General Updates on the Liquidation of Executive Life Insurance Company of New York (ELNY)
What is the current status of the ELNY receivership?
The ELNY receivership is a longstanding and complex proceeding that dates back to the early 1990s, when the company was placed in rehabilitation and its affairs were placed under the oversight of the New York Liquidation Bureau. For 20 years, all ELNY benefits have been timely and fully paid under the receivership. The ELNY rehabilitation plan, which was developed and approved by the Supreme Court of the State of New York, Nassau County (“Receivership Court”) in 1992, more recently developed difficulties because of sustained adverse economic conditions, including low interest rate environments and poor capital market performance, all of which lasted for significant periods after the rehabilitation plan’s approval. Until 2008, the New York Superintendent of Insurance (now known as the Superintendent of Financial Services) thought that a restructuring of the rehabilitation plan permitting all ELNY contracts to continue to be paid in full would be possible. However, the financial crisis and resulting market collapse of 2008 had a further significant negative impact on ELNY and made such plan restructuring impossible. As a result, the New York Superintendent of Financial Services, acting as statutory receiver of the ELNY estate (“Receiver”), petitioned the Receivership Court for an order that finds ELNY to be insolvent and places ELNY into liquidation.
On April 16, 2012, the Receivership Court granted the Superintendent’s liquidation petition and declared ELNY to be insolvent. By Order of the Receivership Court, the Superintendent was directed to liquidate ELNY’s business and affairs in accordance with New York Insurance Law and in substantially the manner provided in the Restructuring Agreement, which was also approved by the Receivership Court by the same Order. The effective date of ELNY’s liquidation (also known as the Liquidation Date) will be the closing date of such Restructuring Agreement.
What does it mean for owners, payees and beneficiaries of ELNY contracts now that the Receivership Court approved the Restructuring Agreement and issued an Order of liquidation against ELNY?
By Order of the Receivership Court, the Superintendent was directed to liquidate ELNY’s business and affairs in accordance with New York Insurance Law and in substantially the manner provided in the Restructuring Agreement, which was also approved by the Receivership Court by the same Order. Until the closing date of such Restructuring Agreement (which will be known as the “Liquidation Date”), the current Rehabilitation Plan of ELNY and all prior orders of the Receivership Court will remain in effect. This means that from now until the Liquidation Date, all payees will continue to receive their full benefit payments from ELNY. On the Liquidation Date, the Rehabilitation of ELNY will be converted to a Liquidation and the New York Superintendent of Financial Services, as Liquidator of ELNY, will liquidate ELNY’s business and affairs in accordance with the New York Insurance Law and substantially in the manner provided in the Restructuring Agreement. At that time, benefit payments for all ELNY contracts will be restructured as set forth in the Restructuring Agreement and as set forth on Schedule 1.15, which is available at www.elny.org.
If ELNY has been declared insolvent, does this mean benefit payments for some ELNY contracts will be reduced at this time?
No. Although the Receivership Court has found ELNY to be insolvent, the current Rehabilitation Plan of ELNY and all prior orders of the Receivership Court will remain in effect until the Restructuring Agreement that was approved by the Receivership Court to restructure the ELNY contracts is implemented by the parties to that agreement. This means that all payees will continue to receive their full benefit payments from ELNY until the closing date of the Restructuring Agreement, also known as the Liquidation Date. Please continue to refer to www.elny.org or call our information line at 1-888-398-8213 to receive updates about the expected Liquidation Date.
How will contract owners, payees and beneficiaries be notified of the Liquidation Date or closing date of the Restructuring Agreement?
At least two weeks prior to the expected Liquidation Date or closing date of the Restructuring Agreement, the Receiver will file a notice of the proposed Liquidation Date with the Receivership Court, and post a copy of such notice on www.elny.org. Within one business day of the Liquidation Date, the Receiver will file a notice of the Liquidation Date with the Receivership Court and post a copy of such notice on www.elny.org. Please continue to refer to www.elny.org or call our information line at 1-888-398-8213 to receive updates about the expected Liquidation Date. In addition, within two weeks after the Liquidation Date, the Receiver will publish notice of the Order entered by the Receivership Court in the national editions of the New York Times and Wall Street Journal.
How does one submit a claim against ELNY?
