Garamendi Revises First Capital Rehabilitation Proposal

State Insurance Commissioner John Garamendi on Wednesday proposed changing the rehabilitation plan for failed First Capital Life Insurance Co. to answer complaints that the original plan was too generous to policyholders at the expense of creditors and shareholders.

Los Angeles Superior Court Judge Kurt Lewin took under advisement Garamendi’s modifications to the plan under which Pacific Mutual Life Insurance Co. of Newport Beach will take over First Capital. Lewin had raised questions last week about the plan’s fairness to creditors and shareholders.

Under Garamendi’s new proposal, the interest that accrues in policyholder accounts will be capped at a rate of 6 1/2%, rather than 7% as in the earlier plan.

Also, if the rehabilitated First Capital is profitable after five years, its surplus will be divided, with 10% going to policyholders and 90% to creditors, a change from the original 50-50 split.