day as I suffer? Nothing. Take time to read the brief that is filed to argue our objections to liquidations. It is right there. Game, set and match. We loose and they win.