First Executive’s Officers Reaped Windfall Profits : Insurance: Four cashed out of a partnership just months before state took over firm’s biggest subsidiary.

Top officers of First Executive Corp. reaped windfall profits only months before state regulators took over the company’s biggest subsidiary, Executive Life Insurance Co. of California, according to an annual financial statement filed by the company.

Five months before Executive Life was seized by the state Insurance Department, four of First Executive’s top officers cashed out of a limited partnership called Executive Life Associates Ltd., which had invested in First Executive’s headquarters building in West Los Angeles over the past several years.

First Executive Chairman Fred Carr earned a net profit of $1.2 million on his investment of less than $1.5 million, according to the company.

A company spokesman would not reveal the exact profits earned by three other executive officers who also participated in the partnership. However, a source close to the company said the other officers earned between $50,000 and $150,000 each on the partnership.

More recently, a First Executive subsidiary entered into a more complicated arrangement to safeguard promised future payments, known as deferred compensation, owed to Carr and several other top officers, according to a financial statement filed with securities regulators.

Despite company assurances to policyholders that Executive Life was solid, the action was taken in February because company managers were afraid that regulators would seize the insurer and refuse to release about $11.3 million in their deferred pay, a company spokesman acknowledged.

“Some (executives) were concerned about the possibility of regulatory intervention at Executive Life, which would result in them never receiving their deferred compensation,” said William C. Adams, a First Executive senior vice president.

To safeguard these payments, a separate First Executive subsidiary called Rhodes Financial Inc., which was capitalized with $22 million, pledged roughly half its capital to guarantee the deferred compensation owed to First Executive’s senior officers.

The bulk of the deferred compensation--about $10.7 million--was owed to Carr. Another $600,000 was owed to about 10 other officers.

California Insurance Commissioner John Garamendi said Monday he is consulting with regulators in other states to try to halt any executive compensation payments from Rhodes.

An Insurance Department spokesman said Carr told Garamendi that he would not take any deferred compensation until all of Executive Life’s policyholders are paid in full. However, a First Executive spokesman would not confirm that such an agreement had been struck. Carr did not return phone calls from The Times.

Executive Life customers, meanwhile, have been barred from cashing in their insurance policies or borrowing from them. Regulators are unsure how much money Executive will have to pay policyholder claims.

It has also been uncertain whether California’s life insurance guarantee fund would back Executive Life policies if the company were liquidated, because the guarantee fund excludes coverage for companies that were insolvent or impaired as of last January.

But Garamendi said he is now confident that the guarantee fund will cover Executive’s policyholders.

Still, many retirees who expect monthly payments from Executive Life will find those checks delayed. Even then, many will get less money than normal because of the company’s tenuous financial situation, regulators said.

First Executive’s Adams noted that about $11 million in capital that was contributed to Rhodes from two First Executive insurance subsidiaries--Lincoln Liberty of Nebraska and First Delaware Life of Delaware--will be returned to those companies. Nevertheless, Rhodes’ remaining capital will continue to back the deferred compensation arrangements.

The Rhodes capital--until it is used to pay the deferred compensation--will help launch a company called Newco, envisioned as a traditional insurance company that invests in nothing but high-grade securities, Adams added. Adams maintained that Newco is an important part of a rehabilitation plan for Executive Life, in which a French financial services firm called Altus Financial would provide enough capital to keep the troubled insurer operating.

Even if Carr and other officers do not get their deferred compensation, they will not walk away empty-handed. Aside from the partnership profits, First Executive’s top officers earned healthy salaries and bonuses in 1990, according to the company’s 10-K annual report to the Securities and Exchange Commission.

Carr’s take-home pay amounted to $612,683. In addition, the company has agreed to reimburse him for $25,000 per year in medical expenses, and it pays the premium on his $2-million term life insurance policy. First Executive also provides him with an automobile and other benefits, the company’s report said.

Carr did, however, lose $3.8 million on First Executive preferred stock that he purchased in a 1989 public offering, Adams said. The stock is now essentially worthless.

Carr also has a five-year employment agreement, which provides a $6-million cash payment if he ceases to be employed by Executive Life for any reason “other than death, disability or cause.” Neither regulators nor First Executive would say whether that “golden parachute” was triggered when regulators took control of Executive Life.

Pay for others of the firm’s officers in 1990 included $495,909 for Alan C. Snyder, president and chief operating officer; $325,425 for Merle A. Horst, former chief financial officer; $270,083 for William J. Adams, vice president and general counsel; and $244,918 for William L. Sanders, who replaced Horst as chief financial officer.