SC regulators file to take over Charleston insurance companies, alleging high-risk debts

COLUMBIA — South Carolina regulators are seeking an emergency takeover of a retirement-focused insurance firm the agency argues is at risk of defaulting on customer payouts.

The state Department of Insurance filed suit in Richland County this week to take control of Atlantic Coast Life Insurance until the company turns around its investment portfolio.

In court filings, the agency said the company overextended on high-risk, underperforming investments beyond what state law allows. If these ventures fail, as many as 50,000 customers who rely on the company for retirement income could lose their life savings. It could also affect more than 100,000 funeral and life insurance policyholders from the legacy arm of the business.

“If the Department of Insurance allegations prove true and the company is allowed to keep operating this way, tens of thousands of people could see their retirement income disappear,” said Bob Hartwig, a University of South Carolina finance professor who studies the insurance industry. “We’re talking about promises that are literally meant to last a lifetime.”

The company declined to comment beyond its court filings.  In those filings, the company denies these allegations, says it’s fiscally sound and accuses the department of overstepping its authority. It also counter-sued state Insurance Director Michael Wise, alleging he publicized confidential information that could harm the company.

Company history

A private equity firm bought Charleston-based Atlantic Coast Life in 2015. Since then the company has gone from selling life insurance and funeral policies to largely offering a form of investment vehicle, known as an annuity.

Under the business model, insurance companies sell annuities to policyholders in exchange for investment proceeds. Income is tax-deferred, so people often use them when they’re planning to retire. Sometimes their payouts are used to pay off a mortgage, finance a grandchild’s college education or are taken in intervals to cover living expenses.

But the financial backstop for the policies sold by Atlantic Coast Life involves a complicated web of businesses and includes investments in companies facing bankruptcy and fraud charges.

While Atlantic Coast Life focuses on investment, it’s still an insurance company and falls under the state insurance agency’s purview.

The filing by the agency this week is the latest in a lengthy legal dispute dating back to at least 2024. The department is asking a circuit court judge to overturn earlier rulings by the state court that hears cases involving South Carolina’s regulatory agencies.

The company wants the judge to deny the department’s requests, citing the 2025 findings in Administrative Law Court. In those proceedings, retired Supreme Court Justice Kay Hearn, who was acting as the hearing officer, found the companies were “paying their obligations as they come due” and “the department has conceded that it has identified no risk that the companies might default.”

Furthermore, the company, in court filings, called the department’s allegations “speculative” and said a takeover would “cause immediate and irreparable harm” to the business and its policyholders.

In January, the national insurance ratings agency AM Best downgraded the company’s financial strength from a B++ (Good) to B (Fair.) The ratings agency also gave the company a “Negative Outlook,” suggesting the company could further deteriorate.

Exception not the rule

Hartwig called a failing annuity company “very much the exception rather than the rule.”

Hartwig said state insurance regulators have the authority to intervene before a company fails. To say regulators should wait until a company is in default would be like telling the Federal Aviation Administration not to act until after a plane crashes, he said.

“In my opinion, (Department of Insurance) would be derelict in its duties if it didn’t get involved,” Hartwig said.

Since the Great Recession, private equity firms’ involvement in the insurance industry has increased, especially in the life and annuity sectors. These insurers are predictable investments and boast large pools of capital that appeal to private equity, the Department of Insurance said in court filings.

When Advantage Capital took over Atlantic Coast Life, income from insurance premiums jumped from $25 million in 2015 to $102 million a year later, court filings say. By 2024 it had reached a high of $1 billion, according to a company financial report.

But these deals also tend to involve more risk. As a result, state law puts limits on the level of risk companies can take.

Under the arrangement, Advantage Capital Management, a subsidiary of Advantage Capital, managed the insurance company’s investments and collected fees for doing so. The deal further involved Advantage Capital sub-advisers also collecting fees.

None of this is unusual in this line of business. What is outside the norm, according to state insurance regulators, is the size of the fees charged compared to the success of the underlying investments the advisors made.

The firms invested heavily in private bonds rather than publicly traded ones, choosing those less regulated investments at a rate double the industry average, the insurance agency said.

Meanwhile their fees grew to more than double the industry standard, the agency’s lawyers said in court filings, despite performance that was only ordinary.

Some of those investments involved distressed or insolvent companies, the agency said: a struggling low-cost Canadian airline, European professional soccer clubs that have never turned an operational profit and a film studio still recovering from a failed Bollywood merger.

Hartwig called private equity involvement in the insurance sector a source of growing concern among industry watchdogs. The companies’ investment strategies are a major pivot from the past, when insurers stuck to investment-grade corporate bonds.

“Life insurance has been around for hundreds of years,” he said. “Over that history, most would never imagine backing the retirement dreams of thousands of Americans with these types of investments.”

Risky investments

As Atlantic Coast Life took on riskier ventures, it needed a way to balance that risk on its books.

That’s where another Advantage Capital subsidiary, Southern Atlantic Reinsurance, comes in.

Reinsurers are designed to help insurance companies take risk off their balance sheets so the insurance company doesn’t have to keep as much capital on hand.

The reinsurer took on $2.4 billion in reserves and associated investments from Atlantic Coast Life. But Southern Atlantic’s investment portfolio wasn’t much better, according to the state Insurance Department.

It loaned tens of millions to companies that later filed for bankruptcy. To recoup losses, it foreclosed and took over those companies, but insurance regulators aren’t convinced the insolvent companies will perform any better under Advanced Capital’s control.

In other cases, it let loans grow and linger beyond their original due date without collecting payments or interest.

777 Partners

Furthermore, the insurance companies are entwined on multiple levels with a family of companies accused of mismanagement and financial crimes.

Those companies, known as 777 Partners, got their start purchasing legal settlements and lottery payouts from cash-strapped recipients. Whenever courts award someone legal winnings but the awardee can’t afford or doesn’t want to wait for payments to roll in over time, they can sell it for a discounted lump sum. The company gets all future payments and the recipient gets cash up front, though less than they would have received over time.

The 777 Partners took out loans to finance these purchases and invested the funds in assets “not traditionally found in insurance portfolios,” the state Insurance Department said, such as airlines and sports teams, in addition to an insurance business.

The company is now in bankruptcy court and former executives have pleaded guilty to or face charges of federal fraud.

Atlantic Coast Life, through its parent company, holds investments in 777 companies. The company told state insurance regulators it was distancing itself from 777 but the two remain entangled. In all, 777 owes $1.3 billion to Advantage Capital affiliated companies, loans that are now in default, according to court filings.

Whether the state Department of Insurance steps in to shore up Atlantic Coast is again up to the courts.

While the insurer is a small operator compared to industry giants with hundreds of thousands, if not millions, of policy holders, the company’s failure would be no less devastating to those involved, Hartwig said.