Thursday, October 25, 2018

No. 291: Phoenix Life's Plunging Dividends

In 1992 Phoenix Mutual Life Insurance Company merged with Home Life Insurance Company and became Phoenix Home Life Mutual Insurance Company. In 2001 Phoenix Home Life demutualized and became The Phoenix Companies, Inc. (Phoenix). Phoenix subsidiaries include Phoenix Life Insurance Company and PHL Variable Insurance Company.

Immediately before the demutualization, Phoenix Home Life Mutual had a financial strength rating of A (Excellent) from the A. M. Best Company. From 2001 to 2008, the ratings of Phoenix Life and PHL Variable were A (Excellent). In 2009 the ratings were B++ (Good). From 2010 to 2013 the ratings were B+ (Good). Since then the ratings have been B (Fair).

Although the policy discussed later in this post is a participating second-to-die whole life policy, the declining ratings stemmed at least in part from Phoenix's ill-fated venture into the sale of huge amounts of universal life on elderly insureds. Many of the policies were stranger-originated life insurance policies destined for sale into the secondary market. When Phoenix began to increase the cost-of-insurance (COI) charges in many of the policies, especially large policies on the lives of elderly insureds, the companies became embroiled in many class action lawsuits. The situation became unsustainable.

The Nassau Re Acquisition
On June 20, 2016, Nassau Reinsurance Group Holdings L.P., a private equity firm, announced its acquisition of Phoenix, which became a wholly-owned subsidiary of Nassau. Nassau, as a private firm, does not file financial statements with the Securities and Exchange Commission (SEC). Also, all SEC filings made over the years by Phoenix since the demutualization have been removed from the SEC website.

According to its website, Nassau was founded in 2015. However, its comments suggest that in 2016 it acquired the 165-year history of Phoenix Mutual. Nassau's website mentions, among other things, the 1851 founding of American Temperance Life, the 1860 founding of Home Life, the 1865 insuring of Abraham Lincoln and two other top government officials with premiums "tendered to them as a gratuity," the 1906 launching of the first agent training course, the 1912 introduction of direct mail marketing, the 1955 introduction of reduced premium rates for women, and the 1967 introduction of discounts for nonsmokers.

Policyholder Dividends
I wrote extensively in The Insurance Forum about litigation involving COI increases by Phoenix Life and PHL Variable. As examples, major articles appeared in the October 2012 and December 2012 issues. Those articles are in the package offered at the end of this post.

I also have written extensively about Phoenix on this blog. As examples, see No. 103 (June 15, 2015), No. 266 (May 16, 2018), and No. 274 (June 28, 2018). No. 266 involved, among other matters, a class action lawsuit over COI increases imposed by Phoenix Life and PHL Variable subsequent to the acquisition of Phoenix by Nassau. The complimentary packages offered in those posts are still available.

The Plunging Dividends
In recent months, probably because of my blog posts about COI increases by Phoenix Life and PHL Variable, I received comments out of the blue from several individuals about the plunging dividends on their policies. Here I discuss one such policy. I describe the situation in such a way as to mask the identity of the policyholders.

Several years ago, prior to the 2001 demutualization, Mr. and Mrs. X purchased a participating second-to-die life insurance policy from Phoenix Home Life. The face amount is about $500,000, and the policy includes a term insurance rider. The plan was to pay for the cost of the rider from the dividends, with the excess used to buy paid-up additions.

Each year the policyholders received a letter from the company. In recent years the letters have been from Phoenix Life. Each annual letter shows such figures as the face amount, the annual premium, the current death benefit including the paid-up additions, and the amount of the dividend for the current year. Here are the approximate amounts of the dividends for some recent years:


The annual letters contain neither an apology nor an explanation for the plunging dividends. The dividends in recent years have not been large enough to pay for the cost of the term rider. Therefore the cost of the rider has been paid in part by surrendering some of the paid-up additions.

Mr. and Mrs. X recently filed a complaint with the state insurance department where they live. They have received an acknowledgment, but the department is awaiting word from the company before providing a substantive response  They also filed a complaint with the state insurance department where the company is domiciled for regulatory purposes; they have not yet received an acknowledgment of that complaint.

General Observations
I do not recall ever seeing such a precipitous decline in the dividends on a participating policy. I can think of only two possible reasons for it. First, it may be an effort to recoup the costs associated with the acquisition of Phoenix. Second, it may be an effort to increase the value of Phoenix in anticipation of a sale of Phoenix to another private equity firm. It will be interesting to see what Phoenix Life says to the state insurance regulators and what the regulators say in response.

Phoenix Mutual is one of a group of grand old companies in the life insurance business whose disappearance caused anguish among old timers in the business. Some of the other members of that distinguished group were Connecticut Mutual, Fidelity Mutual, Mutual Benefit Life, New England Mutual, Provident Mutual, State Mutual, and Union Mutual.

Available Material
I am offering a complimentary 10-page PDF consisting of the articles from the October 2012 and December 2012 issues of the Forum. Email and ask for the October 2018 package about the Phoenix dividends.