PHL rehabilitator: some policyholders ‘unlikely’ to ever get full benefits

Some PHL Variable policyholders are “unlikely” to ever receive their full benefits, Connecticut Insurance Commissioner Andrew Mais said in a memorandum filed Tuesday.

Mais made the admission as part of a request to amend the moratorium on benefits in place since May 2024. The moratorium helped prevent “a run on the bank,” Mais wrote, while regulators created a rehabilitation plan.

That plan, due later this year, is dependent on the outcome of an effort to sell all or parts of the PHL Variable business, Mais explained.

“However, the Rehabilitator has concluded that it is unlikely that the ultimate rehabilitation plan will provide for the full, or nearly full, payment of the benefits under certain policies,” Mais added in the 16-page memo to the court.

SWS Holdings is one of the policyholders likely to get shortchanged. SWS owns two Phoenix Generations universal life policies worth $18 million in death benefits. The company has paid more than $12 million in premiums to date, court documents say.

The policies were purchased in 2006 with the intent to fund an eventual stock purchase agreement. Friday, Judge Daniel J. Klau ruled that SWS has no right to “full-party” status in the PHL Variable rehabilitation proceedings.

Edward S. Stone, a Greenwich, Conn. attorney for SWS, ripped Mais's office for a "lack of transparency" and for permitting PHL Variable to spiral into financial distress. Reckless reinsurance deals with Concord Re and Nassau Re went unchecked, leading PHL to become "dramatically under-reserved," Stone said.

Connecticut regulators "want my clients to pay $600,000 in annual premiums for an $18 million death benefit they're never going to see, or lapse the policy," Stone said.

The battle isn't over, added Stone, who represented numerous Executive Life Insurance Co. of New York policyholders in a 2013 liquidation after two decades of legal wrangling.

"I will push this as far as I can, as long as my clients will have me do it," Stone said. "And I think that they will, because people who look into this see that it's really wrong."

The moratorium proposal

Mais is asking the court to loosen the moratorium on PHL Variable policies to allow for more flexible distributions for universal life and fixed index annuity owners.

The rehabilitator team submitted an affidavit from Mark Stukowski, vice president and principal at Lewis & Ellis, an actuarial consulting firm. There are about 8,000 universal life policies, Stukowski said, about 55% of which have death benefits at or below the $300,000 limit covered by state guaranty associations.

There are about 24,000 outstanding PHL fixed indexed annuity contracts, Stukowski said. The average account value of those contracts is $70,000. About 95% of the FIAs have account values at or below $250,000, the state guaranty limit for annuity contracts, Stukowski said.

Mais explained how policyholders can access more of their benefits. Universal life policyholders have two options under the moratorium modification:

• Reduction in the face amount of death benefits with downward premium adjustment prospectively.
• Convert policy to a claim for a fixed amount (to be determined based on adjusted surrender value) with no ongoing premium obligation.

The modification is expected to offer fixed indexed annuity owners who have not activated their income rider or are currently receiving systematic withdrawals two alternatives:

• Activate the income rider (to the extent available under the contract).
• Receive a one-time surrender-charge free distribution of the “Free Withdrawal Amount” under the contract (typically this is approximately 10% of the contract’s account value).

"The Rehabilitator understands that the Moratorium presents financial strain on certain groups of policyholders generally," Mais wrote. "In some instances, policyholders have a need to access funds immediately. In other instances, policyholders are concerned about continuing to pay the full amount of premiums on a policy when they are uncertain as to the amount of the death benefits that will ultimately be paid."

In a separate statement to InsuranceNewsNet, Jane Callanan, general counsel for the Connecticut Insurance Department, said nothing has changed for the rehabilitation team:

In the Memorandum of Law in support of the Rehabilitator’s Motion to Modify Moratorium Order, each as filed with the Court yesterday, the Rehabilitator acknowledged that the rehabilitation plan may not provide for the full payment of benefits under certain policies. This statement is consistent with previous statements about the potential to restructure policies in connection with the rehabilitation plan, including those made in the Rehabilitator’s Second Accounting and Status Report dated May 20, 2025 (pg. 8) and Moratorium Motion dated May 17, 2024 (paragraph 33).

As also described in the Memorandum, if the Modification Order is granted, the Rehabilitator will deliver to each eligible policyholder an individualized election package, which will include information about the economic results of each option and the likely range of recovery on claims against the receivership estate. It would not be appropriate to comment further on this information in advance of the Court’s approval of the Motion and providing individualized information to policyholders.

Comments on the modification proposal are being accepted until September. Court approval of the modification is not expected to occur until the third quarter of 2025, Mais has said.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.