The Receiver is authorized to set a “Claims Bar Date” by which date all persons who have a claim against ELNY must complete and submit a Proof of Claim form in order for their claim against ELNY to be considered. The Claims Bar Date has not yet been determined and Proof of Claim forms are not yet available. However, all ELNY policyholders and holders of Claim-Overs (as defined in the Restructuring Agreement) who appear on ELNY’s books and records as of the closing date of the Restructuring Agreement, also known as the Liquidation Date, are deemed to have duly filed a proof of claim. This means that if you are a Claim-Over, or if you are a policyholder and your ELNY contract appears on Schedule 1.15 (which is available on www.elny.org), you do not need to file a Proof of Claim form. If you are a party other than a policyholder or a Claim-Over and you wish to assert claims against ELNY, you must complete and return a Proof of Claim form. Proof of Claims forms and instructions will be available soon. Please continue to check www.elny.org or call our information line at 1-888-398-8213 for updates regarding the Claims Bar Date.
Will there be any further changes to the Restructuring Agreement or to Schedule 1.15?
The Receiver does not expect to make any material changes to the Restructuring Agreement that was filed with the Receivership Court on March 6, 2012, which is also available on www.elny.org. However, Schedule 1.15 will continue to change prior to the Liquidation Date to take into account any relevant updates regarding ELNY policyholders. An updated Schedule 1.15 will be available at www.elny.org.
Part I. Background on the Restructuring Agreement
1. What is the Restructuring Agreement, and why was it developed?
The Receiver, the National Organization of Life and Health Insurance Guaranty Associations (“NOLHGA”), The Life Insurance Company Guaranty Corporation of New York, affected state life and health insurance Guaranty Associations, and other interested parties have been working for the past few years to construct a comprehensive restructuring agreement that provides the greatest benefits possible for ELNY contract owners, payees and beneficiaries under the current circumstances and utilizes ELNY’s estate assets in a fair and equitable manner in compliance with New York law. NOLHGA represents those Guaranty Associations with statutory coverage obligations under ELNY contracts that will be participating in, and parties to, the Restructuring Agreement.
The purpose of the Restructuring Agreement is to provide as much benefit to contract owners, payees and beneficiaries as is reasonably possible in light of ELNY’s financial situation and the statutory coverage obligations of Guaranty Associations. It is anticipated that benefits under approximately 85% of the ELNY contracts outstanding at the time of liquidation will be fully covered under the Restructuring Agreement. In other words, under the Restructuring Agreement, approximately 85% of all ELNY contract owners, payees and beneficiaries can expect to receive 100% of their scheduled payments for the entire duration of their ELNY contracts.
2. What is a Guaranty Association?
Life and health insurance Guaranty Associations were created to protect, up to statutory limits, state residents who are contract owners, payees and beneficiaries of policies issued by a licensed life or health insurance company that has gone into liquidation. All 50 states, the District of Columbia, and Puerto Rico have life and health insurance Guaranty Associations. All insurance companies (with limited exceptions) licensed to write life and health insurance or annuities in a state are required to be members of that state’s life and health insurance Guaranty Association. If a member company becomes insolvent (goes out of business), that state’s Guaranty Association obtains money from member insurance companies writing the same line or lines of insurance as the insolvent company in order to continue providing coverage and pay claims of the insolvent company.
Guaranty Association coverage does not fully protect all contract owners, payees and beneficiaries, however. Like the Federal Deposit Insurance Corporation (“FDIC”), state Guaranty Associations have maximum benefit limits. These limits are established by state law and can vary from state to state, but most states provide at least $100,000 in coverage for annuities. In New York, the limit is $500,000. For more information about Guaranty Associations, please see Part V.
3. What is NOLHGA?
NOLHGA is a voluntary association made up of the 52 life and health insurance Guaranty Associations. Through NOLHGA, the Guaranty Associations work together to provide continued protection for contract owners, payees and beneficiaries affected by a multi-state insurance insolvency. NOLHGA establishes a task force of representative Guaranty Associations to work with the insurance commissioner to develop a plan to protect contract owners, payees and beneficiaries. For more information, please visit http://www.nolhga.com.
4. What is Guaranty Association Benefits Company?
Guaranty Association Benefits Company (“GABC”), referred to as “NEWCO” in the Restructuring Agreement, is a new special purpose, not-for-profit captive insurance company formed by the Guaranty Associations. The obligation to pay benefits under ELNY contracts as restructured will be transferred from ELNY to GABC. GABC will be funded with the estate assets of ELNY, financial contributions from the Guaranty Associations that have committed to participate in the Restructuring Agreement and additional support from certain life insurance companies. GABC will assume substantially all of ELNY’s liabilities and will make payments to ELNY contract owners, payees and beneficiaries as they become due and payable.
