Beyond Structured Settlements

The ELNY Immunity Issue

Assuming presiding Judge John M. Galasso approves the Order of Liquidation and Approval of a Restructuring Agreement for Executive Life of New York (ELNY) as proposed by the Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY's Receiver, will the Liquidation Order grant legal immunity to the Superintendent, as ELNY Receiver, and his agents, including the New York Liquidation Bureau (NYLB or Bureau), for their acts and omissions in managing ELNY's Rehabilitation since 1991?

Objection

At least some of the ELNY policyholders and shortfall payees who filed objections took issue with the following proposed paragraph in the Superintendent's proposed Order:

“Judicial immunity is extended to the Superintendent in his capacity as Receiver and his successors in office, the New York Liquidation Bureau, and their respective attorneys, agents, and employees, and such immunity is extended to them for any cause of action of any nature against them, individually or jointly, for any action or omission by any one or more of them when active in good faith, in accordance with this order, or in the performance of their duties pursuant to Insurance law Article 74; . . .”

Superintendent's Reply

On March 1, 2012, Eric T. Schneiderman, Attorney General for the State of New York and Attorney for the Superintendent, filed an "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" (Reply Memorandum). Addressing the proposed judicial grant of immunity, the Reply Memorandum argues:

• The Superintendent, as regulator of the insurance industry in the State of New York, is immune for his decision to seek liquidation and the timing of such decision.
• The Superintendent, as Receiver for ELNY, has no liability for actions performed within the scope of his authority pursuant to the Rehabilitation Order, the Rehabilitation Plan Order, and subsequent orders of this Court.
• Any claim against the Superintendent would deplete estate assets without any benefit to ELNY Contract policyholders or payees.
• If the Court does not grant immunity, the Superintendent will be forced to reserve assets in the ELNY estate to pay the costs of defending these meritless claims, which could significantly delay the liquidation of ELNY and the closing of the Restructuring Agreement.
• The injunctions contained in the 1992 ELNY Rehabilitation Order restraining all persons from commencing any action against the Superintendent, as Receiver, should be continued.
• No objector has met its burden of proof to vacate or modify the injunctions granted by the Court.

Peter Bickford Analysis

In a 2009 article consolidating a series of blog posts about "The Insurance Receivership Process in New York", attorney Peter Bickford provides an alternative perspective on the immunity issue:

"... [T]he Bureau acts as the agent for the superintendent of insurance in his separate and private role as liquidator or rehabilitator, marshalling assets, paying claims and, in the case of rehabilitation, managing the business and acting to remove the causes of insolvency to restore the company to the marketplace. The courts have held that the liquidator or rehabilitator “stands in the shoes” of management so that, in theory at least, the Bureau and its employees are subject to the same standards of care and responsibility as any manager of any insurance entity.

"Of course, given the circumstances of taking over an insolvent company, the law provides for certain protections for the estate, such as providing the courts with the authority to issue injunctions or orders 'necessary to prevent interference with the superintendent or the proceeding, or waste of the assets of the insurer, or the commencement or prosecution of any actions, the obtaining of preferences, judgments, attachments or other liens, or the making of any levy against the insurer, its assets or any part thereof.'” (Insurance Law § 7419; Bickford's emphasis)

"These powers are clearly intended for the protection of the estate and its assets, and to allow for an orderly administration of an estate. They are not intended, and have not in the past been used overtly for the personal protection of the rehabilitator or liquidator and his agents – until now."

Bickford continues:

"By adding this [immunity] paragraph to the form of court order of liquidation or rehabilitation, the Bureau seeks to obtain immunity without any basis in the law, and for which there is no precedent in any of the hundreds of liquidation and rehabilitation petitions filed in the past. This immunity, by the way, is no garden-variety immunity from mere negligence. It bestows absolute immunity – including for gross negligence or intentional acts committed while acting as liquidator or rehabilitator of an estate.

"Once again the current administration of the Liquidation Bureau has acted counter to its own pronouncements of openness and accountability. The Bureau repeatedly states that it is protecting the interests of policyholders and claimants of insolvent estates, and has publicly invoked its “fiduciary” role more than a few times. In the law, of course, fiduciaries are held to a higher standard of care than mere managers. Not only is the Bureau not prepared to assume even the most basic standard of care for its actions or inactions, the Bureau seeks to escape any and all responsibility.

"Add this unprecedented immunity to the lack of existing institutional oversight or regulation, and you have the perfect setting for unbridled and undiscoverable abuse."

