Connecticut Moves to Liquidate PHL Variable Insurance Co. Life Blocks

Connecticut's insurance regulators have determined that the potential sale of life insurance blocks held by PHL Variable Insurance Co. is unworkable, leading to the decision to proceed with liquidation. This outcome stems from a recent rehabilitation report announced by Interim Insurance Commissioner Josh Hershman on December 31, underscoring the inability to meet the regulatory compliance requirements necessary for a successful sale.

The report noted PHL's financial insufficiencies, highlighting the lack of assets needed to transfer to a buyer or reinsurer without risking the entitlements of other policyholders. The plan now focuses on conventional liquidation backed by guaranty associations, as this option ensures better protection for policyholders than an unviable sale of insurance blocks.

Shift to Liquidation

Andrew Mais, former insurance commissioner and rehabilitator, had been working on selling PHL Variable’s life blocks. Despite initial strategies for AI-driven prior authorization and underwriting to attract potential buyers, the focus has shifted to liquidation following his resignation in November. Efforts to craft a detailed rehabilitation plan by year-end were superseded by the pressing need for liquidation.

Policyholders, particularly those with substantial policy values, are dissatisfied with this outcome. SWS Holdings, represented by attorney Edward S. Stone, is notably impacted. The company's Phoenix Generations universal life policies, which carry significant death benefits, faced denial in becoming a "full-party" in the rehabilitation proceedings. Stone has criticized the state's apparent prioritization of reducing guaranty association liabilities over safeguarding policyholder interests.

Asset Management and Negotiations

Hershman is in strategic discussions with the National Organization of Life and Health Insurance Guaranty Associations to explore asset availability for supporting limited ongoing benefits post-liquidation. With PHL’s financial condition critically impaired, a self-funded rehabilitation plan is impossible, making a liquidation order inevitable.

Under Connecticut law, policy coverages are set to terminate 30 days post-liquidation. However, policies covered by a guaranty association will continue, with most claims prioritized post-settlement. Current negotiations with potential buyers might extend policy benefits beyond guaranty association limits, contingent on achieving similar coverage agreements.

Ultimately, Hershman aims to secure an agreement that optimizes returns for PHL Variable's stakeholders while ensuring sustained support for policyholders beyond basic coverage. This strategy is pivotal in enhancing the asset value and coverage benefits for policyholders during the impending liquidation.