Two Rating Services Give First Executive a Poor Report Card
The barrage of bad news about Los Angeles-based First Executive Corp. continued Friday, as two widely regarded credit rating firms said they had become increasingly pessimistic about the company’s financial condition.
A. M. Best Co. removed Executive Life Insurance Co. and Executive Life of New York--First Executive’s two largest subsidiaries--from its company ratings, saying the firms no longer meet the minimum standards for Best’s lowest mark.
Moody’s Investors Service, a corporate credit rating agency, also lowered its financial strength rating for Executive Life Insurance Co., which is also based in Los Angeles.
“The action reflects the continued deterioration in the company’s financial condition and its increasing vulnerability to the negative effects of policyholder surrenders,” Moody’s said.
A. M. Best, which analyzes the financial stability of insurance firms, previously gave Executive Life a better rating. But it had second thoughts about that reasonably high mark when it became aware of increasing defaults and writedown’s in Executive Life’s high-yield junk bond portfolio during 1990.
Moreover, the company’s “mandatory securities valuation reserve,” which cushions surplus--and consequently, policyholders--from future bond defaults, has been depleted, Best said. The rating service added that it is concerned about recent regulatory constraints on the company, and with Executive Life’s “cash flow, (and) ability to meet short term obligations.”
On Thursday, New York insurance regulators ordered Executive Life of New York to stop writing policies and ordered it to boost its reserves to pay claims by $125 million. The regulators said they took the steps to protect current policyholders.
First Executive said it disagreed with the action by the rating agencies and it has plenty of cash available to pay policyholders.
“There is absolutely no basis for the concern A. M. Best mentioned about Executive Life’s ability to meet short-term obligations,” said William C. Adams, a company spokesman. “The company remains highly liquid and able to meet all foreseeable policyholder obligations.”
First Executive refused additional comment.
Earlier this week, First Executive Corp. announced that it lost $466 million during the fourth quarter of 1990, largely due to staggering problems in the company’s investment portfolio. Those losses and other financial woes caused the firm’s auditors to question First Executive’s ability to stay in business.
Regulators in several states where Executive does business--including California--are examining the insurer’s financial records to determine whether to impose operating restrictions on the company.
