Hartford Business Journal

HARTFORDBUSINESS.COM | NOVEMBER 3, 2025 25 Got an eye on business expansion? At Ion Bank, we see your dreams, your realities, your day-to-day, your future, and every big decision along the way. We are always looking out for you! Cash Management • SBA Loans • Real Estate & Expansion • Equipment Financing TM Visit a branch or call us at 203.729.4442 today! Member FDIC Equal Housing Lender guaranty associations — safety-net funds backed by assessments on other licensed insurers — would step in to protect policyholders. These associations cover certain losses up to statutory limits that vary by state. In Connecticut, generally, the state guaranty association's maximum protection per life is $500,000 for life insurance benefits. Policyholders with claims that exceed the guaranty coverage limits — like the Gillen family — could suffer significant losses. A court ruling issued May 28, 2025, requires policyholders to keep paying premiums to maintain coverage and bars them from applying those payments toward death benefits. Those with universal life coverage can lower their policy's face value to reduce premiums, or surrender the policy altogether in exchange for an adjusted cash value. PHL is currently paying all claims up to the moratorium limits using its own funds, Callanan said. Meantime, the insurance depart- ment's investigation into PHL's collapse has found that unnamed outside parties may be held legally responsible, Callanan said. That means the department could pursue claims against companies or individuals outside of PHL to recover money for policyholders. While Callanan declined to identify the targets, she confirmed the rehabilitator is attempting to negotiate settlements with the parties. Yet, any avenue of recovery is unlikely to fill the company's $2.2 billion hole or fully cover the over-the-cap policyholders. "The expected value of such claims … is not sufficient to return PHL to solvency," Callanan acknowledged. Policyholder claims Insurance company failures in Connecticut are exceptionally rare. PHL marks only the ninth receivership in the state since 1977, according to state regulators. The last was HealthyCT Inc., a health insurer placed into receivership in 2016. That makes PHL's failure stand out even more — and has sparked debate over what went wrong. Stone, the Stamford lawyer repre- senting policyholders, argues the collapse was not the result of bad luck or the COVID-19 pandemic, but rather a systematic effort by Nassau and Golden Gate Capital to hollow out the insurer through "circular offshore rein- surance transactions" that obscured PHL's financial condition and hastened its decline. "You had liabilities moving in circles between related companies, with each one treating the other's promise to pay as an asset," Stone said. "But at the end of the day, there was no real money backing any of it. It was financial engineering designed to make PHL look solvent when it wasn't." Nassau declined to comment for this article. In October 2019, PHL created Concord Re, a Connecticut-domiciled captive insurance company, to reinsure 100% of PHL's liabilities not already ceded to third parties. Concord then entered into an agreement with Nassau Re (Cayman) Ltd., an offshore affiliate in the Cayman Islands. In November 2021, PHL created Palisado Re, and the Cayman obli- gations were transferred to this new Connecticut captive. Nassau, as the controlling owner, orchestrated the entire structure to move liabilities around in circles, Stone said. The use of Cayman Islands reinsurers is widespread in the insurance industry. According to a Wall Street Journal investigation, U.S. insurers have moved an estimated $75 billion in liabilities owed to U.S. customers to offshore jurisdictions like the Cayman Islands, where regulators don't require compa- nies to hold as much protective capital as their U.S. counterparts demand. The practice allows insurers to reduce the capital reserves they must maintain while still taking credit for having transferred the risk, according to the WSJ. Stone believes that Nassau and its affiliates knew these transactions "were nothing more than smoke- screens designed to allow them to move money in circles and get out of all capital maintenance obligations, ownership responsibilities, and other financial commitments to PHL and its policyholders." He also blames the insurance depart- ment for failing to intervene earlier. "There were clear signs of financial distress well before the 2021 restruc- turing," Stone said. "The question is: where were the regulators? The Connecticut Insurance Department was asleep at the wheel when it allowed these transactions to occur." The insurance department declined to respond to that claim. Stone also challenges the fairness of the rehabilitation itself, arguing the court-imposed $300,000 cap unfairly punishes over-the-cap policyholders, while fully protecting those with smaller policies. "They're asking people to pay in money for insurance they're never going to get," Stone said. 1977 Connecticut Commercial Travelers Mutual Insurance Co. 1981 Southern Connecticut Community Health Plan Inc. 1989 Liberty Health Plans Inc. 1993 Covenant Mutual Insurance Co. 1996 First Connecticut Life Insurance Co. 1997 Westbrook Insurance Co. 1999 Suburban Health Plans 2002 Connecticut Surety Co. 2016 HealthyCT Inc. 2024 PHL Variable Insurance Co. Source: Connecticut Insurance Department CT insurance receiverships since 1977

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