Bickford concludes:

"The regulatory oversight of a licensed company should not end with the entering of an order of liquidation or rehabilitation. It makes no sense that when an insurance entity is placed in receivership the commissioner ceases to be the regulator and becomes the manager of an unregulated insurance business. Why shouldn’t the superintendent as receiver be held to the same standards that he imposes on the rest of the industry as its regulator? Why shouldn’t he apply his own rules to himself?"

The ELNY Liquidation Hearing concluded March 29, 2012 and awaits Judge Galasso's decision.

For additional Peter Bickford commentary and analysis, see "The Trouble with ELNY" , S2KM's review of a recent Bickford article. For S2KM's complete reporting about the ELNY Liquidation, see the structured settlement wiki.

ELNY Objections and Replies

On March 15, 2012, the Supreme Court of Nassau County New York (Court) 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).

In response to the proposed ELNY Liquidation Order and Restructuring Agreement, approximately 130 persons and/or companies have filed objections. On March 1, 2012, Eric T. Schneiderman, Attorney General for the State of New York and Attorney for the Superintendent, filed an "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" (Reply Memorandum).

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. Among the Reply Memorandum's conclusions:

• "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."

S2KM summarized the Reply Memorandum as well as two other recent ELNY Court filings in a prior blog post. In this blog post, S2KM summarizes the ELNY objections and the Superintendent's replies as set forth in the Reply Memorandum. For S2KM's complete coverage of the ELNY liquidation, including an Executive Life timeline, see the structured settlement wiki.

Benefit Reductions

• Objection- ELNY annuity benefit payments should not be reduced because:
  • A reduction in benefits will cause extreme hardship.
  • The terms of the ELNY annuity contracts prohibit a reduction in payments.
  • Many of the ELNY annuity contract were issued pursuant to structured settlement agreements approved by court orders that cannot be abrogated.
  • Assurances were received that the ELNY structured settlement annuity payments would be guaranteed.
• Superintendent's Reply
  • These objections cannot outweigh the necessity for an order of liquidation because ELNY’s current assets are insufficient to cover the claims of all creditors.
  • Without liquidation, insolvency will continue to worsen and ELNY will exhaust its assets without the ability to meet its future annuity payment obligations.
  • Upon a finding of insolvency and the issuance of an order of liquidation, ELNY will cease to exist and the Superintendent, as liquidator, will be vested with discretionary authority to dispose of ELNY’s assets and to compromise its claims in accordance with New York Insurance Law Section 7435 in the manner directed by this Court.
  • As a result, prior orders and contractual obligations regarding payments do not form a valid basis for objecting to the approval of the Restructuring Agreement.
  • The Restructuring Agreement maximizes benefits and minimizes the risk of disruption and loss to ELNY policyholders and payees.

