Competitors Bid for Customers of First Executive : Insurance: The moves are intended to capitalize on recent troubles at the firm.
Adding to the woes of troubled First Executive Corp., a number of agents, brokers and underwriters for competing life insurance companies are actively seeking out First Executive customers and urging them to switch.
One broker said he was planning to send out thousands of flyers reiterating the company’s recent problems. Another ran advertisements alluding to risks in junk bond portfolios similar to First Executive’s. And still others are contacting the company’s clients by phone or mail to warn them of real or perceived risks to policyholders.
Other agents said they are not actively seeking out the troubled company’s policyholders, but they have been deluged with phone calls from jittery agents and clients with First Executive policies.
The competitive moves are apparently intended to capitalize on a series of problems that have come to light in recent weeks at Los Angeles-based First Executive Corp., the parent of Executive Life Insurance Co. of California. The company, once one of the fastest-growing and most profitable insurers in the state, has a huge portfolio of high-yield junk bonds backing its life insurance policies and annuities.
At one point, those high-yield bonds allowed Executive Life to offer the most competitive returns in the business. But now the junk bond market has soured, leaving the company with huge losses in its portfolio.
A week ago, First Executive announced that it would post a significant year-end loss--estimated to be about $300 million--because of writeoffs in its junk bond portfolio. Executive also acknowledged that, even after the writeoffs, the bonds now were worth $1.4 billion less than what the company paid for them.
Meanwhile, the insurer has been battling with regulators, who didn’t like the way Executive Life calculated its reserves, and its biggest stockholders, who are upset about the company’s quickly deteriorating market price.
That apparently has spurred hundreds of the company’s customers to question the safety of their policies.
“It’s like a bad dream. I don’t know what to do,” said David Jenett, who holds a $30,000 annuity with Executive Life. “The thing that bothers me is if I want to get out and save my little tushie, it’s going to cost me $1,800 in fees.”
Added Charles Bogue, general agent with Guardian Life Insurance in Los Angeles: “We are getting a lot of calls and everybody wants to get out.”
First Executive, however, said it is not losing a significant amount of business.
“To date, surrenders have not been substantial and there is an active flow of new business,” said Alan Snyder, president of First Executive Corp. The company also maintains that it is financially healthy and that its woes have been overstated.
Nevertheless, competitors are hitting the company hard.
One Los Angeles agent said he was sending out about 8,000 flyers to life insurance agents and brokers in the Los Angeles area. The flyers would reiterate news from a series of newspaper articles about Executive’s woes, and end with the sales pitch, “if you’re now looking for a stable insurer, it might be time to switch.”
New York Life is using a subtler approach. The company has an internal communications system that sends out daily news about its competitors via computer terminals. Lately that news has been primarily about Executive Life. In addition, the company’s January newsletter compares investment portfolios of many of the major insurers. The message: New York Life’s portfolio is almost completely in relatively safe, investment-grade issues, while more than half of First Executive’s portfolio is in higher-risk issues.
Meanwhile, M. L. Stern & Co. ran advertisements immediately following First Executive’s junk bond revelations that read: “Is your annuity backed by a large % of junk bonds? . . . To find out the security behind your annuity, call . . .”
The company refused to comment on the ad.
Manufacturers Life said it is working with skittish First Executive policyholders, analyzing the risks of staying with Executive Life, compared to the costs of canceling. Manufacturers said it is not actively seeking out policyholders, though, and is only responding to requests.
Other agents said they were contacting individual customers, particularly those who are worried about risk.
“I think the company will stay in business, but I have a few clients who are super-sensitive to risk,” said David Yossem, president of West Coast Financial Services in Santa Barbara. “I am informing those clients that there has been a tremendous amount of attention about Executive Life in the press lately and there is an additional element of risk if they’d like to switch.”
