More Clients of Ailing First Capital Cash In Policies : Insurance: The acknowledgement comes days after state regulators meet with Shearson Lehman, which has a big stake in the insurer.

The recent news of growing financial problems at First Capital Life Insurance Co. has prompted more customers to cash in their policies, the company and state insurance regulators said Wednesday.

Tom Epstein, deputy commissioner of the California Department of Insurance, said the agency was monitoring the situation.

Charles Perkins, a spokesman for the insurer, said the increase represents “a tiny portion” of First Capital policies. “Any increase is of concern, but it’s manageable,” he said. He would not disclose the number of surrenders.

The increase in surrenders comes just days after it was revealed that California Insurance Commissioner John Garamendi was negotiating with American Express Co. and its brokerage subsidiary, Shearson Lehman Bros., about a possible bailout for First Capital. Shearson owns 28% of First Capital Holdings Corp., the insurer’s parent company.

Garamendi said Tuesday that First Capital needs a substantial infusion of cash because of its heavy holdings in high-risk bonds, which have left the company in financial trouble. More than 40% of its assets are in junk bonds.

The increase in customers cashing in policies is being watched closely by regulators because it could put added pressure on First Capital by depleting assets. Such surrenders--tantamount to a run on a bank--prompted regulators to seize Executive Life of California last month. It is the biggest life insurance failure ever.

Shearson has made two proposals to prop up First Capital’s finances but wants to avoid getting further involved in the troubled insurer. Both suggestions would protect only Shearson clients who bought First Capital policies through the brokerage.

Garamendi has been pushing Shearson and American Express for a broader bailout that would protect all First Capital customers. He said the companies pushed the sales of First Capital policies in the last year and are thus responsible for its financial viability.

First Capital is considering selling some of its businesses and has retained investment house Salomon Bros. Inc. as an adviser. Garamendi has also been talking with Citicorp, the lead banking company in a $275-million loan to First Capital last year.

The trouble at First Capital reflects a deeper problem among some life insurers that years ago were heavy buyers of junk bonds, the securities that financed the 1980s takeover boom. The market for junk bonds crashed last year.