Connecticut Orders Liquidation of Golden Gate Capital’s PHL Variable, Citing $2.2 Billion Capital Shortfall

Connecticut regulators have abandoned efforts to rehabilitate PHL Variable Insurance Co., the troubled life insurer owned by Golden Gate Capital, after concluding that its $2.2 billion capital shortfall left liquidation as the only viable path forward.

“It has become clear that all of PHL’s blocks of business are materially impaired,” wrote Connecticut interim Insurance Commissioner Joshua Hershman in a New Year’s Eve court filing. “The rehabilitator believes that any plan for a resolution of PHL’s liabilities must include a liquidation order.”

The liquidation filing is a sudden reversal from the rehabilitation strategy pursued by former Commissioner Andrew Mais, who had been working toward selling PHL’s life insurance blocks before retiring abruptly on November 28. A decision on a buyer had been expected by year-end.

Instead, interim appointee Hershman determined that a sale of all or part of the company’s assets would likely recoup less for policyholders than a conventional liquidation.

Regulators have said they now plan to pursue litigation against Golden Gate and its Nassau Financial Group insurance arm on claims including breach of fiduciary duty, breach of contract, and avoidable transfers—unless the firms agree to an acceptable settlement.

Nassau disputed the claims in a statement, noting that transactions carried out under Golden Gate’s ownership were reviewed and approved by state regulators at the time.

The firm blamed PHL’s problems on a block of problematic universal life policies issued between 2004 and 2008, well before Golden Gate’s involvement.

“As the rehabilitator itself acknowledges, PHL’s financial challenges predate Nassau’s involvement with PHL by a decade,” Nassau said.

“We continue to cooperate in an effort to reach a resolution and provide PHL with administrative support. However, should the rehabilitator pursue litigation, we will vigorously defend ourselves and expect to prevail on the merits.”

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Nassau was created in 2015 with $750 million from Golden Gate Capital.

One year later, Nassau bought Phoenix Companies, a publicly traded insurer based in Hartford, Connecticut, whose roots trace to 1851, when its predecessor, American Temperance Life Insurance Co., was founded with a focus on teetotalers, including one-time policyholder President Abraham Lincoln.

After taking it private, Nassau retired the Phoenix brand and moved forward with PHL.

Following the success of Apollo Global Management and its pioneering Athene affiliate, a number of large private equity firms have pursued what’s known as the Bermuda Triangle Strategy, where large asset managers acquire life insurers to issue fixed-rate and fixed indexed annuities and use the cash generated by such issuance to finance higher-yielding investments originated by the parent firm.

The setup typically includes a reinsurer, which allows insurance companies to spread their risk across other entities by paying another firm that agrees to cover certain unlikely risks.

An affiliated reinsurer—sometimes called a “captive” reinsurer—is when an insurer will stand up its own reinsurance entity, rather than work with an outside party.

Many of these reinsurance affiliates are located offshore in places like Bermuda or the Cayman Islands, which avoid many of the detailed disclosure requirements of U.S.-based entities.

U.S.-based insurers can shift a portion of their obligations onto the captive reinsurer to take advantage of the favorable disclosure standards, as well as other benefits like alternative accounting standards, advantageous tax structures, and more flexible capital requirements.

This helps facilitate investments in less-liquid instruments like asset-backed securities or other private credit and private equity-related assets—meant to offer higher returns than the high-grade bonds favored by traditional life insurers.

In its 2025 annual report, the Financial Stability Oversight Council reported that U.S. life insurers ceded $2.4 trillion of reserves to reinsurers in 2024, up 70 percent from $1.4 trillion in 2019. Reserves ceded to offshore jurisdictions more than doubled over that period.

As the strategy has become increasingly popular, some industry observers have warned against the risk that an asset manager-led insurer could fail and leave policyholders in the lurch or state guaranty funds stuck holding the bag—something critics believe is of greater concern with a strategy that’s both more opaque than traditional insurers and chases returns through potentially riskier assets.

PHL is not the only recent failure.

The offshore reinsurer affiliated with 777 Partners had its license revoked by Bermuda’s monetary authority in October 2024 for investing too heavily in affiliated assets, inadequate governance, and insufficient capital contributions from its parent. The firm subsequently collapsed.

The FSOC has warned that increasing use of offshore reinsurers “could increase U.S. insurers’ counterparty risk and possibly open an avenue for contagion risk in times of stress.”

Insurance industry forensic accountant Tom Gober views the transparency gap as the real issue.

“When policyholder liabilities are moved to Bermuda, there’s no full accounting to regulators,” Gober told the National Law Review. “They could be assuming the worst risks imaginable, from who knows where? That company could be exposed to things we have no idea about.”

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When Nassau agreed to buy PHL in 2015, the insurer was already struggling—its stock had tumbled by more than 80 percent over the preceding nine months as its parent company posted losses.

Nassau injected $100 million of fresh capital, with executives predicting the move would “accelerate the company’s turnaround, bolster its financial strength and ratings, and benefit policyholders.”

What followed, in short, was an implementation of the Bermuda strategy, according to the timeline documented in Connecticut court filings.

By the end of 2022, PHL had established captive reinsurers that together accounted for $3.5 billion of a $5.3 billion reinsurance program.

In 2021, Golden Gate executives contributed additional capital and won regulatory approval to separate PHL into a standalone entity, moving it out of the healthier Nassau business.

Court records show that a commitment to maintain PHL’s risk-adjusted capital ratio above 200 percent—a pledge the holding company had made to authorities—stopped appearing in public documentation around the same time.

Shortly after the separation, PHL’s deterioration accelerated.

Connecticut regulators placed the company under closer supervision in 2023 as its capital turned negative. By May 2024, authorities estimated a $900 million shortfall. After launching a deeper investigation of the company’s captive reinsurers and updating actuarial assumptions, the state increased its estimate to $2.2 billion six months later.

Following the typical playbook for private capital-affiliated insurers, the business had allocated around 30 percent of its assets to structured notes and collateralized loan obligations issued by Nassau’s asset management arm.

In PHL’s audited statements for 2024, some CLO investments were worth a third less than face value, with other positions down by more than half.

Edward Stone, an attorney representing policyholders in the rehabilitation proceedings, has argued that the financial arrangements obscured PHL’s true condition.

“Hundreds of millions of dollars were moved around in a circle to give the illusion that PHL Variable was OK when it wasn’t,” he said in court arguments. “That’s the kind of thing that I think puts policyholders at great risk and creates systemic risk for the life and annuity business.”

The outcome of the upcoming liquidation process will determine how much policyholders ultimately recover.

Under Connecticut law, policies terminate 30 days after a liquidation order, except to the extent covered by state guaranty associations. Claims for loss of coverage would be junior in priority to guaranty association claims and claims that remain unpaid under a moratorium in place since May 2024 as part of the attempted rehabilitation.

To date, that moratorium has effectively withheld more than $500 million in payouts to policyholders while still requiring some customers to continue paying premiums to keep policies active.

John Williams, who owns a security company in Hartford, Connecticut, and rolled his life insurance savings into a PHL annuity in 2018 after Nassau’s acquisition, recalled the marketing that accompanied the deal: “You would’ve thought, ‘Oh my God, this company is bulletproof for the next 300 years,’ based on the way they were painting it. They were really pumping that.”