GABC is operated by insurance company professionals and other experienced individuals and is subject to regulatory supervision by the District of Columbia Department of Insurance, Securities and Banking. The Receiver will have authority to make examinations into GABC’s affairs concerning its compliance with the Restructuring Agreement.
GABC will replace ELNY as benefit provider only upon the closing date of the Restructuring Agreement, also known as the Liquidation Date. This means that once the Restructuring Agreement is implemented, GABC will assume the restructured liabilities of ELNY and will begin to make benefit payments as described in Part III below.
5. What role will the Guaranty Associations play in connection with the Restructuring Agreement?
Under the Restructuring Agreement, participating Guaranty Associations will contribute funds obtained through assessments paid by healthy life insurance companies to provide coverage up to the limits set forth in their governing laws. The Guaranty Association in each state where ELNY was licensed can assess insurers operating there an amount based on a statutory formula that reflects insurers’ market shares in the state; i.e., companies with a large market share pay a proportionately higher percentage of total assessments than companies with a lower market share. The assessments will be used to provide benefits to that state's residents who are owners, payees or beneficiaries of the policies or annuities issued by ELNY.
6. How much money are Guaranty Associations contributing? How will GABC use those moneys?
Participating Guaranty Associations will provide financial support to GABC to make enhanced benefit payments (that is, in addition to those made from the assets of ELNY) in respect of the portions of the annuity contracts eligible for Guaranty Association coverage (referred to as “Covered” portions), as further described in this Q&A and in the Restructuring Agreement. If, after the initial financial contribution by the participating Guaranty Associations, GABC determines that it requires additional funds to make benefit payments in respect of the Covered portions of the annuity contracts, participating Guaranty Associations will deliver additional funds to GABC.
7. Are all contracts covered by a Guaranty Association?
No. For example, certain contracts may be ineligible for coverage because the relevant party (either the owner or the payee of the ELNY annuity) resides in a state where ELNY was not licensed to do business as a life insurance company. The Guaranty Association coverage in every state is funded by assessments of licensed insurance companies. If an insurer was not licensed in a state, the law does not provide for the Guaranty Associations to cover such an insurer’s contract owners, payees or beneficiaries. However, such contracts ineligible for coverage by a Guaranty Association will receive enhanced benefit payments as “Uncovered” contracts in the manner described in Part III below and in the Restructuring Agreement.
8. Why are some contract owners, payees and beneficiaries covered by a Guaranty Association not getting the full amount of money they are owed?
Like the FDIC, the amount of protection available to each contract owner, payee or beneficiary is capped by state law. Under the Restructuring Agreement, the participating Guaranty Associations will provide the maximum coverage allowable by law but cannot exceed the limits spelled out in the relevant state law.
Part II. General Overview of the Restructuring Agreement
1. Will contract owners, payees and beneficiaries affected by the Restructuring Agreement receive the full amount of money they are owed?
The affected Guaranty Associations will protect ELNY contract owners, payees and beneficiaries to the maximum extent possible in accordance with the coverage limits and other provisions imposed by each state’s laws. All covered contracts with present values of benefits that fall within Guaranty Association coverage limits will be paid in full. Contracts with present values of benefits greater than participating Guaranty Association coverage limits may see reductions in their benefit payments as explained elsewhere in this Q&A and in the Restructuring Agreement.
2. What will be the value of contracts held by contract owners, payees or beneficiaries?
Each annuity contract will first be restructured such that it receives its proportionate share of the ELNY estate assets as of the liquidation date set by the Receivership Court. Such contract will then be formulaically increased pursuant to certain benefit enhancements provided under the Restructuring Agreement. Please see Part III below for a more detailed explanation of the process of determining an annuity contract’s value.
3. When and in what manner will a contract owner, payee or beneficiary, receive benefit payments?
Owners, payees and beneficiaries of contracts fully covered under the Restructuring Agreement will receive 100% of their scheduled benefit payments from GABC at the same time and in the same manner as specified in their ELNY contracts. Owners, payees and beneficiaries of contracts not fully covered will continue to receive benefit payments from GABC utilizing the same payment schedule as their ELNY contracts, but at a reduced level to reflect the restructured value of such contract. Contract owners, payees and beneficiaries will continue to receive full benefit payments until the Restructuring Agreement is implemented by the parties thereto. Each payee is receiving information about the benefits each payee is currently projected to receive and will be provided additional information in the future with respect to any updates.
4. Is the amount a contract owner, payee or beneficiary is to receive under the Restructuring Agreement “guaranteed”?
Generally, yes. See Part III, Question 3.
5. Will there be tax implications for contract owners, payees or beneficiaries as the result of the transfer of ELNY’s obligations to GABC?
