Utah Insurance Commissioner bans Advantage Capital and subsidiaries, citing hazardous financial practices, including a $520M deficit and risky investments. The move protects consumers but raises concerns about claims payments. A-Cap denies charges and pursues legal action to overturn the ban.
Utah’s Insurance Consumer has a problem with annuity specialist Advantage Capital, and it’s a pretty big one.
Banning Advantage Capital
On December 2, 2024, state insurance commissioner Jonathan T. Pike signed off on an agency order banning annuity specialist Advantage Capital from writing insurance policies in Utah as of December 31, 2024.
The edict also covers three Advantage Capital subsidiaries: Sentinel Security Life, Haymarket and Jazz Reinsurance. Each reportedly is currently operating with negative balances, which Pike says is a serious liability risk to state insurance policyholders.
“The Commissioner finds, based on knowledge and belief, that the Companies are in a Hazardous Financial Condition and that such condition presents an immediate and significant danger to the public health, safety or welfare, and that immediate action is necessary and in the public interest,” Pike wrote in the order.
Pike cited 43 examples of malfeasance on the part of A-Cap and its subsidiaries.
The “hazardous” conditions include Sentinel, Haymarket, and Jazz Reinsurance’s risk-based capital (“RBC”) ratio, which, as a key indicator of financial health, “has declined.” Additionally, the agency noted that the “Companies’ investment portfolios included a disproportionately large number of high-risk investments.”
The state insurance agency also reported the companies held a $520 million total deficit, which represented a big red flag for Utah.
If the insurers “continue to write business, a consumer who buys a policy may not obtain the financial protection that the policy would otherwise provide,” the executive order stated. “This threat is an immediate danger to the public welfare.”
For its part, A-Cap denied the charges, noting in a statement the Utah Insurance Commission’s evaluation was “flawed” and that its valuation work, “was validated by two highly qualified and independent valuation firms.”
Oversight in Action
Insurance experts say state insurers have a regulatory framework for insurance company supervision, and Utah officials follow that framework when examining the A-Cap issue.
“Primarily, that framework is intended to ensure that insurers have the capacity to meet their obligations to pay claims to policyholders,” said Jeffrey K. Dellinger, president at Longevity Risk Management Corporation in Fort Wayne, Indiana. “Insurers are required to maintain sufficient assets to meet these obligations under a large range of—but not the totality of—possible future economic scenarios.”
In A-Cap’s case, it failed on multiple fronts in the eyes of Utah insurance regulators.
According to Travis Christiansen, an attorney at Boyack Christiansen Legal Solutions in St. George, Utah, the state insurance agency had three significant concerns about A-Cap business practices.
- They weren’t following the laws. “More than 10% of their investments were in a single entity,” Christiansen said.
- They have more liabilities than assets. “Since they were using new premium income to pay owed monies, when income stops, they can’t pay,” he noted.
- Many of their investments, which were supposed to make money for their customers, were entities that were owned by their parent company. “That’s a conflict of interest,” Christiansen added.
Taken together, Utah feels like it’s on firm ground with the A-Cap ban, as they apparently view the insurer as a potential threat to insurance consumers nationwide.
“If A-Cap’s income stops, their ability to pay their customers stops – which is a problem,” Christiansen said. “This not only impacts Utah consumers but any throughout the country.”
A-Cap’s options are few, but Christiansen says the company does have some recourse in the court of law.
“A-Cap has already started the litigation process to have this ban overturned,” he said. “Going forward, they will need to show that they have the assets to pay their customers and that their assets exceed their liabilities.”
A-Cap may also seek administrative hearings.
“The company can try to prove financial reformation or attempt to discuss a structured wind-down of its existing book of business,” says Eamonn Turley, CEO of Multi-Quote, a digital insurance services platform. “However, the sizable deficit suggests these efforts could be subject to considerable regulatory scrutiny.”
Consumer Options
For insurance consumers, the Utah-A-Cap tilt demonstrates the importance of robust due diligence.
“The case underscores the critical need to research carrier financial strength, understand policy guarantees, and work with reputable, financially stable insurance providers,” Turley said. “Consumers should regularly review their policies and seek advice from independent insurance experts if they have any key questions.”
But consumers aren’t out of the woods yet.
“The good news is that while there are many issues with the insurance, there are also some protections for consumers, which is what is happening with this ban,” Christiansen said.
“The concern is that while no new policies can be written if A-Cap suddenly had a run on people cashing out their policies, they couldn’t meet those requests.”
In that scenario, “there’s little protection for the consumers who don’t get the full amount of what they are owed” because the company simply doesn’t have the money, Christiansen added.
It’s also important to understand that state guaranty associations exist and they could help annuity owners.
“Any insurer on the verge of trouble is aided to the extent necessary by assessments imposed on other licensed insurers writing the same type of business in the same state,” Dellinger said. “The existence of state guaranty associations is a safeguard to protect insurance company general account policyholders after insolvency occurs.”
The amount of coverage differs from state to state, but the model guaranty association law calls for $250,000 in present value of annuity benefits to be insured by the state guaranty association, Dellinger noted. “Any benefits in excess of this amount can still be submitted as a priority claim against a failed insurer,” he added.
In the meantime, the Utah decision signals a potential watershed moment in insurance regulation.
“Regulators are increasingly willing to take decisive action against carriers showing dangerous financial practices, which might be encouraging even more severe pre-emptive oversight industry-wide,” Turley said. “This should be a welcome sign for insurance consumers.”
Editor Norah Layne contributed to this article.
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