On March 15, 2012, the Supreme Court of Nassau County New York is scheduled to consider a Petition by the Superintendent of the New York State Department of Financial Services (Superintendent) for an Order of Liquidation and Approval of a Restructuring Agreement for Executive Life Insurance Company of New York (ELNY).
According to Schedule 1.15 for the proposed ELNY Restructuring Agreement, 4168 of ELNY remaining 9694 annuities are structured settlement annuities of which 1459 will experience shortfalls even assuming proposed state guaranty association contributions and enhancements. For the 1459 ELNY SSAs with anticipated shortfalls:
- 156 SSAs are identified as having been factored - although some industry sources believe the actual number of current ELNY SSAs previously factored is considerably higher.
- 1100 SSAs have "uncovered amounts" in excess of $100,000 each on a present value (PV) basis including
- 237 SSAs which have "uncovered amounts" in excess of $1,000,000 PV each including
- 17 SSAs which have "uncovered amounts" in excess of $5,000,000 PV each.
- The largest ELNY SSA has an "uncovered amount" of $25,692,377 PV.
During the past two weeks, five new documents have been added to the ELNY website:
- Affidavit of Jonathan L. Bing,
- Reply Memorandum in Response to Objections to the Proposed Liquidation of ELNY
- Expert Report of Jack L. Gibson
- Exhibit 6.1.1 - Revised Reinsurance and Participation Agreement
- Exhibit 6.1.2 - Supplemental Benefits Reinsurance and Participation Agreement
Bing was appointed Special Deputy Superintendent of the New York Liquidation Bureau (NYLB) in 2011. Created in 1909 by the New York State Legislature, the NYLB "carries out the responsibilities of the Superintendent of Insurance as Receiver, and acts on his behalf in the discharging of his statutorily defined duties to protect the interests of the policyholders and creditors of insurance companies that have been declared impaired or insolvent." The NYLB has been responsible for the day to day management of ELNY since it entered rehabilitation in 1991.
Filed with the Court on March 1, 2012, Bing's ELNY Affidavit supports the Superintendent's Petition for Liquidation, the proposed Restructuring Agreement and the Reply Memorandum referenced above and summarized below. Bing's Affidavit summarizes the history of the ELNY rehabilitation and acknowledges "[t]he Superintendent or his representatives received a number of requests for additional information concerning the proposed liquidation." In response, Bing's Affidavit states:
- "[C]oncerning the Restructuring Agreement, on February 17, 2012 the Superintendent filed with the Court a revised form of Reinsurance and Participation Agreement (which is Exhibit 6.1.1 to the Restructuring Agreement) and the form of Supplemental Benefits Reinsurance and Participation Agreement (which is Exhibit 6.1.2 to the Restructuring Agreement), which both contained details concerning certain benefits and guarantees provided by a consortium of life insurance companies."
- "[C]oncerning the Guaranty Association Benefits Company (“GABC”), on February 27, 2012 the Superintendent filed and served the expert report of Jack L. Gibson, a Managing Director of Towers Watson, concerning the financial viability of GABC, which was also posted to the ELNY.org website."
Bing's Affidavit further states the Superintendent has received "approximately" 130 objections to the proposed ELNY liquidation and restructuring agreement. Bing's response: "[n]otwithstanding the objections, it is clear that approval of the Restructuring Agreement as part of a comprehensive plan of liquidation is in the best interest of policyholders, creditors, and the public."
Also filed with the Court on March 1, 2012, the Reply Memorandum is fully titled "Omnibus Reply Memorandum of Law in Response to the Objections to the Proposed Liquidation of ELNY and Distribution of ELNY's Assets Pursuant to the Restructuring Agreement." It is signed by Ralph Pernick, Assistant Attorney General, on behalf of Eric T. Schneiderman, Attorney General for the State of New York and Attorney for the Superintendent of Financial Services of the State of New York.
The Reply Memorandum consists of 56 pages plus an Exhibit A titled "List of Objections". Exhibit A identifies individual objectors (presumably ELNY annuity payees) by contract number and liability insurers (presumably ELNY "buy and hold" annuity owners) by name. Exhibit A also identifies a couple of structured settlement factoring companies as objectors.
The contents of the Reply Memorandum are organized as follows:
- Preliminary Statement
- Factual Background
- Exhibit A
The Preliminary Statement confirms that "130 objectors have raised several types of issues that the Superintendent has organized into categories, which this single, omnibus response addresses for the Court’s convenience." The Superintendent's categories of objections:
- Objections to benefit reductions by individual policyholders, including objections that ELNY Contracts cannot be modified pursuant to their contractual terms or a prior court order;
- Objections requesting additional disclosure;
- Objections relating to notice issues;
- Objections arguing that the Restructuring Agreement contravenes applicable New York law and/or is not fair and equitable;
- Objections to the calculation, amount, and timing of participation and funding by the PGAs;
- Objections to the immunity provisions of the proposed liquidation order and requests for the appointment of an independent investigator or expert; and
- Miscellaneous other objections.