It is not anticipated that there will be any tax implications for contract owners, payees or beneficiaries as the result of the transfer of ELNY’s obligations to GABC.
6. How will a contract owner, payee or beneficiary’s benefits be affected?
Most contract owners, payees and other beneficiaries will continue to receive the same payments they have always received. However, the payments to some contract owners, payees and other beneficiaries will be reduced. In both cases, the timing of benefit payments under an annuity contract will not change. Each payee is receiving information about the benefits each payee is currently projected to receive and will be provided additional information in the future with respect to any updates. Contract owners, payees and beneficiaries will continue to receive full benefit payments until the Restructuring Agreement is implemented by the parties thereto.
7. Why are some payments being reduced while others are not affected?
Payments to contract owners, payees and other beneficiaries under the Restructuring Agreement will depend largely on the amount of protection afforded to them by the Guaranty Association which is determined to have coverage obligations for a particular contract. The coverage limits provided by the affected Guaranty Associations vary according to the coverage limits and other provisions set forth in the respective Guaranty Associations’ governing state laws.
8. Who will send benefit checks to contract owners, payees and beneficiaries?
GABC will make payments to ELNY contract owners, payees and other beneficiaries as they become due and payable under the Restructuring Agreement so that benefit checks will be received in the same manner in which they had been received while ELNY was in rehabilitation.
9. Are all affected Guaranty Associations participating in the Restructuring Agreement?
At this time, all 40 Guaranty Associations affected by the liquidation and restructuring of the ELNY estate have committed to participate in the Restructuring Agreement.
Part III. Annuity Contract Value Determination
1. How are ELNY contracts being modified or restructured?
Before being transferred to GABC, each ELNY contract will be restructured to a value that could be supported by its proportionate share of ELNY estate assets as of the liquidation date set by the Receivership Court. Accordingly, the benefit payments under that contract will be restructured to reflect such contract's proportionate share of the ELNY estate assets transferable to GABC.
Each restructured ELNY contract will be divided into two portions: (1) “Covered” (that portion, if any, of such contract that is eligible for coverage by a participating Guaranty Association) and (2) “Uncovered” ( that portion, if any, of such contract which exceeds coverage by a Guaranty Association).
2. What does it mean if an ELNY contract or a portion of an ELNY contract is uncovered?
In most cases, being “uncovered” means one of two things. First, it might mean that the ELNY contract is not eligible for coverage by a Guaranty Association because the contract's owner or payee resides in a state where ELNY was not licensed to do business as a life insurance company or because the contract is subject to a statutory exclusion from such Guaranty Association coverage. Such contract is handled as an “Uncovered” contract as explained in Part III, Question 3 and in the Restructuring Agreement. Second, it might mean that the contract is eligible for Guaranty Association coverage, but its present value of benefits is in excess of its respective state’s Guaranty Association coverage limit. Such contract will receive Guaranty Association protection up to the statutory coverage limit, but the remaining portion of such contract that exceeds such coverage limit is considered “Uncovered” and will be handled as explained in Part III, Question 3 and in the Restructuring Agreement.
3. How will “enhancements” be applied to ELNY contracts?
After a restructured ELNY contract has been transferred to GABC, the restructured benefit payments will be “enhanced” with payments in addition to those made from the assets of ELNY. There will be two sources of funding for such “enhancements”: 1) the participating Guaranty Associations and 2) voluntary support arrangements by certain life insurers.
The benefit payments payable in respect of the Covered portion of a restructured ELNY contract will be enhanced by the applicable participating Guaranty Association up to the applicable state coverage limit (which ranges from $100,000 to $500,000 under different states’ laws). Benefit payments in respect of the Covered portion are guaranteed by that Guaranty Association.
The benefit payments payable in respect of the Uncovered portion of a restructured ELNY contract will be enhanced by a consortium of life insurance companies. The life insurance companies will guarantee and incrementally supplement those benefit payments made from the assets of ELNY on the Uncovered portion of the contract in accordance with the Restructuring Agreement.
After application of the enhancements described above, a separate consortium of life insurance companies has also committed to further supplement the benefits payable in respect of the Uncovered portion of certain contracts in accordance with the Restructuring Agreement.
For a more detailed description of the enhancements described here, please refer to Part C of the Summary of the Restructuring Agreement, available at www.elny.org.
Part IV. Other Plan-Related Information
1. Can a contract owner or payee opt out of the Restructuring Agreement? Why not?
Under the Restructuring Agreement, owners or payees of ELNY contracts are not permitted to opt-out of the Restructuring Agreement with respect to all or any portion of their ELNY contracts because each owner or payee will receive a new contract with GABC with a value at least equal to the liquidation value of the corresponding ELNY contract.