Additional Disclosure

• Objection - More information is needed to determine whether objections exist to the Restructuring Agreement.
• Superintendent's Reply
  • This objection is not grounds for rejecting the Restructuring Agreement because the information sought has been provided or is premature and unnecessary for the Court’s consideration and approval of the Restructuring Agreement.
  • The Superintendent has been working to provide objectors with all of the information requested, most of which has already been disclosed including recently completed Exhibit 6.1.2, the Supplemental Benefits Reinsurance and Participation Agreement.
• Objection - The Restructuring Agreement and its exhibits and schedules have not been finalized and executed.
• Superintendent's Reply
  • The reason for seeking approval of the Restructuring Agreement as drafted is to allow flexibility for making non-material changes to successfully close the Restructuring Agreement without negatively impacting ELNY policyholders and payees.
  • The Superintendent does not object to the Court considering and resolving any objections filed after the January 16, 2012 deadline to the extent they concern disclosures or changes made after that date.
  • The Superintendent is negotiating a draft "facilitation plan" with NOLHGA, on behalf of GABC, and certain annuity owners, which is not a closing condition to the Restructuring Agreement.
  • Even without the facilitation plan, ELNY policyholders and annuitants will still receive the same benefit payments from GABC plus whatever supplemental payments they are entitled to from responsible annuity owners.
• Objection - The Superintendent did not provide sufficient information and/or assurances concerning the financial ability of GABC to meet its future obligations to ELNY policyholders and payees.
• Superintendent's Reply
  • The Superintendent did not present additional financial information concerning the assets and liabilities of GABC at the time of filing the Verified Petition.
  • Reason: except for GABC's New York Article 75 guaranty payments (less than 5 percent of total liabilities), GABC's liabilities will be guaranteed by state guaranty associations or life insurance companies.
  • Because of this objection, however, the Superintendent has filed an expert report of Jack Gibson and an affidavit of Jonathan Bing and intends to present their testimony as well as Ivy Chang's testimony on March 15, 2012. Note: Gibson's report plus the affidavits of Bing and Chang are posted on the ELNY website. S2KM summarized Gibson's report and Bing's affidavit in this prior blog post and Chang's affidavit in this prior blog post.
  • The Superintendent also promises to provide additional information concerning Schedule 1.15, including guaranty association coverage, enhancements, and the treatment of third parties with rights under assignments of annuity benefit payments in accordance with Article 74 of the Insurance Law.
• Objection - The Restructuring Agreement is subject to change after Court approval including Schedule 1.15, participating guaranty association (PGA) coverage, and/or the extent of third-party rights to payments from PGAs.
• Superintendent's Reply
  • Prior notices to ELNY policyholders and annuitants explained that information about possible benefit reductions was “estimated” and “subject to change”.
  • Note: the Superintendent has revised the proposed Restructuring Agreement as of March 6, 2012.
  • The Superintendent promises to file with the Court an updated Schedule 1.15 prior to the March 15, 2012 hearing on the Petition.
  • Under the applicable statutes, however, Schedule 1.15 cannot be finalized until after court approval of the Restructuring Agreement to allow sufficient time for resolution of any Section 1.15-related disputes.
  • After the Court approves the Restructuring Agreement, Schedule 1.15 will also change to the extent:
    • An ELNY policyholder moves, provides updated address information, or dies, which could alter PGA coverage and/or ELNY’s contractual obligations;
    • The total assets and liabilities of ELNY change to a sufficient degree to alter the projected pro rata percentage distribution of ELNY’s assets to all ELNY policyholders and payees;
    • A PGA determines that an ELNY policyholder or payee is or is not entitled to coverage previously noted in Schedule 1.15; and/or
    • Information is provided that shows an error in Schedule 1.15, requiring correction pursuant to the Restructuring Agreement.

Notice Issues

• Objection - The notice procedures and briefing schedule were inadequate to provide interested parties with an opportunity to review and to present objections to the proposed ELNY liquidation and Restructuring Agreement.
• Superintendent's Reply
  • The ELNY notice and briefing schedule balanced the need for a prompt resolution of ELNY’s deepening insolvency against the ability of affected parties to review and object to the proposed liquidation and Restructuring Agreement.
  • By the March 15, 2012 hearing date, interested parties will have had:
    • 195 days since the Superintendent issued a press release about ELNY’s financial situation and the plans to liquidate and restructure;
    • 118 days since a form of Court-approved Notice began being published in the national editions of the New York Times and Wall Street Journal for four consecutive weeks, and
    • 99 days since personalized informational mailings were distributed to the last known address of each ELNY policyholder and payee.
  • The Superintendent, through the NYLB, created a new dedicated website specifically for ELNY policyholders and other interested parties on September 1, 2011 - the same day the Order to Show Cause was issued.
  • The Superintendent has received, considered and responded to several objections submitted past the January 16, 2012 deadline.

Not Fair and Equitable

• Objection- The Restructuring Agreement is not fair and equitable and does not comport with New York law because:
  • Some ELNY annuity payees will experience substantial shortfalls while the great majority of ELNY annuity payees will be paid in full; and
  • It improperly favors ELNY contracts that are either not covered by a PGA or covered by a PGA in an amount less than $250,000.
• Superintendent's Reply
  • The Restructuring Agreement complies with the statutory requirements of Article 74 of the New York Insurance Law. It treats all ELNY policyholders equally and creates no favored subclass with respect to ELNY's assets.
  • A straight liquidation of the ELNY estate without implementation of the Restructuring Agreement would provide far fewer benefits in a significantly less orderly manner.
  • Under New York law, the Superintendent has the power to enter into the Restructuring Agreement and the Court has the ability to direct the manner in which payments and dividends to creditors shall be made.
  • In his role managing the affairs of an insolvent insurer, the Superintendent, as Rehabilitator or Liquidator, is entitled to deference unless his decisions are arbitrary or unreasonable.

