You can almost hear the collective sigh of relief.
After months of worrying, 372,000 customers of the failed Executive Life Insurance Co. must be comforted by news that their policies and annuities eventually will be worth their full value. Their white knights? State Insurance Commissioner John Garamendi and the insurance industry.
Garamendi’s office has been working hard since last April to protect victims of the second-largest failure of an insurance company.
The state seized Executive Life because of mounting junk bond losses. Now a French group has agreed, subject to final approval, to acquire Executive Life and cover 81% of the value of policies and annuities.
To make up the 19% difference, Garamendi negotiated a deal with the National Organization of Life and Health Insurance Guaranty Assn., the umbrella organization for state-supervised, industry-financed funds that protect policyholders against losses of insolvent insurance firms.
The California Life Insurance Guaranty Assn. was the first to endorse the plan. California’s fund was formed last January but there had been questions about whether the fund could be tapped for Executive Life. The law prohibits coverage of insurers determined to have been insolvent before January, 1991. Garamendi took the view that Executive Life was not insolvent prior to the cutoff date.
Executive Life’s rescue is not a done deal yet. But Garamendi’s public/private team effort to protect policyholders should help restore confidence in the battered insurance industry.