The Preliminary Statement concludes:
- "No interested person has come forward with a viable alternative or proposed statutorily compliant changes to the Restructuring Agreement that would increase benefit payments to ELNY Contract policyholders and payees above those already provided for and guaranteed under the Restructuring Agreement."
- "The Court should overrule the objections submitted and issue an order declaring ELNY to be insolvent and directing the liquidation of ELNY on the terms set forth in the Restructuring Agreement."
In addition to providing factual background about the ELNY rehabilitation, the second section states: "[t]he Superintendent continues to believe that obtaining approval of the Restructuring Agreement as part of a comprehensive plan of liquidation is in the best interest of ELNY’s creditors, ELNY Contract policyholders, and the public because it:
- "Adds substantial additional value from state guaranty associations and voluntary insurance industry participants that will result in the full coverage of approximately 85 percent of ELNY Contracts,
- "Minimizes the risk of disruption in annuity benefit payments,
- "Provides guaranty association coverage without disruption of benefits and without requiring ELNY Contract policyholders and payees from having affirmatively to seek guaranty association coverage to which they are entitled under state statutes,
- "Provides for an optimal transition for ELNY from rehabilitation to liquidation,
- "Does not impermissibly discriminate against any class of ELNY creditors, and
- "Treats ELNY creditors and all other interested parties fairly and equitably in accordance with the requirements and intent of Insurance Law Section 7435."
The Factual Background section concludes: "if the Restructuring Agreement is not approved, benefit payments for the more than 9,500 non-objecting ELNY Contract policyholders and payees will be placed at risk of disruption, there will be no guarantee for future payments, and orphan contracts (those not covered by a state guaranty association) would suffer a reduction in benefits to a level supported only by ELNY’s current assets. Such a result is inconsistent with the best interest of ELNY creditors, ELNY Contract policyholders and payees, and the public."
In the Argument section, the Reply Memorandum considers and rejects each of the categories of objections outlined above. S2KM will summarize and discuss the Reply Memorandum arguments in a subsequent blog post.
The Reply Memorandum concludes: "For the reasons set forth above, this Court should grant the relief requested in the Verified Petition and grant such other and further relief as the Court deems just and proper."
Jack Gibson Expert Report
Jack Gibson's Expert Report is dated February 27, 2012. It consists of 18 pages, 33 Exhibits and 3 Appendices. According to Gibson, he has been retained as an expert witness by Faegre Baker Daniels LLP, on behalf of its client, NOLHGA, and Sidley Austin LLP, on behalf of its client, the Superintendent of Financial Services of New York, as Receiver for ELNY. Gibson's clients have asked him to review the proposed ELNY Restructuring Agreement and to assess the financial viability of the resulting special purpose entity (GABC).
Among his qualifications, Gibson states he is a Managing Director of Towers Watson. He previously supported NOLHGA related to Executive Life of California. He has been engaged by NOLHGA since February 2006 as consulting actuary for the NOLHGA ELNY Task Force. In connection with Gibson's ELNY consulting services, his clients are compensating Towers Watson at an hourly billing rate of $525.
Among the information and materials Gibson reviewed for his ELNY analysis, several appear not to have been made available to ELNY annuity payees, their representatives or the general public:
- ELNY 2002-2010 Mortality Experience Study, developed by Towers Watson under Gibson's direct supervision and direction;
- MetLife/ELNY Administration Agreement 2011-2013, dated May 12, 2011;
- Investment asset data provided by the investment managers for ELNY, Wellington Management Company and Goldman Sachs Asset Management, as of July 31, 2011 and December 31, 2011;
- ELNY Contract administrative record detail from MetLife as of September 30, 2002, September 30, 2003, September 30, 2004, September 30, 2005, September 30, 2006, March 31, 2007, December 31, 2008, December 31, 2009, December 31, 2010, March 31, 2011, and December 31, 2011; and
- March 31, 2011 estimates for every ELNY contract, showing Guaranty Association coverage state (if any), GA coverage amount (if any), and Article 75 allocations (if any), provided by NOLHGA.
Based upon his analysis, Gibson concludes:
- "GABC is financially viable and provides a combination of significant initial funding of assets, along with an array of guarantees that together provide significant security and protection to enable GABC to meet all future financial obligations; and
- "For every one (100%) of the 9,000 scenarios tested and summarized in this report, the assets of GABC were sufficient to pay all future GABC benefit payments."
For complete S2KM reporting and analysis about ELNY, including an Executive Life timeline, see the structured settlement wiki.