The comprehensive analysis of the Executive Life of New York (ELNY) liquidation published last week by the National Underwriter Life & Health magazine on its LifeHealth Pro website describes a "slow-motion disaster of gross mismanagement" the magazine claims will result in severe collateral damage not only to hundreds of ELNY structured settlement shortfall victims but also to the life insurance industry more generally.
In its lead article, titled "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", the National Underwriter report intersperses profiles of five ELNY structured settlement shortfall victims with an historical summary of the 21 year ELNY rehabilitation and liquidation process.
The historical summary concludes:
- "[T]he ELNY rehabilitation, restructuring and liquidation have been nothing short of disastrous. Not only did regulators fail to protect a company from being dis-mantled by its insolvent parent, it failed to adequately manage the company from Day One. It failed its self-appointed fiduciary duty to serve ELNY’s payees. It failed to act with integrity, and it failed to uphold the social compact between insurers and their customers that if the money needs to be there, it will be there. Always. Without fail. Without exception."
- "At every single turn with ELNY, there was failure after failure to uphold the public’s trust.
The state of New York, and especially the New York Liquidation Bureau,
so badly disrupted the leap of faith between insurer and insured that
the ripples will be felt for years to come, as every one of ELNY’s
shortfall payees tells anyone who will listen that insurance and
annuities are not worth it. That the money will not be there when it is
needed, that the government will not protect the public." (emphasis added)
The National Underwriter article challenges the conventional explanation of ELNY's downfall which S2KM reported previously in "The Fall of First Executive". Instead, it assigns primary blame to the New York Liquidation Bureau (NYLB), the non-government entity to which the New York Insurance Superintendent delegated ELNY management responsibilities beginning in 1991.
Describing the NYLB as "a rogue agency known for its codes of secrecy and characterized by many who spoke for this story as ineffective and mismanaged at best, and a snake pit of corruption at worst", the article highlights many examples of alleged mismanagement and lack of disclosure related to the ELNY liquidation:
- Failure to prepare and/or maintain any financial reports for ELNY for the years 1990, 1991 and 1992.
- The 1991 decision to sell almost all of ELNY's non-structured settlement business along with its non-junk bond investment portfolio to MetLife.
- Predicating the rehabilitation plan on unrealistic assumptions such as 30-year U.S. government treasuries maintaining an average interest rate of nine-and-a-half percent.
- Selling ELNY's high yield bond portfolio for a steep discount in 1991 at the bottom of the "junk bond" market.
- Reinvesting the proceeds in an unsafe percentage of common stocks vs. more conservative bonds.
- Increasing ELNY gross liabilities by $500 million between 1999 and 2000 based upon questionable assumptions and without due diligence.
- Reporting discrepancies and irregularities including incorrect numbers of policyholders and thousands of purported policyholder birth dates after ELNY entered rehabilitation.
- Excessive NYLB staffing with dozens of administrators for ELNY despite contracted services for ELNY's claims (MetLife), asset management (Credit Suisse) and accounting (Milliman & Robertson).
- Alleged corruption resulting in the dismissal of NYLB superintendent Jody Hall in 2006 at a time when Hall allegedly "was making persistent efforts to examine the elusive financial records on ELNY". Note: the National Underwriter provides additional related details in a companion article titled "The Aborted New York Liquidation Bureau Investigation".
- NYLB's alleged "culture of secrecy" exemplified by:
- Disclaimers on ELNY financial reports stating that conclusions drawn by anyone except NYLB would be “materially misleading.”
- Conditional bonuses, paid out of estates under NYLB management, requiring NYLB retirees to sign non-disclosure agreements prohibiting comments about non-public NYLB information.
- A damning description of the NYLB in its own 2007 annual report stating that the Bureau:
- Had "little viable management structure or professional culture at the most senior level,” and
- Needed "to address untimely payment of claims, poor employee evaluation methods, gross financial mismanagement in the case of ELNY, and a complete lack of auditing."
In the context of NYLB's alleged "gross mismanagement", the National Underwriter article finds it especially offensive that Judge John Galasso granted the NYLB complete judicial immunity as part of his ELNY liquidation order with support from the Superintendent of New York State Department of Financial Services and NOLHGA.
Attorney Edward Stone filed a Notice of Appeal
May 30, 2012 on behalf of 18 ELNY structured settlement shortfall
victims as objectors with the Appellate Division of the Supreme Court of
the State of New York, Second Department, challenging Judge Galasso's order. Oral arguments for the appeal are scheduled for November 15, 2012.
The National Underwriter article concludes: "the final chapter has not closed on ELNY, and there still is time to fix the problem without causing so much collateral damage." It urges the New York state government and/or the insurance industry to dedicate funds to fully restore ELNY and its shortfall victims.
For related S2KM reporting, see the structured settlement wiki and, more specifically: