Mission Policyholders Urged to Be Patient : ‘Will Take Some Time’ to Sort 13,000 Claims in State, Regulators Say
State regulators who took over Mission Insurance 13 months ago with the goal of reviving the foundering Los Angeles firm--once one of the nation’s largest writers of workers’ compensation insurance--knew they were embarking on a virtual mission impossible.
“This is the worst one we’ve ever had,” Ansel Shapiro, chief examiner of the Department of Insurance, said at the time. “There’s no way in the world that this company can be rehabilitated.”
Shapiro’s prophecy was fulfilled Monday, when Insurance Commissioner Roxani Gillespie asked Los Angeles County Superior Court to let her liquidate Mission. The liquidation order is expected to be issued Feb. 24.
Gillespie named William S. Price, former executive vice president of Crum & Forster Insurance, to liquidate Mission. Once the anticipated liquidation order is issued and Price begins work, he will inform policyholders how to proceed in making claims.
The claims--more than two-thirds of which are expected to be on workers’ compensation policies, the rest on commercial liability policies--will be processed and paid by the California Insurance Guarantee Assn, which was created by state law in 1969 to honor claims of insolvent insurers.
“I’m trying to make sure that the impact to the public is the smallest we can possibly make it,” Gillespie said Tuesday in an interview. A special effort is being made to assure continuation of existing workers’ compensation payments, she said. “I feel that that part is going to go well.”
Can Be Assessed
Under state law, insurance companies doing business in California can be assessed to pay claims of failed insurers. The maximum assessment, which has never had to be levied, is 1% of the value of the premiums each company sold in the state. That would create an annual insurance pool of about $200 million, according to John Gates, the association’s executive director. The association currently is paying claims against seven insolvent insurers with a fund of $58 million, he said.
Gates urged claimants to remain patient in the case of Mission’s liquidation.
“This is a major insolvency, with some 13,000 claims pending in California alone,” he said. “It will take some time for us to work through the files. I urge all claimants to wait for notice from the liquidator.”
The association is not responsible for the first $100 of each claim, Gates said, and the maximum claim is $500,000, except in the case of workers’ compensation, in which terms are fixed by state law.
The Department of Insurance does not yet know the full extent of Mission’s claims liabilities but believes that the guarantee association’s resources will be adequate, Gillespie said. Although Mission Insurance operated in other states, the “overwhelming” bulk of its business was conducted in California, Gillespie said. The other states have guarantee funds similar to California’s.
The state guarantee funds do not, however, cover reinsurance policies, under which one insurer takes on a share of the risk in policies written by another company in exchange for a share of the premium collected.
Mission subsidiaries both bought and sold reinsurance, and the state has sued reinsurers that it claims owe Mission Insurance $700 million. If recovered, those funds will be used to pay claims or reimburse the guarantee fund, since the insurance assessments that feed it are ultimately passed on to the public.
On the other hand, a group of reinsurers has charged in a lawsuit that Mission fraudulently portrayed its financial situation in doing business with them. That case is pending in federal court in Los Angeles.
Only in recent years did Mission veer into the arcane world of reinsurance from its relatively secure base in workers’ compensation. It entered the new field at a time when companies were in a frenzy of rate slashing in increasingly wild efforts to generate premium income that could be invested at the double-digit interest rates then prevailing, according to James M. Shamberger, senior vice president of the Washington-based Reinsurance Assn. of America.
Speculative Risks
Along with similar reinsurers, Mission’s reinsurance subsidiaries inevitably took on increasingly speculative risks in such high-cost areas as liability coverage for asbestos removal and day-care centers without being able to balance them with more stable reinsurance coverages. Inevitably, claims mounted, and Mission, whose stock was traded on the New York Stock Exchange, began its dramatic plunge into red ink.
One question intriguing the insurance industry is whether Mission’s sinking will create a “ripple effect” that could submerge other insurers that had ties with Mission. Gillespie, for one, thinks not.
“We looked at the Mission situation,” she said, “and the only company clearly in trouble was Integrity Insurance”--and that company has already been closed in California and is in conservatorship in its home state of New Jersey. “Other companies involved with Mission had either written it off or established (financial) reserves. So we do not see this insolvency bringing down other companies,” Gillespie said.
Among the losers already is Cincinnati-based investor Carl H. Lindner, whose American Financial Corp. owns 49.9% of Mission’s stock. AFC has already written that investment off its books, according to a source within the company, who asked not to be identified.
The source disputed claims by the state of California that American Financial had failed to honor agreements to inject fresh capital into Mission Insurance. “There was lots of discussion but no commitments,” the source said. However, he added, AFC itself invested $75 million on its own in an attempt to keep the company alive.
On Monday, the state took over Mission American Insurance, Mission Insurance’s immediate parent, which was created by Lindner to take over Mission Insurance’s business. The commissioner said she sought the conservatorship to protect Mission American’s assets from the involuntary bankruptcy proceedings now pending against the subsidiary’s holding company, Mission Insurance Group.
Last Hope
Gillespie said she has not yet determined whether it will be necessary to liquidate Mission American, which was Lindner’s last hope to recoup his investment.
A spokesman for Mission Insurance Group said Tuesday that the company would agree to the proceedings under Chapter 11 of the U.S. Bankruptcy Code, under which it receives protection from creditors while attempting to work out a reorganization plan.
