Policyholders of struggling life insurer PHL Variable Insurance Co. have sued its private equity owner Golden Gate Capital, accusing the firm of self-dealing and mismanagement that led to a $2.2 billion capital shortfall.

The lawsuit, filed in Connecticut federal court, also targets Golden Gate's subsidiary Nassau Financial Group, alleging they concealed PHL's financial problems through reinsurance deals with affiliated companies, including a Cayman Islands entity. The suit follows a decision by state regulators to scrap rehabilitation plans for the insurer, which was acquired by Nassau in 2016.

State authorities said investments under new ownership underperformed and captive reinsurer deals failed to safeguard capital. The complaint alleges defendants “systematically and callously pillaged PHL’s assets” by using policyholder money to finance their own ventures, buy back roughly $1 billion of PHL-issued policies through shell companies, and transfer more than $2 billion via captive reinsurance arrangements.

A Nassau spokesperson said the claims are without merit and the firm will vigorously defend itself. PHL is heading for liquidation, and a Connecticut regulator previously capped policyholder benefits at $250,000 or $300,000 depending on policies.