State Assumes Control of Mission Insurance

Mission Insurance Co., a Los Angeles-based insurer that has been awash in red ink for the last two years, was declared insolvent Thursday and placed under state conservatorship. The order, issued in Los Angeles Superior Court, put Mission under direct control of the state Department of Insurance.

The order, requested by Assistant Atty. Gen. Raymond Jue, came after trading had ended for the day on the New York Stock Exchange, where Mission shares closed unchanged at $2.625. The stock’s 52-week high was $10.625.

Reinsurance Operations

The company, whose major line of business was workers compensation, where rates and benefits are set by the state, ran into financial trouble through its reinsurance operations. In reinsurance, a major insured risk in the property-casualty field is divided among several companies who are paid a proportionate share of the original premium collected by the primary insurer. But fierce competition for premium dollars has driven reinsurance rates to bargain-basement levels in recent years, leaving many reinsurers, including Mission, vulnerable to major claims.

These risks can range from earthquakes to satellite losses and plane crashes--all of which have occurred with dismaying frequency in recent years.

Mission reported a $15.4-million loss in 1983, which ballooned last year to $198 million. The Department of Insurance, in announcing its takeover, said Mission is $169 million short of meeting its insurance obligations.

“The insolvency is not expected to have an effect on workers compensation insurance policyholders because the department believes there are sufficient assets to pay those claims,” said Jorge Sandoval, department spokesman. The company, which is admitted to sell insurance in all 50 states, has 20,000 policyholders, he added.

Mission Insurance is part of Mission Insurance Group, whose major shareholder is Cincinnati-based American Financial Corp., which owns 49.9% of Mission’s common stock. American Financial’s chairman, Carl H. Lindner, is also chairman of Mission Insurance Group. Neither Mission nor American Financial made any statement about the court order Thursday.

History of Success

Earlier this year, American Financial agreed to pump $40 million into Mission, which already has added $39 million to its loss reserves since January.

Mission Insurance’s recent financial woes were a far cry from most of its history: Over nearly 33 years, it had evolved into one of California’s largest and most profitable writers of workers compensation insurance.

In a statement issued late Thursday, Mission Insurance Group said it is cooperating with the insurance department on the future operations of its subsidiary.

It noted, however, that the insurance department’s action does not involve its newly acquired subsidiaries, Mission American Insurance and Compac Insurance, the principal underwriting companies within the Mission organization.