From Rags to Riches
Pacific Mutual Life Insurance Co. has come a long way since it was seized by state regulators during the Depression. The 125-year-old Newport Beach company, which now has assets of nearly $11 billion, recently won permission from state Insurance Commissioner John Garamendi to take over failed San Diego-based First Capital Life Insurance Co., pending court approval.
Bidding wars
Of the four bids to take over failed First Capital Life Insurance Co., Pacific Mutual’s package was the best for policyholders, the state insurance commissioner ruled. All plans are for five years and would pay minimum interest of 4% on the policies. A comparison of the offers:
Pacific Mutual
Policyholder benefits
Opting to surrender the policy before the plan begins: 90% of policy value, minus loans and special deposits. Opting to surrender the policy within the five years: Minus loans and special deposits, policyholders would receive 90% for the first three years, and 93% and 96%, respectively, for the final two years.
Interest rates: 4% cumulative at the end of the plan. Bonuses for those who stay the full five years: 90% of company profits still on the books up to 7% cumulative interest; plus a second bonus of half of the 90% of the company profits still on the books at the end of the five years.
Payments to creditors: Half of 90% of the company’s profits still on the books.
How First Capital would fare
New company: Pacific Mutual would form a new company. At the end of the five years, that company would be merged into Pacific Mutual. Capital: Cash contribution of $5 million and a loan of $45 million at 10%.
Employees: Offers to 90% of First Capital’s employees; would keep 80% for at least one year; new employees would be retrained and get commensurate Pacific Mutual benefits.
Shearson Lehman Bros.
Policyholder benefits
Opting to surrender the policy before the plan begins: 90% of the policy’s value, 90% of policy loan and special deposits; if the total paid out to policyholders is more than $2.4 billion, Shearson Lehman would only pay 85% of the policy’s value.
Opting to surrender the policy within the five years: If 10% or fewer opt out of their policies, the portions would be 90% for the first three years, 93% and 96%, respectively, for the final two years, unless 15% of policyholders opt out. Then the percentages would be 85%, 87%, 90%, 93% and 96%, respectively, all minus the same percentage of loans and special deposits.
Interest rates: 4% a year.
Bonuses for those who stay the full five years: Interest capped at 4% of the account value to the policyholder, plus a second bonus of 50% of Shearson’s portfolio gains over 5%.
Payments to creditors: 20% of appraised value if Shearson buys First Capital’s assets and liabilities at the end of the five years.
How First Capital would fare
New company: Shearson would take over management of First Capital; no guarantee as to what would happen to the company at the end of the five years.
Capital: $50 million loan at 10%.
Employees: No commitment.
Leucadia National Corp.
Policyholder benefits
Opting to surrender the policy before the plan begins: 85% of the policy’s value, minus loans and special deposits.
Opting to surrender the policy within the five years: 85%, 87%, 90%, 93% and 96%, respectively, minus loans and special deposits.
Interest rates: 4% a year.
Bonuses for those who stay the full five years: Interest capped at 2% of the account’s value, plus a second bonus of 25% of Leucadia’s portfolio gains over 5%.
Payments to creditors: 40% of appraised value if Leucadia buys First Capital’s assets and liabilities at the end of the five years.
How First Capital would fare
New company: Leucadia would take over management of First Capital; no guarantee as to what would happen to the company at the end of the five years. Capital: $50 million loan at 12%.
Employees: No commitment.
Transamerica Occidental
Policyholder benefits
Opting to surrender the policy before the plan begins: 90% of the policy’s value, minus loans and special deposits.
Opting to surrender the policy within the five years: 90% if policy is surrendered within 60 days after the plan begins; otherwise percentages would be 85%, 87%, 90%, 93% and 96%, respectively, minus loans and special deposits.
Interest rates: 4% a year.
Bonuses for those who stay the full five years: 80% of the company’s profits still on the books up to 7% cumulative interest, plus a second bonus of half of 80% of the company profits still on the books at the end of the five years.
Payments to creditors: Half of 80% of the company’s profits still on the books at the end of the five years.
How First Capital would fare New company: Transamerica would take over management of First Capital; no guarantee as to what would happen at the end of the five years. Capital: $50 million loan at 10%. Employees: 80% of current employees for at least one year.
Success since the ‘30s . . . Pacific Mutual’s assets by decade. (Chart in millions of dollars)
Year assets % change 1930 $ 177.7 -- 1940 247.1 + 39.1% 1950 359.9 + 45.6 1960 614.6 + 70.8 1970 917.6 + 49.3 1980 2,903.8 + 216.5 1990 9,783.3 + 236.9
. . .Into the ‘90s Selected financial highlights, in billions of dollars, with percentage change below each category
Category 1990 1991 % Change Assets $9.8 $10.7 9.1% Funds Under Management $30.7 $38.9 26.7% Revenue $2.6 $2.6 0% Profit $.029 $.078 169.0% Individual life policies $21.1 $25.8 22.2%
Asset distribution A comparison of the percentages of asset distribution of First Capital and Pacific Mutual as of Dec. 31. Pacific Mutual
Type Amount % of portfolio Corporate bonds $4,773 50.2% Junk bonds 220 2.3 Government securities 778 8.2 Stocks 348 3.6 Mortgages, real estate 2,238 23.5 Loans, cash, other 1,153 12.2
First Capital
Type Amount % of portfolio Corporate bonds $241 6.4% Junk bonds 1,090 28.9 Government securities 1,202 31.9 Stocks 14 0.4 Mortgages, real estate 226 6.9 Loans, cash, other 962 25.5
Sources: Pacific Mutual Life Insurance Co., GB Capital Management Inc., California Department of Insurance
