Policyholders who paid $20 million in premiums to keep their coverage alive now stand to lose over $120 million in benefits after PHL Variable Insurance Co. was pushed into liquidation, with some receiving only a fraction of promised payouts.
A group of universal life policyholders has filed a motion to intervene in the liquidation proceedings, claiming they face significant financial losses despite continuing premium payments throughout the rehabilitation process.
PHL Variable and two captive subsidiaries were ordered into rehabilitation in May 2024 after regulators found the companies roughly $900 million in deficit. The shortfall has since ballooned to $2.2 billion, according to finalized 2024 financials.
Connecticut Insurance Commissioner Josh Hershman (pictured above), who serves as rehabilitator, informed the Connecticut Superior Court late last year that liquidation had become unavoidable, citing material impairment across all of the company's blocks of business.
The collapse stems from high face value universal life policies issued to insureds over 70 years old between 2004 and 2007 now maturing. Since the fourth quarter of 2022, claims have typically exceeded $100 million per quarter, including several multi-million-dollar payouts.
The policyholders' motion seeks permission to cease paying premiums without triggering policy terminations, or alternatively, for premiums exceeding guaranty association caps to be placed in escrow.
Such requests are unusual in insurance liquidation proceedings, where premium continuation is typically required to maintain coverage. A ruling in the policyholders' favor could set precedent for how future rehabilitations handle those caught between paying to maintain policies and uncertain benefit outcomes.
Under Connecticut law, all policies terminate 30 days after a liquidation order, except to the extent covered by a guaranty association.
The motion states guaranty association coverage is capped at $300,000, though limits vary by state. New York's Guaranty Fund, for instance, provides up to $500,000 for life insurance policyholders.
Hershman has proposed an "enhanced liquidation" strategy combining a liquidation order with a transaction that would enable policyholders to receive benefits exceeding guaranty association coverage.
According to court filings, the rehabilitator is negotiating with two prospective buyers willing to provide limited coverage above guaranty limits, provided they can reach agreement with the associations on covering the portion within statutory limits.
The policyholders are also seeking disclosure of information regarding PHL and the ongoing sales process. The rehabilitator has declined to release this information, which the group says has hindered their ability to make informed decisions about their coverage.
According to the National Organization of Life and Health Insurance Guaranty Associations, the guaranty system has provided more than $25.88 billion in coverage benefits for policyholders of insolvent insurers since 1983.
Edward Stone, a lawyer representing some policyholders, said the situation "puts policyholders at great risk and creates systemic risk for the life and annuity business."
