Three More Bidders Vie for First Capital
Three new groups submitted offers to buy failed First Capital Life Insurance Co. of San Diego, insurance regulators said Friday.
Pacific Mutual Insurance, Transamerica Occidental Life and a group led by Leucadia National Corp. filed formal buyout offers moments before the final bidding deadline set by California officials two months ago.
These offers are added to the initial $50-million bid for First Capital submitted by Shearson Lehman Bros. in February. Although some of the details of the new offers were not available Friday, spokesmen for all the groups acknowledged that their offers mirror many of the policyholder protections provided in the Shearson deal.
The Shearson deal promises to pay all policyholders 100 cents on the dollar if they stick with the restructured company for at least five years. The New York investment house also promises to share some of First Capital’s profits with policyholders at the end of the five-year term. And it guarantees First Capital customers at least a 4% annual interest rate on cash-value policies and annuities.
Those who cash in their policies before the end of the five-year term would be subject to hefty surrender fees. In the first year, policyholders would pay 15% of their account value to surrender; surrender fees would drop by 2 or 3 percentage points in each subsequent year.
Both Pacific Mutual and Transamerica also said they are planning to inject $50 million into the ailing life insurer to guarantee that policyholders will receive 100% of their principal.
However, both big California insurers maintain that they’ll pay better rates of interest and provide First Capital’s customers with more generous profit sharing arrangements if First Capital operates at a profit.
Leucadia National Corp., the parent of Colonial Penn Life Insurance Co. and Charter National Life, said it would put in $50 million initially and pledge to provide another $50 million if needed to pay policyholders all they’re due. Other details relating to policyholders are identical to the Shearson deal, said Hank Knowlton, a spokesman for the Leucadia group and First Capital Holding’s creditors.
Some of the primary differences in the bidding war may revolve around what creditors of First Capital Holdings, First Capital Life’s Beverly Hills-based parent company, are promised. Although none of the offers seem to give creditors much upfront, all the deals provide for at least some potential profits for creditors in the end.
In addition, the deals submitted by Leucadia and Pacific Mutual leave open the possibility that shareholders of First Capital could regain some of their losses by filing suit against Shearson, which sold the bulk of First Capital’s policies and is the holding company’s largest shareholder, with 28% of the company’s stock.
Shearson’s deal indemnifies the investment house from such suits and requires that class actions already filed be settled before the deal goes through.
It was unclear whether Transamerica’s offer would provide legal indemnities to anyone.
All bidders will have the opportunity to refine their offers over the coming week, which may produce additional benefits to First Capital’s customers.
First Capital, which boasts $4.5 billion in assets and 252,000 policy and annuity holders, was the second-largest California life insurance company failure in history. It was seized by regulators last May following a flood of surrender requests and the bankruptcy filing of its parent company. Policyholders have been barred from surrendering or borrowing against their policies ever since.
California Insurance Commissioner John Garamendi must approve any deal for the insurer. He is expected to recommend a bidder within weeks, but the final sale is subject to the approval of a Los Angeles Superior Court judge.
