Executive Life Insurance Company of New York (ELNY) earnings assessments are now beginning as the controversial court-approved liquidation plan for the insolvent New York State insurer kicks into gear after two decades of decline in rehabilitation.
Charges will be showing up in earnings reports for some public companies for the second quarter SEC reports.
American Equity Investment Life Holding Co., (AEL), an underwriter of index and fixed rate annuities, is one of the first life companies out of the gate to announce charges to earnings in the second quarter due to assessments from state guaranty fund associations stemming from the insolvency of ELNY.
The Des Moines insurer announced Friday that its financial results for the second quarter of 2013 would include a pretax charge of up to $8.5 million ($5.5 million after applicable income taxes) to cover assessments from state guaranty fund associations due to ELNY's insolvency.
"The estimates of assessments expected to be received are based upon information currently available and are subject to ongoing evaluation. Our life insurance subsidiaries are required under the solvency or guaranty laws of most states in which they do business to pay assessments up to certain prescribed limits to fund policyholder losses or liabilities of insolvent insurance companies such as ELNY," AEL explained in a statement.
American Equity is not announcing its earnings until post-market closing on July 31 but got ahead of the ball with the news of the assessment charge. Other life insurers cannot be far behind with their news.
Even larger life insurers with more premium volume are expected to have larger hits to earnings for the second quarter.
Prudential Insurance, MetLife and New York Life Insurance Co. are the big three life companies that worked with New York Department of Financial Services (DFS) Superintendent Ben Lawsky in spring 2011 to broker the $100 million hardship fund for those shortfall payees that would not be fully covered by the guaranty funds.
The companies, along with a swathe of the life insurance industry, agreed to a top-up and a top-down fund to supplement the state guaranty funds and offer funds to the so-called orphan states where there was no coverage, where ELNY was not licensed.
Prudential declined comment. It reports earnings Aug. 7. New York Life is not a public company but was not available for comment. MetLife did not respond to an inquiry by press time. MetLife's second quarter 2013 earnings press release will be issued July 31, after the market closes.
The liquidation itself will be overseen by the New York Department of Financial Services (DFS), the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), with funds managed in a special purpose captive domiciled in the District of Columbia.
Some state guaranty associations sent out assessments recently, and others will be doing so soon, NOLHGA said, so life insurers are estimating now.
ELNY was brought under rehabilitation by the New York Insurance Department in 1991 after its parent company in California was seized by regulators there. Some New York regulators said they feared a run on the company even though ELNY was not insolvent at the time.
It is believed it slipped into insolvency after more than a decade of the caretaker role played by the New York Liquidation Bureau sometime in 2002.
