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Cal-Farm to Be Acquired by Ohio Insurer

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Times Staff Writer

Nationwide Mutual Insurance of Columbus, Ohio, the nation’s fourth-largest insurer of automobiles, has agreed to take over troubled Cal-Farm Insurance Co., a property and casualty underwriter based in Sacramento and affiliated with the California Farm Bureau Federation.

The California Department of Insurance placed the company under conservation March 29 after Cal-Farm experienced a high rate of defaults on mortgage-guarantee bonds issued on its behalf by an agent, Eagle Bonds & Insurance Brokers of Agoura, Calif. (The bonds provide an inducement to lenders to make real estate development loans by promising to pay if the borrowers default.)

The department said $60 million in loans are in default, with an additional $100 million outstanding. Cal-Farm has sued Eagle Bonds on charges based on federal racketeering laws.

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Cal-Farm, which has about 100,000 policyholders, collected $79 million in premiums last year, the department said, most of it in auto and homeowners insurance.

Nationwide sold $2.2 billion in premiums last year.

Under the tentative acquisition agreement, subject to approval in Sacramento County Superior Court on May 28, Nationwide will not be responsible for the defaulted bonds. No specific amount of cash is noted, but both sides are negotiating an accounting formula to determine the price for transferring the bulk of Cal-Farm’s operation to Nationwide.

Carl Santillo, Cal-Farm’s executive vice president, said the company will use the money obtained from Nationwide to honor its financial obligations. Santillo added that Cal-Farm’s management and staff will remain unchanged.

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Nationwide also will assume control of an affiliated company, Cal-Farm Life Insurance, which was not affected by the state conservation order.

Nationwide Mutual is one of a number of insurance subsidiaries of Nationwide Insurance Group, which reported $10 billion in assets last year. The company began as the insurance arm of the Ohio Farm Bureau Federation and continues to provide insurance service to federation members in Ohio and Maryland.

Three of Nationwide’s subsidiaries already do business in California: Colonial, based in Los Angeles, and West Coast Life and Gulf-Atlantic Insurance, both based in San Francisco.

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