2. Is it possible that a contract owner, payee or beneficiary not fully covered might get additional payments later?
Yes. It is possible that at some point in the future GABC, upon approval from the Receivership Court, will transfer all of its liabilities to a financially strong third party commercial life insurer and remit the net transfer proceeds back to the ELNY estate. Alternatively, if GABC does not consummate such a transfer, any leftover assets in GABC after all of its contractual obligations have been satisfied will be transferred back to the ELNY estate. In either circumstance, the ELNY estate will distribute all remaining assets in accordance with the priorities set forth in the Restructuring Agreement such that a contract owner, payee or beneficiary not fully covered may receive additional benefit payments at that time. It is, however, unlikely that any additional benefits will become available soon.
3. What does a contract owner, payee or beneficiary need to do at this time?
No action need be taken at this time. Please continue to refer to www.elny.org to receive updates about the expected Liquidation Date of ELNY.
4. Does a payee or beneficiary have to assign rights it has against other persons to the Guaranty Association providing coverage to the extent of that coverage?
Such assignment of rights will happen automatically under the Restructuring Agreement and by operation of law.
Part V. Guaranty Associations & Other Information
1. Do Guaranty Associations have enough money to satisfy their obligations for ELNY?
The Guaranty Associations are funded in such a manner that they will be able to meet all of their respective obligations to consumers affected by ELNY. However, each Guaranty Association is bound by law to provide coverage only up to legal limits provided by statute.
2. Why does coverage vary by state?
Most state Guaranty Association acts are based on a version of the NAIC Model Act. However, states have enacted state-specific variations that reflect the insurance law and policy determinations of each state’s legislature. Insurance is regulated at the state level, and insurance regulation can vary by state. As such, states enact guaranty laws that reflect their unique situations and markets and that provide appropriate coverage for their state residents. The Guaranty Associations, through NOLHGA, coordinate the responses of the individual state associations to protect consumers to the extent possible under each state’s law.
3. Who regulates the Guaranty Associations?
The insurance commissioner in each state regulates the Guaranty Association in that state.
4. What safeguards are in place to prevent a situation like this from occurring again?
It is the principal mission of insurance regulators to oversee the financial health of operating insurers. Today’s insurance sector is very highly and carefully regulated and contains many safeguards, including financial regulatory tools and procedures that were not in place when ELNY went into rehabilitation in 1991.
The network of Guaranty Associations is strong and stands ready to protect life and health insurance policyholders in the U.S. Since its founding, the Guaranty Association System has directly protected more than 2.6 million policyholders and has protected over $24.5 billion in insurance contracts through assessments to member insurers totaling more than $5.3 billion.
5. Does a payee or beneficiary have any rights to seek amounts not being paid from other persons?
Certain property-casualty companies and other entities (“SSA Contractowners”) may have obligations, under structured settlement agreements funded by ELNY structured settlement annuities, to make supplemental payments to compensate for amounts that are not paid by GABC. Some of the SSA Contractowners have proposed to make or provide for such supplemental payments. GABC, NOLHGA and the Receiver will use reasonable efforts to consult and cooperate with such SSA Contractowners to enable them to make or to provide for such payments. It should be noted, however, that the SSA Contractowners are not parties to the Restructuring Agreement and payments by them are neither governed nor required by the Restructuring Agreement. Beneficiaries and payees whose ELNY contracts were issued to fund structured settlement agreements are encouraged to contact or may be contacted by their SSA Contractowners with respect to additional amounts that may be payable to such beneficiaries and payees.
In addition, a consortium of life insurance companies has committed to establish a separate “Hardship Fund” of at least $100 million that may provide the opportunity for certain affected ELNY payees to obtain additional financial support based on need. ELNY payees who may be eligible for additional support from the Hardship Fund are those who are projected to experience a reduction in the benefit payments provided under the terms of their original ELNY contracts. An independent administrator has been appointed by the consortium of life insurance companies to review applications and to determine each applicant’s eligibility to receive additional financial support through a needs-based process. For more information on the Hardship Fund, ELNY payees may call the consortium’s toll-free information line at 1-888-809-2254. The Hardship Fund is not a component of the Restructuring Agreement or the benefits provided under the Restructuring Agreement. As such, the Receiver did not seek approval from the Receivership Court of the Hardship Fund, any elements thereof, or how any funds from the Hardship Fund are allocated.