🔒CT’s first insurer failure in a decade puts policyholders at risk, raises questions about reinsurance deals

Stephen Gillen created a trust for his five children in 1998, purchasing a $3 million life insurance policy from Hartford-based PHL Variable Insurance Co. to provide for his family’s future. For more than 17 years, the Gillen Children’s Trust paid every premium on time, never missing the annual $24,000 payment. The family did everything by the book, building an estate plan around the promise that PHL would be there when they needed it most. Now, with more than half a million dollars paid in premiums and one of the insured already deceased — Stephen died in October 2023 — that promise has evaporated. The Gillen trust, based in New Jersey, is one of thousands of policyholders nationwide caught in the wreckage of Connecticut’s first insurance company failure in a decade — and only the second this century. PHL, which traces its roots to The Phoenix Cos., was quietly taken over by the Connecticut Insurance Department in mid-2024 after a prolonged period of financial deterioration. Regulators said the move was necessary to protect policyholders and preserve what value remained in the company’s troubled portfolio. According to financial statements filed in court, PHL reported negative capital of $2.2 billion as of Dec. 31, 2024 — a sign the company was deeply troubled. That has put policyholders at risk of losing significant portions of their coverage or seeing future benefits sharply reduced as the company undergoes rehabilitation under the oversight of Connecticut Insurance Commissioner Andrew Mais. The insurer’s collapse has prompted scrutiny from policyholder attorneys, who point to a complex web of offshore reinsurance deals — including transactions in the Cayman Islands — that shifted billions of dollars in liabilities to affiliated entities and, they argue, masked PHL’s deteriorating finances.

Edward S. Stone, a Stamford attorney representing the Gillen trust and another PHL policyholder, said he believes state regulators should have stepped in sooner to address the insurer’s offshore dealings and mounting financial distress. He said the Gillen trust now faces “untenable choices” — abandoning most of the coverage the family paid for, gambling on an uncertain future payout, or watching a $3 million policy shrink significantly. “This family did everything right,” Stone said. “They paid every premium on time for nearly two decades. And now they’re being told the coverage they counted on simply doesn’t exist.”

What is PHL?

PHL, incorporated in 1981, specialized in selling a range of life insurance and annuity products. Its offerings included variable universal life insurance, which combined life coverage with investment options in separate accounts, and fixed and variable annuities designed to provide retirement income. In early 2016, PHL’s struggling parent company, The Phoenix Cos., was acquired for $217.2 million by Nassau Reinsurance Group Holdings, an insurance and reinsurance company formed in 2015 with backing from San Francisco-based private equity firm Golden Gate Capital. By late 2020, PHL’s financial condition had deteriorated significantly due to higher mortality during the COVID-19 pandemic, low interest rates, and underperforming investments, according to the rehabilitation petition filed in Waterbury Superior Court. Universal life policies sold to customers over 70 between 2004 and 2007 were identified as the primary source of the problem. On Nov. 15, 2021, Nassau — now known as Nassau Financial Group and based in Hartford — divested itself of PHL ownership, transferring the company to Golden Gate Capital while retaining complete operational control. PHL and Nassau became sister companies under Golden Gate’s umbrella, but their assets were separated. Mais, the insurance commissioner, placed PHL under administrative supervision on March 31, 2023, citing concerns about the company’s deteriorating financial condition and its ability to remedy the problem.

‘Better treatment’

The rehabilitation proceeding has been underway since May 2024. Jane Callanan, general counsel for the Connecticut Insurance Department, said the process aims to maximize the value of PHL’s assets and ensure all policyholders are treated fairly. Options include transferring policies to a stronger insurance company or offering PHL customers choices among policy modifications or buyouts. PHL holds approximately $3.7 billion in assets but faces a $2.2 billion capital deficit, according to audited financial statements as of Dec. 31, 2024. Despite the shortfall, the insurance department expects that PHL or certain blocks of its business will attract buyers. Under the current court-imposed moratorium, life insurance claims are temporarily capped at $300,000 and annuity claims at $250,000. Those limits were approved by the judge as part of the rehabilitation order and are not connected to any state-mandated guaranty protections. If PHL cannot be rehabilitated and is instead ordered into liquidation, state 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 department’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 representing 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 reinsurance 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 obligations 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 companies 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 smokescreens 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 department for failing to intervene earlier. “There were clear signs of financial distress well before the 2021 restructuring,” 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.