State Court OKs Executive Life Sale : Insurance: A French group will pay $3.55 billion for the troubled firm. Most clients will receive 100% of the value of their policies.
A state court judge Thursday approved the $3.55-billion sale of Executive Life Insurance Co. to a French investor group, paving the way for the largest rehabilitation of a failed U.S. insurer ever and ending months of uncertainty for hundreds of thousands of policyholders.
The long-awaited ruling by Superior Court Judge Kurt Lewin means that the vast majority of policyholders, many of whom depended on Executive Life for their retirement income, will be assured payment of 100% of their policy account values starting early next year.
The decision sets in motion a process that will lead to the resuscitation of Executive Life as Aurora National Life Assurance Co. Under the proposal, Altus Finance will pay $3.25 billion for the ailing insurer’s troubled junk bond portfolio and its partner, Mutuelle Assurance Artisanale de France, will infuse $300 million in capital and run the company.
The buyout by the French group was somewhat anticlimatic, coming more than a month after California Insurance Commissioner John Garamendi endorsed the bid over seven others as the least risky and the most lucrative for Executive Life’s customers.
“I can’t think of a better gift for policyholders during this holiday season than the court’s confirmation that Executive Life will be rehabilitated and that their investments are secure,” Garamendi said in a statement.
Maureen Marr, coordinator of the 2,000-member Action Network for Victims of Executive Life, said the decision has lifted “an ominous burden” from policyholders’ backs.
The policyholders have been in a legal limbo since April when California regulators seized Executive Life, the junk bond laden high-flier headed by Fred Carr. The seizure was then the largest life insurance failure ever. It was surpassed by the failure of Mutual Benefit Life Insurance Co. of Newark, N.J., in July.
Executive Life’s collapse resulted in hardship for many of its 372,000 policy and annuity holders. Policy withdrawals were largely forbidden. Some worried about the value of their life insurance policies; others feared that some monthly annuity payments would be cut.
Garamendi made the rescue of Los Angeles-based Executive Life one of his top priorities and promised to resuscitate the insurer through the conservation process. In May, he began a highly public effort to sell the troubled insurer.
Altus, a unit of French financing giant Credit Lyonnais, and MAAF, a small Paris-based insurance company, were the first investors to show an interest in acquiring Executive Life. The French group offered $3 billion for the firm in August, but increased its bid several times in an intense process that came to a head in November.
“The record of these proceedings demonstrates that the bid and negotiating process has been diligently, vigorously and intensely pursued by the commissioner and his team,” Lewin wrote in his decision. He said there was no other viable buyer at this time.
The proposed rehabilitation plan ensures that 95% of policyholders will receive 100% of their contract values up to $100,000 per person. People with policies worth more than $100,000 will get about 72 cents on the dollar for the amount over $100,000.
The payouts to policyholders, which will initially be 72 cents or 89 cents depending on the outcome of litigation, will be enhanced to 100 cents in most cases by $2 billion provided by state insurance guaranty funds. These funds, which operate in 47 states, are supported by premiums paid by insurance companies.
Policyholders will soon have access to their funds, which have been frozen except for limited monthly payments since April. They will be able to borrow against the value of their policies.
Policyholders who do not wish to stay with the company will be able to withdraw funds before Aurora takes over, but will probably receive “considerably” less than if they stay with the new company.
Before the sale of Executive Life can be completed, hearings on the details of the rehabilitation plan must take place in January. But Garamendi spokeswoman Mary Sue Maurer said the buyout is a certainty. “It’s a done deal,” she said.
The sale of Executive Life is good news for most policyholders.
“From a personal standpoint, I’m very happy,” said Sylvia Silver, who will be able to get 100% of her $850 monthly retirement payments, which had been reduced by a third after Executive Life was seized.
A nurse, Silver had to delay her retirement after the seizure put in doubt the future of her pension, which had been converted by her employer to an Executive Life annuity several years ago. But for some policyholders who will get less than 100%, the rehabilitation plan is a major disappointment.
“We are basically devastated,” said Sue Watson, whose brain-damaged daughter depends on an Executive Life policy for her $4,000-a-month medical expenses. Because her policy is more than $100,000, it is lumped in with large policies of mostly wealthy investors and is not covered by state guaranty funds. Therefore, the Watsons will probably get only 72% of what they had expected.
The Phoenix family has been trying to sell their house in order to meet expenses, but because of the soft market they fear that they may lose it to the bank. Their daughter has no medical insurance because they gave it up in order to receive the malpractice settlement in the form of an Executive Life policy that they were told was the safest vehicle possible to ensure their daughter’s future.
There are about 300 people in the position of the Watsons, and another 5,000 with lesser hardships, but they are among the hardest-hit losers in the rehabilitation plan.
“It’s handicapped people, people at the bottom of the barrel who are hurt. It’s obscene,” said Watson’s husband, Vince.
What the Watsons and others with large policies will get may increase, depending on the outcome of an appeal filed by Garamendi relating to the treatment of guaranteed investment contracts that Executive Life sold to municipalities.
In the original rehabilitation plan, Garamendi said the so-called muni-GICs were not traditional insurance products and should not be honored. But Lewin overruled him and said the $1.85-billion muni-GICs must be treated as other policyholders.
If the court ruling is upheld, it could reduce payments to big policyholders to 72 cents on the dollar from 89 cents. That would affect policyholders holding over $100,000.
Another potential problem is a $643-million tax claim against Executive Life by the Internal Revenue Service. Negotiations with the IRS should be concluded “early next year in a manner that will not adversely affect policyholders,” Garamendi said.
Last month, state regulators said they were close to a settlement in which the IRS would accept a payment of $72 million to $77 million, most of which has been paid.
New Life for Executive Life
Superior Court Judge Kurt Lewin approved sale of failed Executive Life Insurance Co. to a French investor group. Here are some of the highlights of the deal: * Buyer: Altus Finance and Mutuelle Assurance Artisanale de France.
* Price: $3.55 billion.
* New name: Aurora National Life Assurance Co.
* Interim chief executive: Kenneth O’Brien, a retired executive vice president of New York Life.
* Customers: 372,000 holders of policies and annuities.
* Junk bonds: Purchased by Altus for $3.25 billion and taken out of the company.
* Cash: $300 million provided by MAAF and its partners.
* Current payouts: The conservator is making 70% payments to annuitants and 100% death benefit payments to policyholders. This will continue until rehabilitation plan is adopted.
* Basic plan: About 95% of policyholders will receive 100% of their account values, up to $100,000 per person.
* Initial policyholder payout: 72% or 89% of current account value provided by Aurora. (Final amount depends on appeal of a lawsuit involving treatment of guaranteed investment contracts.)
* State guaranty funds: Industry-backed funds in 47 states are committing $2 billion, making up any shortfall from the initial payout.
* Policy surrenders: Policyholders can “opt out” or withdraw their policies before Executive Life is reconstituted as Aurora. But these policyholders will only receive a “liquidation share” of the company, an amount to be determined by the court and certain to be considerably less than if they stay with Aurora.
* Policy loans: Available on most contracts.
* Profit participations: Policyholders participate in additional profits only after certain earnings levels are achieved; they also may share surrender and mortality fee profits.
SOURCE: State Department of Insurance and Altus Finance
