Policyholders of Failed Insurer Brace for Cuts in Benefits : Settlement: Court ruling splitting Executive Life’s assets makes recovery a numbers game for some customers.

Tony Griffiths’ check is in the mail, and that’s what scares him.

Griffiths, 41, like thousands of policyholders of the defunct Executive Life Insurance Co., is awaiting the first concrete evidence of how much the huge insurance failure will change his life.

The evidence will arrive in the form of his monthly check, due today, the regular payment on a so-called structured settlement annuity that is Griffiths’ compensation for losing the use of his legs in a 1982 motorcycle crash.

Griffiths’ payment--his main source of income--will drop to 57% of what he has been receiving since his 1985 court settlement.

Executive Life, awash in junk bond investments that turned sour, was declared insolvent and seized in April, 1991, by California Insurance Commissioner John Garamendi. During the ensuing 2 1/2-year rescue operation, the financial fate of more than 300,000 policyholders was in doubt.

As harsh as it was to finally learn the amount of his loss this week, Griffiths said it was equally infuriating that he had to bully his way through to the chief executive of Executive Life’s successor company--Aurora National Life Assurance Co.--to get the news.

“I think it’s criminal not to provide people any warning,” Griffiths said from his home in Solvang. “At least if I’d had 30 to 60 days to work on it, I could’ve worked out how I could have economized or negotiated with my creditors.”

Aurora says that until about a week ago, it was unable to estimate how much individual customers might finally recover.

Other policyholders are angry for different reasons. Some feel they got unfair treatment under the court-approved rehabilitation plan that culminated in the sale of Executive Life to French investors. Aurora is two-thirds owned by an investment group led by Mutuelle Assurance Artisinale de France. The sale closed Sept. 3 after 2 1/2 years of legal battling.

Others feel they were misled by public statements from officials of Aurora and the Insurance Department, which supervised Executive Life while the rehabilitation plan was being worked out.

Aurora and the Insurance Department have repeatedly said that 92% of Executive Life’s individual policyholders will be fully covered by insurance guaranty funds that protect the first $100,000 of account value.

For the remaining 8%--about 25,000 people--whose policies are worth more than $100,000, the eventual recovery on the non-guaranteed portion of their accounts will average 86%, Aurora and the Insurance Department have said.

But that 86% figure is now under scrutiny.

“The question is, 86% of what ?” said Pat Shapiro, an insurance actuary who testified in the Executive Life proceedings.

Shapiro noted that an appellate court ruling this year forced Executive Life’s assets to be split among a larger number of claimants and in the process slashed about 16% off the account values of many life insurance policyholders. It is that shrunken account value to which the 86% recovery figure is being applied, she said, so that the real number is more like 72%.

Aurora Chief Executive Alan Snyder said there has been no attempt to mislead, confuse or stonewall the public.

It was impossible to get out the word on individual account values any earlier than Oct. 8, when letters finally were mailed, Snyder said Thursday. Beginning on the Sept. 3 closing date, Aurora had to crunch a database of about 400 million records through a complex mathematical formula in order to churn out the account numbers.

While it might have benefited some of the 5,500 structured settlement annuitants like Griffiths to delay the day of reckoning, there were tens of thousands of other policyholders pressing for immediate access to their money.

Spokespersons for Garamendi and Aurora believe that much of the hostility over Executive Life is misplaced. Garamendi, they say, tried to push for a settlement that would have benefited traditional life insurance policyholders and structured settlement annuitants while freezing out a class of investors that bought certain guaranteed investment contracts from Executive Life.

The gamble failed when an appeals court rejected Garamendi’s initial plan, saying the investors had to be treated equally with the other policyholders.

“The Court of Appeal said everybody’s got to take the same hit whether you’re in an iron lung or you’re a rich speculator,” Aurora spokesman Harry Anderson said.

For Griffiths, the hit is even harder because during the Executive Life rehabilitation, he applied for and received extra hardship benefits that he must now begin to pay back, reducing his monthly check even further.

Griffiths says his lowered income may not be able to cover his mortgage and other expenses. His hope is that he can persuade Tokio Marine Fire & Casualty Co., the insurer that originally settled his accident claim, to assist him.

While not legally bound to do so, some insurers--Fireman’s Fund and State Farm, for example--have agreed to make up the shortfall for structured settlement annuitants who were originally their responsibility.

John Puttock, a lawyer for a Tokio Marine subsidiary in Pasadena, said the company does not intend to cover Griffiths.

The purchase of the Executive Life annuity that funded the accident settlement was the product of legally binding negotiations between Tokio Marine and Griffiths and his lawyer, Puttock said.

“The real responsibility falls with the plaintiff and his attorney to make a reasonable investment decision,” he said.