Utah regulators ask court to place Sentinel Security Life into rehab

Utah Insurance Commissioner Jonathan Pike is asking a judge to order rehabilitation for Sentinel Security Life Insurance Co. and a pair of reinsurers.

The March 21 petition to the Third Judicial District Court is the latest salvo in a dispute over the assets backing the insurance companies. In December, Utah regulators banned Sentinel Security from writing new life insurance after Dec. 31, 2024.

The insurance companies are owned by Advantage Capital Partners, which appealed the December order to a Utah administrative law court. A hearing is scheduled for May 12.

But Pike decided not to wait.

“This Petition results from a years-long history of self-dealing, conflicts of interest, and obfuscation by the ultimate controlling party of the Utah Insurers, Kenneth King,” the petition states.

King is the chairman and CEO of A-Cap. The Utah reinsurers are Haymarket Re and Jazz Re.

The petition asks the court to allow regulators to “take possession, control, and title to all assets of Sentinel, Haymarket, and Jazz Re, and to administer those assets pursuant to the laws of the State of Utah, as directed by the Court, staying all actions and proceedings relating to the Utah Insurers, in Utah and elsewhere.”

A spokesman for A-Cap sent InsuranceNewsNet this statement in reaction to the action taken against Sentinel Security:

“We are disappointed by the Department’s attempt to circumvent recent rulings in A-CAP’s favor by filing a new case in a different forum based on the same unsupported allegations. The Department’s case was foundering because it outsourced critical tasks to external firms and individuals ill-equipped to appraise complex private credit assets like ours.

“Now, in a transparent attempt to deflect blame and financial accountability, they are attempting to change to a new decision-maker. A-CAP prioritizes and protects its policyholders and firmly stands by our actions and belief that our companies remain strong. We look forward to rebutting the Department’s claims promptly.”

Similar situation in South Carolina

South Carolina regulators are in a similar place with Atlantic Coast Life Insurance Co., another A-Cap insurer domiciled there. South Carolina and Utah regulators shared information as they probed the financials of A-Cap insurers throughout 2024, court documents say.

In South Carolina, Michael Wise, director of the South Carolina Department of Insurance, issued an April 10, 2024 “confidential order” placing Atlantic Coast and Southern Atlantic Re into “confidential administrative supervision,” court documents say.

On Oct. 21, a directive informed the insurance companies that South Carolina was “unwilling to continue to permit the insurers to incur new liabilities ...  when all companies[’] RBC are at a mandatory control level and each of the insurers exhibits negative surplus.”

South Carolina regulators directed Atlantic Coast to cease writing new business on Nov. 14, court documents say. Utah made its directive official on Dec. 2 and South Carolina followed on Dec. 11.

Things changed on Feb. 13 when South Carolina Administrative Law Judge Ralph King Anderson III sided with A-Cap. Anderson rebuked regulators and rejected the S.C. insurance department’s conclusion that Atlantic Coast is in financial distress.

“The evidence shows that ACL maintains a positive cash flow and has not experienced any difficulty paying amounts owed to either its policyholders or creditors,” he wrote.

Tied up with 777 Partners

The Utah Department of Insurance declined to comment on the decision to petition for rehabilitation just weeks before the administrative law court hearing. But its court filing claims that A-Cap used its life insurers to generate cash that it could invest in "high-return, high-risk investments" that would generate even more cash for the firm.

To accomplish this, A-Cap made agreements and loans with the troubled 777 Partners, the petition states.

"First, 777 Partners agreed the Utah Insurers would be able to reinsure their liability through 777 Re," the petition says, "which allowed the insurers to continue writing insurance without the need to increase their capital reserves. Second, A-CAP agreed that the Utah Insurers would invest their capital in high-return investments in the form of short-term loans to entities controlled by 777 Partners and that 777 Partners would act as an asset management sub-advisor to the Utah Insurers."

The Miami-based 777 Partners faces multiple lawsuits alleging financial improprieties. Notably, Leadenhall Capital accuses the investment firm of fraudulently borrowing hundreds of millions of dollars against non-existent or doubly pledged assets.

The U.S. Department of Justice issued criminal subpoenas to employees of 777 Partners as part of a money laundering investigation. Additionally, the firm has been accused of financial misconduct, including fraud and unpaid debts.

Beginning around 2020, A-Cap invested over $2.1 billion (approximately 26%) of the Utah insurers’ admitted assets in various 777 Partners investments, the petition claims.

"These investments have been non-performing and have been increased, rather than liquidated, to avoid recognizing losses. There has been virtually no return on the investments."

'Stopped providing documentation'

In Wednesday's petition, Utah regulators say the A-Cap insurers "have stopped providing documentation to the Examiner and the Supervisor. As a result, the Examiner does not have access to the documentation needed to continue its fair valuation analyses."

Utah regulators have said that a "full-scope financial examination" ordered by Pike yielded troubled results. The examination, outlined in Utah's December order, probed the insurance companies for the years 2020 through 2023.

An independent contractor performed the examination and found several problems, the order says:

• More than 10% of the companies’ investments are in a single entity in violation of Utah code.
• The companies’ risk-based capital ratio, a key indicator of financial health, has declined.
• The companies’ investment portfolios included "a disproportionately large number of high-risk investments."
• The companies hold investments in more than thirty loans or loan packages.

The examiner hired Harvest Investments to value assets held by the A-Cap insurers, the order states. Harvest reviewed three specific loans or loan packages to Flair Airlines, PAC Wagon/Phoenix Aviation, and JARM.

All were deemed by Harvest to be worth well less than the internal valuations assigned by the insurers.

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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.