Insurance Firm Lobbied Hard to Sway Lawmakers

First Executive Corp. spent almost $250,000 last year to influence state lawmakers, including its successful efforts to beat back legislation that would have limited the junk bond holdings of the firm’s largest subsidiary, Executive Life Insurance Co. of California, which was seized last week by state regulators.

According to reports filed by the company with the secretary of state, most of First Executive’s spending in the capital--a total of $225,000--went to four lobbying firms last year. The payments started in February, when the company began a successful effort to quash subpoenas ordering two of the insurer’s top executives to appear before the Assembly Finance and Insurance Committee, which was looking into its affairs.

The firm paid out another $23,000 in political contributions, including $5,000 to a campaign committee run by Assembly Speaker Willie Brown (D-San Francisco), the records show. The payment came a day after the junk bond restrictions were dropped from a bill by then-Assemblyman Patrick Johnston (D-Stockton). The measure established a state life insurance guarantee fund to protect those holding policies from insolvent insurers.

Later, the company also paid $10,000 to the Democratic State Central Committee’s get-out-the-vote effort.

Central to Executive Life’s woes is its heavy reliance on junk bonds, which make up between 60% and 70% of its assets, according to state Department of Insurance estimates. The risky but high-yielding securities provided large returns for the company in good years. But defaults and big losses over the past few years led to a crisis of confidence among policyholders.

Johnston’s insurance fund bill contained a provision that would have prevented insurance companies in the state from holding more than 20% of their assets in “high-yield, high-risk obligations”--a rule similar to one imposed by the New York insurance department in 1987.

However, Johnston, now a state senator, said he had no hope of winning passage of the insurance fund bill as long as it had the 20% junk bond cap in it. He said he could only get four votes for the measure from the 20-member Assembly insurance committee last May 15, even though he was its chairman.

Once the 20% cap was dropped, on May 22, 1990, the bill won easy committee approval, 13 to 1.

The following day, Executive Life contributed the $5,000 to Speaker Brown’s Committee for Fair Reapportionment, the company reported. The campaign committee was organized in opposition to two initiatives on the June, 1990, ballot. The initiatives, which were overwhelmingly rejected by voters, would have reduced the power of the Democratic majority in the Legislature to draw boundary lines for legislative and congressional districts. Defeating the measures was Brown’s top priority on the primary ballot that year.

First Executive Senior Vice President William C. Adams refused to answer questions about the firm’s lobbying efforts and campaign contributions last year, referring a reporter to the state Department of Insurance.

Speaker Brown, who is in Washington this week, could not be reached for comment.

In a recent interview, Johnston expressed his deep frustration in trying to address the problems created by Executive Life’s investment strategy. He blamed the defeat of the proposed junk bond limits on high-powered lobbying by Executive Life, a few other insurers and junk bond dealers.

“It’s not a quid pro quo, “ he said. “It’s the tendency of politicians to go along with representations by (lobbyists) they know, by people they like, by people who supported them.”

Johnston said he first felt the force of Executive Life’s lobbying when he tried to subpoena the company’s chairman, Fred Carr, and its senior vice president for investments, Doug Marcian, along with junk bond guru Michael Milken.

In February, the subpoenas were approved by the chairman of the Assembly Rules Committee, Assemblyman Tom Bane (D-Tarzana). However, an attorney for Executive Life wrote Speaker Brown on March 5, 1990, arguing that the procedure then in use for compelling testimony was improper because state law required the matter to be voted on by the whole committee.

According to Johnston, Brown brought him into a meeting with Legislative Counsel Bion Gregory, who agreed that the Rules Committee would have to vote formally before the subpoena could be issued.

“I don’t find fault with the Speaker,” Johnston said. “That is what the law said, and we ought to follow the law.”

Johnston took his case to the full committee, which became the target of Executive Life’s lobbying. The committee refused to issue the subpoenas.

Opponents of the subpoenas argued that Johnston, who was supporting then-Atty. Gen. John K. Van de Kamp’s candidacy for governor, was using the subpoenas as a way to embarrass Van de Kamp’s Democratic primary opponent, former San Francisco Mayor Dianne Feinstein.

Feinstein’s husband, Richard C. Blum, is one of Executive Life’s money managers. Because Brown was backing Feinstein, there was speculation at the time that he opposed the subpoenas to protect Blum and Feinstein from possible criticism.

But Blum in a recent interview scoffed at any suggestion that he or his wife played any role in Executive Life’s legislative battles. He said the investments he made on behalf of the insurer did not include any junk bonds and were extraordinarily profitable, with returns of 33% in 1988 and 25% in 1989.

Times staff writers Dan Morain in San Francisco and Scott J. Paltrow in New York contributed to this story.