First Executive Will Sell Unit to Boost Capital : Controversial Insurance Firm to Take Loss in Deal

First Executive Corp., the controversial Los Angeles life insurance company that has been deliberately reducing sales of certain products to bolster its capital position, said Wednesday that it will sell its New York insurance subsidiary for an expected price of about $460 million.

The 99%-owned subsidiary, Executive Life Insurance Co. of New York, will be sold to WW Acquisition Corp. The buyer is a newly formed concern headed by Leo M. Walsh Jr., former chief operating officer of Equitable Life Assurance Society of the United States, and Martin J. Wygod, a private real estate investor and chairman and chief executive of Medco Containment Services.

First Executive said the sale will result in a loss of about $150 million, which will be reported in its first quarter. However, the deal will boost the firm’s capital.

Long Search for Buyer

The sale, when completed, will end a search begun in late 1987 by First Executive for a buyer of the New York subsidiary, which accounted for about 26% of the parent company’s 1988 profit and 22% of its assets. The subsidiary’s products, primarily single-premium life insurance and annuity products, require capital reserves to be set aside to meet estimated future payment obligations on the policies.

Reserves also must be set aside for possible losses in First Executive’s large investments in high-yield “junk bonds,” a controversial practice that has netted First Executive handsome profits while raising the ire of regulators who consider those bonds risky.

To reduce the strain on its reserves, First Executive has been deliberately slowing sales of certain life insurance and annuity products, particularly at the New York subsidiary.

The subsidiary also has been embroiled in a controversy involving its practices in reinsurance, the process by which insurers pass along risks to other insurers. Questions regarding the subsidiary’s accounting practices on reinsurance deals resulted in the New York State Insurance Department fining it a record $250,000 in 1987 and requiring the parent company to make a $151.5-million cash infusion to the unit.

The dispute, which has yet to be resolved, is believed to have contributed to First Executive’s desire to sell the unit.

Sale of the subsidiary is subject to numerous conditions and regulatory approvals by the New York and California insurance departments, which are expected to take several months, First Executive said.