Utah Insurance Commissioner Jonathan Pike is seeking to take control of Sentinel Security Life Insurance Co. and its reinsurers, Haymarket Re and Jazz Re, through a court-ordered rehabilitation. This move follows concerns regarding the financial health of the insurance companies, which are owned by Advantage Capital Partners (A-Cap).
The petition, filed on March 21 in the Third Judicial District Court, is the latest development in a dispute over the assets backing the insurance companies. In December, Utah regulators prohibited Sentinel Security from writing new life insurance policies after December 31, 2024. Advantage Capital Partners has appealed this decision to a Utah administrative law court, with a hearing scheduled for May 12. However, Commissioner Pike decided not to wait for the administrative court’s decision.
“This Petition results from a years-long history of self-dealing, conflicts of interest, and obfuscation by the ultimate controlling party of the Utah Insurers, Kenneth King,” the petition states. King is the chairman and CEO of A-Cap. The filing requests the court to allow regulators to “take possession, control, and title to all assets of Sentinel, Haymarket, and Jazz Re, and to administer those assets pursuant to the laws of the State of Utah, as directed by the Court, staying all actions and proceedings relating to the Utah Insurers, in Utah and elsewhere.”
A spokesman for A-Cap responded to the news, stating, “We are disappointed by the Department’s attempt to circumvent recent rulings in A-CAP’s favor by filing a new case in a different forum based on the same unsupported allegations. The Department’s case was foundering because it outsourced critical tasks to external firms and individuals ill-equipped to appraise complex private credit assets like ours. Now, in a transparent attempt to deflect blame and financial accountability, they are attempting to change to a new decision-maker. A-CAP prioritizes and protects its policyholders and firmly stands by our actions and belief that our companies remain strong. We look forward to rebutting the Department’s claims promptly.”
South Carolina’s Similar Situation
South Carolina regulators face a similar situation regarding Atlantic Coast Life Insurance Co., another A-Cap insurer. Both South Carolina and Utah regulators shared information while investigating the financials of A-Cap insurers throughout 2024, according to court documents.
In South Carolina, Michael Wise, director of the South Carolina Department of Insurance, issued a “confidential order” on April 10, 2024, placing Atlantic Coast and Southern Atlantic Re under “confidential administrative supervision.” On October 21, the South Carolina regulators informed the insurance companies that they were “unwilling to continue to permit the insurers to incur new liabilities … when all companies[’] RBC are at a mandatory control level and each of the insurers exhibits negative surplus.”
South Carolina regulators directed Atlantic Coast to stop writing new business on November 14. Utah followed suit and made its directive official on December 2, with South Carolina following on December 11. However, the situation shifted on February 13 when South Carolina Administrative Law Judge Ralph King Anderson III sided with A-Cap, rejecting the S.C. insurance department’s assertion that Atlantic Coast was in financial distress.
“The evidence shows that ACL maintains a positive cash flow and has not experienced any difficulty paying amounts owed to either its policyholders or creditors,” Judge Anderson wrote in his decision.
Investments Tied to 777 Partners
The Utah Department of Insurance declined to comment on the rehabilitation petition just weeks before the administrative law court hearing. However, the court filing reveals that A-Cap allegedly used its life insurers to generate cash, which was then invested in “high-return, high-risk investments.” These investments, according to the petition, were made in agreements and loans with 777 Partners, a Miami-based investment firm.
“First, 777 Partners agreed the Utah Insurers would be able to reinsure their liability through 777 Re,” the petition says, “which allowed the insurers to continue writing insurance without the need to increase their capital reserves. Second, A-CAP agreed that the Utah Insurers would invest their capital in high-return investments in the form of short-term loans to entities controlled by 777 Partners and that 777 Partners would act as an asset management sub-advisor to the Utah Insurers.”
777 Partners is currently facing multiple lawsuits alleging financial improprieties, including accusations of fraudulently borrowing heavily against assets that are non-existent or already pledged as collateral. The U.S. Department of Justice has issued criminal subpoenas to employees of 777 Partners as part of a money laundering investigation.
The petition claims that around 2020, A-Cap invested over $2.1 billion (approximately 26%) of the Utah insurers’ admitted assets in various 777 Partners investments. The filing claims that these investments have been non-performing and have been increased, rather than liquidated, to avoid recognizing losses, yielding virtually no return.
Documentation Issues
In the recent petition, Utah regulators also stated that the A-Cap insurers “have stopped providing documentation to the Examiner and the Supervisor. As a result, the Examiner does not have access to the documentation needed to continue its fair valuation analyses.”
Based on a “full-scope financial examination” ordered by Commissioner Pike, several problems were identified. These included: more than 10% of the companies’ investments being in a single entity, a decline in the companies’ risk-based capital ratio, investment portfolios with a “disproportionately large number of high-risk investments,” and investments in over thirty loans or loan packages. An independent contractor examined assets held by the A-Cap insurers and determined that the values of certain loans or loan packages were significantly less than the insurers’ internal valuations.