PGA Participation and Funding

• Objection - The Restructuring Agreement should not be approved because it limits or alters ELNY policyholders’ and payees’ rights against the PGAs.
• Superintendent's Reply - The Restructuring Agreement does not limit or alter ELNY Contract policyholders’ and payees’ rights against the PGAs, including the right to contest the amount or conditions of any applicable state guaranty association coverage.
• Objection - The Restructuring Agreement unfairly permits the PGAs to reduce the amount of their statutory coverage obligations.
• Superintendent's Reply
  • The net contribution, as opposed to a full contribution by the PGAs of the maximum amount of each PGA’s statutory coverage, arises under the express provisions of Section 7435 of the New York Insurance Law, not under applicable state guaranty association statutes.
  • This netting effect occurs because the contributing PGA is entitled to a pro rata distribution of ELNY’s assets with equal priority to the claims of ELNY policyholders and payees.
  • It is accounted for in the Restructuring Agreement by calculating the PGAs total required contributions on a net basis after reduction of the PGAs’ corresponding claim against the ELNY estate.

Proposed Immunity Provisions

• Objections
  • Provisions in the proposed Order of Liquidation extending judicial immunity to the Superintendent, his successors, agents and representatives, should be denied and/or eliminated.
  • The Court should use funds from the ELNY estate to appoint an investigator/expert to determine the cause of ELNY’s insolvency.
• Superintendent's Reply- The Court should reject these requests and grant immunity to the Superintendent and his agents because:
  • The Superintendent, as regulator of the insurance industry in the State of New York, is immune for his decision to seek liquidation and the timing of such decision.
  • The Superintendent, as Receiver for ELNY, has no liability for actions performed within the scope of his authority pursuant to the Rehabilitation Order, the Rehabilitation Plan Order, and subsequent orders of this Court.
  • Historical returns on ELNY’s investments were not as high as anticipated under the Rehabilitation Plan (13% for the common stocks and 100-150 basis points above 30 year U.S. Treasury obligations for bonds).
  • The Superintendent adjusted and increased the reserves required to meet ELNY’s future annuity obligations in 2006 using the then-current statutory basis of 5.25 percent.
  • The net effect was to increase the projected funds needed by ELNY to meet its future obligations by nearly $1 billion dollars.
  • While ELNY’s actual payment obligations remained unchanged, the 2006 financial statements showed an increase in assets necessary to meet those obligations.
  • New York Insurance law does not provide for the appointment of an investigator/expert by the Court to be paid for by the ELNY estate.
  • Any claim against the Superintendent would deplete estate assets without any benefit to ELNY Contract policyholders or payees.
  • If the Court does not grant immunity, the Superintendent will be forced to reserve assets in the ELNY estate to pay the costs of defending these meritless claims, which could significantly delay the liquidation of ELNY and the closing of the Restructuring Agreement.
  • The injunctions restraining all persons from commencing any action against the Superintendent, as Receiver, should be continued.
  • No objector has met its burden of proof to vacate or modify the injunctions granted by the Court.

Miscellaneous

• Objection - The Court should provide a lump sum payment option or the right to opt out of the proposed Restructuring Agreement.
• Superintendent's Reply - An opt out is not required under New York Insurance Law and would not provide any economic or administrative benefit to policyholders and payees.
• Objection - The Court should appoint counsel to represent ELNY policyholders and payees or hold an annual hearing to determine if the economy has sufficiently recovered to permit 100% back pay.
• Superintendent's Reply - Such measures are outside the scope of New York Insurance Laws. In addition, Section 6.2 of the Restructuring Agreement already provides, if economic conditions improve, any excess of assets necessary to meet GABC’s obligations will be returned to the ELNY estate for distribution to ELNY policyholders and payees.
• Objection - Any remaining valuable assets of First Executive Corporation (FEC) should be segregated and credited to structured settlement payees to whom FEC is obligated pursuant to a qualified assignment.
• Superintendent's Reply - Any segregation or crediting of annuity contracts owned by FEC would impermissibly create a subclass under New York insurance law.
• Objection - Certain property and casualty insurance companies that own ELNY Contracts object to specific provisions of the Restructuring Agreement.
• Superintendent's Reply - With a couple of exceptions, if the Court agrees with any of these provision specific objections to the Restructuring Agreement, the Superintendent will not object. The Superintendent does oppose one provision specific objection concerning third-party beneficiary rights (Section 16.15) and proposes an amendment to the provision (8) of the proposed liquidation order agreeing that the current version is unintentionally and overly broad.
• Objection - Contributions by life insurance companies should be enhanced significantly, with additional enhancements for ELNY structured settlement annuity payees.
• Superintendent's Reply - There is no mechanism for the Superintendent or the Court to compel contributions above what is already provided, and capped, by statute.

New ELNY Website Documents

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's Affidavit

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."

Reply Memorandum

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
• Argument
• Conclusion
• 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.