First Capital Life of S.D. Lays Off 166; More Cuts Possible

First Capital Life Insurance Co., the second-largest insurance company ever to fail, laid off 166 of its 400 employees Friday, three days after the troubled San Diego company was placed under conservatorship by the state Department of Insurance.

The layoffs were effective immediately and were made in response to the state’s demand that the insurer make significant cost reductions, spokesman Mark Longabaugh said. The company did not rule out additional layoffs in the future and said the cuts affected a cross-section of employees, from officers to clerks.

A subsidiary of Los Angeles-based First Capital Holdings, First Capital Life was placed under conservatorship Tuesday to protect 283,000 life insurance policy and annuity holders. Both First Capital Life and Executive Life Insurance, which also failed last month, were damaged by investments in high yield, high risk junk bonds.

The state acted after First Capital Life’s major lenders, led by Citibank, petitioned late Monday to force First Capital Holdings into bankruptcy after the parent defaulted on a $275-million loan. State Insurance Commissioner John Garamendi’s action effectively shielded the company from claims by banks and other creditors.

Last week the state imposed a cease-and-desist order on the insurer after the start of a “run” on the company by policy holders seeking to cash out their policies. Prohibited from issuing new policies or making redemptions and loans, the company is still paying annuity and death benefits, along with accident and health claims.

“I had a hoped we could avoid layoffs, but with the company no longer taking new business, it was impossible to continue at our current staff levels,” Chief Executive Fred A. Buck said in a statement.

Without elaborating, Longabaugh said state officials will impose further cost cuts soon.