PHL Variable liquidation: Regulators, investors pivot legal fire to Nassau
A group of large PHL Variable policyholders, and the Connecticut insurance commissioner both took aim at Nassau Financial Group in separate court filings this week.
Both the policyholders and interim Commissioner Joshua Hershman, serving as the rehabilitator in the proposed liquidation of the financially troubled PHL, are after the same thing: Money.
Hundreds of millions of dollars are at stake as Connecticut regulators navigate the liquidation proposed by Hershman on Dec. 31, 2025. State Superior Court Judge Daniel J. Klau approved rehabilitation for PHL in May 2024.
Since then, Judge Klau has ruled on several twists and turns in the case. Former insurance commissioner Andrew Mais steadfastly pursued a rehabilitation plan before retiring in late November 2025. Hershman abruptly pivoted to liquidation in a Dec. 31 status report.
That ratcheted up the pressure to find an equitable financial solution. Particularly for so-called “over-the-cap” policyholders, who are entitled to death benefits in excess of $300,000, a moratorium was established by a June 2024 court order. That figure mirrors state guaranty association limits.
A group of over-the-cap policyholders filed a motion Tuesday to obtain “relief” allowing the group to pursue “certain claims against Nassau Financial Group (and related subsidiaries), Golden Gate Capital and others … for looting PHL at the expense of the” policyholders.
The group alleged self-dealing, breach of fiduciary duty, fraudulent and negligent misrepresentation, state unfair trade and insurance violations, and civil Racketeer Influenced and Corrupt Organizations Act violations.
‘Facilitate an orderly transition’
Over-the-cap policyholders “will pursue these tort claims on a fully contingent basis that will be accretive to PHL in rehabilitation and facilitate an orderly transition from rehabilitation to liquidation,” their motion reads.
Meanwhile, Hershman filed a status update on Tuesday. In it, he provided more details of claims against Nassau and Golden Gate hinted at in the Dec. 31 report.
Affiliates of Nassau Financial provide administrative services to the rehabilitator under agreements that precede the rehabilitation proceeding. From May 2024 through December 2025, Nassau charged the PHL companies $10.7 million for investment services and $65.6 million for administrative services.
“There are pending disputes between Nassau and the Rehabilitator concerning these arrangements and charges assessed under the agreements,” Hershman wrote. “The Rehabilitator believes that the charges … have been and continue to be materially above market as a result of the allocation of certain expenses to PHL. Nassau disputes this.”
As of the end of 2025, there are about 8,000 active universal life insurance policies, with about 3,200 having death benefits greater than the applicable state guaranty association limits, the status report said.
Of those, 343 of the active over-the-cap UL policies “appear to be owned by institutional investors,” Hershman wrote, which represents 26% of the total outstanding death benefits on the policies.
Additional policyholder claims
In a memorandum supporting their filing, the over-the-cap policyholders also alleged that the court-appointed rehabilitator has failed to aggressively pursue claims against Nassau and Golden Gate despite acknowledging that potential claims against the companies may exist.
They further claim the rehabilitator may have a conflict of interest because some of the transactions now under scrutiny were previously approved by state regulators.
Nassau Financial Group (then Nassau Re) acquired PHL Variable as part of a 2016 purchase of The Phoenix Companies for $217.2 million.
The over-the-cap policyholders say that PHL was weakened through complex reinsurance arrangements involving affiliated entities, including transactions with captive insurers and offshore reinsurers.
“Almost immediately following the acquisition, PHL was systematically gutted by Nassau and its affiliates and rendered hopelessly insolvent,” the policyholders’ memo reads. “Billions in sham, circular, non-arm’s length reinsurance transactions were consummated by and among various PHL and Nassau affiliates and captive insurance companies located in Connecticut, Vermont and the Cayman Islands.”
According to the policyholders, those transactions allowed affiliated companies to replace assets on PHL’s balance sheet with obligations from related entities, while the insurer took credit for billions of dollars in reserve relief.
The policyholders also pointed to litigation in Delaware involving alleged stranger-originated life insurance transactions that they say raised additional concerns about dealings involving Nassau-affiliated entities.
If granted permission to intervene, the policyholders argued that any recoveries could ultimately benefit the rehabilitation estate while allowing policyholders to seek damages for losses above guaranty association limits.
The policyholders asked the court to schedule a hearing on the request as soon as possible.
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