National Heritage Life Insurance Company

National Heritage Life Insurance Company (NHL), formerly Omni Life Insurance Company was an insurance company based in Orlando, Florida in the United States.[1] The company mainly sold annuities and some life insurance policies. In the late 1980s, the business was failing, and they were threatened by regulators to be shut down. Due to fraud and bad business dealings they, were liquidated in 1996.[2][3][4]

History

National Heritage Life (NHL), headquarters located in Orlando, Florida, specialized in the sale of tax-deferred annuities and interest-sensitive life insurance products. At the time of liquidation they had approximately 20,595 annuity contracts and 3,888 life policy contracts from policyholders.[2][5]

In late 1989, National Heritage reported an operating loss and 27% reduction of capital from a decline of sales, and in 1990, insurance regulators threatened to shut down the company if it did not raise additional capital.[6][7] A group of investors offered $4 million to satisfy regulators, in exchange for a controlling interest in National Heritage. The group provided a $4 million check, but once in control of National Heritage, transferred $3 million from National Heritage to help cover the check.[8] This began a long series of schemes in which millions were stolen from National Heritage by the group of investors. Bad investments further depleted National Heritage capital.[9]

In 1993, the group decided to cover up all the missing money by a "mortgage-backed bond scheme". Weiss (not part of the original investment group) was contracted to purchase discounted mortgages with National Heritage funds, which were put into a mortgage-backed bond.[10] It was believed that the discounted mortgages could be rehabilitated, and thus make a profit. The bond was fraudulently placed on National Heritage books with inflated values.[10]

In 1994, the Delaware Insurance Department did a full examination of the company and placed it in receivership. Three corporations and 13 individuals were convicted, including Weiss.[11][12]

The FBI Section Chief for Financial Crimes stated in 2001 that National Heritage was the largest insurance company failure in U.S. history, resulting $450 million of losses.[13] A 2000 New York Times article stated that Weiss was part of "an immense fraud scheme that siphoned $450 million" from the insurance company.[14] However, Best's Review, the insurance industry monthly magazine, explains that it had $420 million in liabilities to its policyholders, which were covered by state guarantee funds, and were due to a mixture of theft and bad investments.[15]

The $450 (or $420) million figure cited above in media reports and the FBI is the "gross" amount of National Heritage liabilities covered by state guarantee funds, before recovery of National Heritage assets. According to an order by the Delaware Court of Chancery granting liquidation, at the time National Heritage went into receivership in 1994, it had $214 million in liabilities above its assets.[16] The Receiver noted in court submissions (exhibits A-C) that National Heritage recovered $235 million, and reimbursed state guarantee funds $229 million.[17] The policyholders of National Heritage were fully reimbursed by 2000.[18]

The National Heritage financial collapse was alleged to be the largest "insurance failure" in history,[13] an untrue "fact" and a narrative that the prosecutors and the FBI have been making to justify the large white-collar sentence that Weiss and his co-defendant received.[19][20] The insurance company didn't have any financial loss, after all, assets were liquidated the insurance company realized a gain. The sentence imposed on Weiss is believed to be the longest known to have ever been imposed for a white-collar crime.[13][14] The financial collapse of National Heritage Life Insurance Company was caused by mismanagement, bad investments, and embezzlement by officers of the company.[21] Weiss, who was not an officer of NHLC, was contracted by these officers as a financial consultant to restore the health of the company. Ultimately, getting involved led to his conviction of money laundering in the "mortgage-backed bond scheme".[22]

Liquidation timeline

May 25, 1994, Rehabilitation and Injunction Order[23]

June 27, 1994 Supplemental Rehabilitation Order[24]

Nov. 21, 1995: Liquidation and Injunction Order[25]

January 1, 1996: Date of Policy Assumption of (Metropolitan Life Insurance Company)[26]

January 1, 1996: Date of Policy Assumption of Single Prem. Ord. Life (Madison National Life Insurance Company, Inc.)[27]

June 12, 2009: Receiver's Third Recommendation Report and Petition[28]

References
  1. "Texas Department of Insurance - Company History". 18 September 1986.
  2. "Met Life Assumes 25,000 Policies And Contracts". The New York Times. 4 July 1996.
  3. "Anatomy of Failure" (PDF). Best's Review. September 2000.
  4. "FORMER NATIONAL HERITAGE OFFICER, OTHERS CHARGED IN ASSET FRAUD". Business Insurance. 3 August 1997.
  5. "Anatomy of a Failure" (PDF). September 2000.
  6. United States v. Weiss, Case No. 6:98-cr-99-PCF-KRS. Judgment Doc. 1372.
  10. Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. p. 100. Archived from the original (PDF) on March 23, 2006. Retrieved February 14, 2018.
  11. Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. pp. 100–101. Archived from the original on March 23, 2006. Retrieved February 14, 2018.
  12. Susan Clary, Orlando Sentinel, 2000 "Insurance Crooks To Serve Life - Plus"
  13. "Testimony of Dennis Lormel, Section Chief, Financial Crimes, Before the House Financial Services Committee, March 6, 2001". FBI. 2001-03-06. Archived from the original on May 12, 2009. Retrieved 2009-07-02.
  14. Rashbaum, William K. (9 March 2000). "845 Years in Prison, If the Authorities Can Catch Him; F.B.I. Says Fugitive Has a Flair For Fraud and Hiding Stolen Cash". The New York Times. Retrieved 6 July 2009.
  15. Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. pp. 96–99. Archived from the original on March 23, 2006. Retrieved February 14, 2018.
  16. https://insurance.delaware.gov/wp-content/uploads/sites/15/2017/01/3-NHL-LiquidInjOrder-11-95.pdf
  17. https://insurance.delaware.gov/wp-content/uploads/sites/15/2017/01/4-NHLPetitionGAOmnClaimsAgr-6-09.pdf
  18. Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. p. 104. Archived from the original on March 23, 2006. Retrieved February 14, 2018.
  19. "Leadership and Life Insurance Failures" (PDF). Actuaries Institute: 8–15. 2013.
  20. "Why do insurance companies fail?". GR Global RE-insurance. 2003.
  21. Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. p. 100. Archived from the original on March 23, 2006. Retrieved February 14, 2018.
  22. Whitney, Sally (1 September 2000). "Anatomy of a Failure". Best's Review. pp. 96–99. Archived from the original on 23 March 2006.CS1 maint: BOT: original-url status unknown (link)
  23. "Rehabilitation and Injunction Order 1994" (PDF). insurance.delaware.gov.
  24. "Supplemental Rehabilitation Order 1994" (PDF). insurance.delaware.gov.
  25. "Liquidation and Injunction Order 1995" (PDF). insurance.delaware.gov.
  26. "Date of Policy Assumption of (Metropolitan Life Insurance Company) 1996" (PDF). insurance.delaware.gov.
  27. "Date of Policy Assumption of Single Prem. Ord. Life (Madison National Life Insurance Company, Inc.) 1996" (PDF). insurance.delaware.gov.
  28. "Receiver's Third Recommendation Report and Petition 2009" (PDF). insurance.delaware.gov.
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