Regulators Seize First Exec’s N.Y. Unit to Stem Panic
The New York state Insurance Department seized control of First Executive Corp.’s New York life insurance subsidiary Tuesday in response to what regulators said was a “rush” by worried policyholders to get their money out.
The seizure of Executive Life Insurance Co. of New York came only five days after the California Insurance Department took control of First Executive’s California subsidiary in response to heavy losses by the company, especially from defaults in its enormous junk bond holdings.
New York Insurance Supt. Salvatore R. Curiale said Executive Life of New York isn’t insolvent and has ample cash on hand to pay life insurance death benefits and meet annuity payments. But Curiale said word that the California unit had been seized had caused “a damaging loss of confidence in the New York company.” Although the two are run separately, Executive Life Insurance Co. of California technically is the parent of the New York unit.
After Executive Life of California was seized last week, demands by policy and annuity holders of the New York unit to surrender or cash out their policies swelled to between 400 and 500 per day from the previous level of about 25 per day, one regulator said. The New York unit has about 103,000 policyholders in 23 states and the District of Columbia.
The New York Insurance Department obtained a temporary restraining order from a New York State Supreme Court justice late Monday authorizing the seizure. The regulators are expected to seek a permanent order Tuesday expanding their control.
At a press conference announcing the seizure, Curiale said: “The growing rush to withdraw capital assets from the company threatens its solvency and undermines the ability of the company to meet its obligations to all policyholders.” But he said the takeover should reassure policyholders “that all obligations will be met.”
Following the example of California regulators, the New York officials declared a moratorium on policy surrenders and loans on policies. But Curiale said Executive Life of New York would continue to pay death benefits and make annuity payments in full.
The New York superintendent said he was optimistic that Executive Life of New York could be “rehabilitated” without having to draw funds from the New York Life Insurance Guaranty Corp. The guaranty company exists to pay off claims in the event of an insurance company’s failure, and it includes all life insurance companies based in New York. It has no standing fund, but all member companies would be assessed a specific amount based on the need determined by the state Insurance Department.
New York regulators, meanwhile, confirmed that Metropolitan Life Insurance Co. was taking a lead role in advising regulators on how to run the Executive Life unit. Terence Lennon, the head of the New York Insurance Department’s life insurance division, noted that Metropolitan Life is the largest New York-based life insurer and had expertise to offer because it has product lines similar to Executive Life’s. But New York officials said that, so far, Metropolitan Life hasn’t signaled an interest in acquiring the company.
A spokesman for Metropolitan Life declined to comment on whether it might make an offer for Executive Life of New York. California regulators are understood to be still in talks with a consortium of European investors that has expressed interest in buying the entire company.
Although the New York unit is large, in terms of assets it is less than half the size of Executive Life of California.
Fred Carr, chairman and chief executive of First Executive, the parent holding company, had built the Executive Life companies into major forces in the life insurance industry through heavy investments in junk bonds in the late 1970s and 1980s. But the collapse of the junk market in late 1989 left the parent company reeling, and it reported a $465.9-million loss for its 1990 fourth quarter. California regulators took over Executive Life of California after First Executive’s auditors said they couldn’t vouch for the company’s ability to continue as a going concern.
Officials at First Executive’s headquarters in Los Angeles declined to comment on the New York takeover. Instead, they referred calls to Ronald L. Kerhli, chief executive of the New York unit, which is headquartered in Jericho, Long Island. Kerhli failed to return several calls seeking comment.
The New York state Insurance Department has long been considered one of the toughest insurance departments in the country, and for years it has kept a tight reign on Executive Life of New York. In 1987, the state imposed a $250,000 fine on the unit, the largest it had ever imposed on a life insurance company, for falsely claiming that it had reduced its risk by buying surplus relief insurance.
The New York department also moved in 1987 to impose strict limits on the percentage of junk bonds that life insurers could invest in. As a result, the New York unit has been considerably stronger financially than Executive Life of California.
EXECUTIVE LIFE AT A GLANCE
Executive Life Insurance Co. of New York
Number of policyholders (including life insurance and annuities): 103,000 in 23 states and the District of Columbia.
Assets (Dec. 31, 1990): $3.2 billion
Liabilities (Dec. 31, 1990): $3.0 billion.
1990 income from premiums: $94 million
Cash on hand to meet obligations: $500 million, plus $200 million in highly liquid Treasury notes.
