State Dismisses Mission’s Plea on Insurer’s Woes

State regulators have dismissed a claim by Mission Insurance Group that efforts to keep a foundering insurance subsidiary afloat are failing and said they intend to pursue the rehabilitation of Mission Insurance Co., which it declared insolvent last October.

In a terse statement issued last Friday, the Department of Insurance said Mission’s distress call “simply reflects their opinion of the situation.” State rehabilitator Joe Morton, it added, “will continue with the rehabilitation plan.”

The Mission Group’s statement, released late Thursday, listed a series of financial setbacks that, it said, jeopardized its ability to follow through on its plans to reorganize its insurance operations and restructure its debts.

Mission Insurance Co., the group’s principal subsidiary, has been directed by Morton, as conservator, for nearly a year. It posted a $48-million loss for the first six months of 1986. For the same period, the parent firm posted a $12.5-million loss, not counting the loss by the unit in conservatorship.

“At this time, Mission Group and its subsidiaries are attempting to resolve their problems,” the statement said. But it added ominously that the restructuring plan agreed on with the state and its bondholders “may not be feasible.”

“What we’re saying is that these problems have arisen and we’ve got to relook at these plans,” Mission spokesman Laurence G. Becker said in an interview Thursday. “We are moving ahead with the restructuring but against a different set of circumstances.”

Some holders of Mission Group’s public debentures filed an involuntary bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code last January, but a reorganization plan was approved in federal bankruptcy court in Los Angeles in May.

Mission Insurance sold liability, property and workers’ compensation insurance and administered reinsurance pools through which it assumed some of the risk insured by other companies for a share of the original premium. The company’s troubles grew out of heavy claims paid out in its big workers’ compensation business and by increasing losses in its reinsurance operations.

Mission Group said that a “marked slowdown” has taken place over the last several weeks in reimbursement from its reinsurers for claims payments already made by Mission Insurance, further deteriorating its already precarious cash flow position.

Shift Liabilities

Mission Group reached an agreement with the state earlier this year on a plan to shift virtually all of Mission Insurance’s liabilities to Mission American Insurance Co., another subsidiary created for that purpose.

The agreement also called on Mission’s chief shareholder, American Financial Corp., headed by Cincinnati financier Carl Lindner, who is also chairman of Mission, to contribute $75 million to Mission Insurance.

The plan was that any further funds collected by Mission Insurance would be paid into a trust fund from which Mission American could recoup any losses it suffered from the insurance business it had taken on. Further insurance losses have stretched Mission America’s resources to the limit, the company statement implied, triggering its public warning.

Were the reorganization effort to collapse, the proposed debt restructuring would fall as well. It called for Mission Insurance’s major creditors to forgive claims against it in exchange for a stake in Mission American and a share of its profits over the next 10 years.