State Admits Interference in Executive Life : Insurance: Regulators acknowledge they are trying to thwart policyholders’ attempts to access their funds.
State insurance regulators acknowledged Wednesday that they have made it more difficult for some policyholders of Executive Life Insurance Co. to get access to their funds in an effort to strengthen their bargaining position in negotiations to sell the failed insurer.
Those who attempted to let their life insurance policies lapse are now being forced to take out policy loans that will be used to pay premiums on the business and keep policies current, said Karl Rubenstein, an attorney who is working for the State Insurance Department.
“Premiums will be deducted from the cash value of the policy until the cash value is depleted,” Rubenstein said. “Policyholders do not have the option of letting their policies lapse.”
The life insurance business is Executive Life’s “crown jewel,” and without it, it would be nearly impossible to sell the seized insurer, regulators said.
Executive Life, the primary subsidiary of First Executive Corp. of Los Angeles, was seized by regulators in April when severe losses in the company’s investment portfolio caused the equivalent of a run on the bank. It is the largest failure ever of a U.S. life insurer.
When the company was seized, Insurance Commissioner John Garamendi placed a temporary ban on all policy loans and surrenders. However, customers who did not want to keep their life insurance policies in force were allowed to stop paying premiums. In this way, they would lose death benefits, but would maintain whatever cash value that had accrued on their policies.
Those who wanted to keep their policies current were allowed to take out “automatic premium loans,” which essentially use the cash value of the policy to pay the premium.
Now, regulators say that if a policy has any “anti-default” provision--such as the ability to take out these automatic premium loans--those provisions “will be invoked.”
The insurance department altered its rules to require premium loans as of a few weeks ago because “a couple thousand” individuals decided to let their policies expire, and regulators believe that other insurers were attempting to raid Executive Life’s business, Rubenstein added.
“As soon as it became clear that this was going to become a major problem, we had to stop it,” Rubinstein said. “The value of this business is one of the crown jewels that we have to sell to Altus or any other bider. If we were to permit (these policies to lapse) the value of that asset would diminish.”
Meanwhile, the French consortium that is negotiating to buy Executive Life Insurance Co. of California appeared to be faltering Wednesday when one of the members publicly announced it never actually agreed to participate in the buyout.
Compagnie de Navigation Mixte is one of four French firms that was expected to join a consortium led by Altus Finance. The group has looked at First Executive’s balance sheet. But Navigation Mixte said Wednesday that it never agreed to become part of the acquiring group.
