Connecticut Puts Phoenix Life and Annuity Issuer in Rehab

What You Need to Know

A financial examiner listed low interest rates as one contributing factor.
Another contributing factor: Investor-owned life insurance.
Customers will have to apply for hardship exemptions to make cash withdrawals.

Connecticut Insurance Commissioner Andrew Mais has received approval from a state court in Hartford to put PHL Variable Insurance Co. — the insurer that once wrote the Phoenix Companies’ variable insurance policies and variable annuity contracts — in rehabilitation.

The rehabilitation order, which also includes two reinsurers controlled by PHL, limits benefits payments and cash withdrawals, and it raises the possibility that PHL could stop making trailing commission payments to agents after six months.

PHL struggled because of the effects of low interest rates on its investment returns, the impact of the COVID-19 pandemic on life insurance claims and mortality-related annuity benefit payments, and the effects of the life settlement industry on the performance of universal life policies, according to a petition Connecticut officials filed with the court in Hartford.

Because life settlement investors who bought the universal life policies typically pay the minimum amount to keep the policies in force, and make no use of the policy’s own investment features, they have led to the policies generating much less revenue than PHL had originally expected when it priced the policies, Michael Shanahan, a Connecticut financial examiner, said in an affidavit included with the petition.

“These policies comprise PHL’s most unprofitable block and are a major cause of the continued deterioration of the companies’ financial condition,” Shanahan said.

What it means: Financial professionals with clients who may have life insurance policies or annuities written by PHL need to tell the clients about the new restrictions on payments to customers.

The history: PHL Variable Insurance was created in 1981 to write variable products for the company that eventually became known as the Phoenix Cos.

PHL issued products such as term life, whole life, fixed annuities and non-variable indexed annuities as well as universal life, variable life and variable annuities.

The parent company was a policyholder-owned mutual. It demutualized in 2001.

The Nassau companies, part of a holding company controlled by Golden Gate Capital, announced plans to acquire Phoenix in 2015 and, after closing on the deal in 2016, added a total of $180 million in extra capital to Phoenix insurance company affiliates.

Nassau created a reinsurer, Concord, in 2019 to support efforts to wind down the PHL Variable business. Projections created at the time showed that PHL and Concord would have enough to pay all customers in full, but, in 2020, PHL’s condition deteriorated, according to the rehabilitation petition.

Regulators approved other moves intended to strengthen the company, including a 2021 reorganization that separated PHL Variable from Nassau’s other insurance businesses.

The current situation: Today, the only PHL employees are the company’s officers. Nassau companies handle all company operations under the terms of service agreements.

PHL ended 2022 with about $2.2 billion in general account assets, $800 million in separate account assets and $900 million in negative capital and surplus, and it’s on track to run dry in 2030, according to the rehabilitation petition.

When PHL’s assets are depleted, the company will still have about $1.4 billion in policyholder and annuity holder liabilities on its books, Connecticut Insurance Department officials estimated.

Regulatory involvement: The rehabilitation petition shows that Connecticut regulators put PHL under an order of administrative supervision in March 2023.