Swiss Insurance Giant Will Honor Golden Eagle Policies

A giant Swiss insurer has agreed to honor the policies of one of California’s largest sellers of workers’ compensation coverage, San Diego-based Golden Eagle Insurance Co., which was taken over last week by the state amid allegations of widespread financial mismanagement, regulators said Tuesday.

The state Department of Insurance also confirmed reports from Golden Eagle employees that the company’s recently appointed president, Grant B. Luna, has been missing for two weeks. Agency investigators want to talk to Luna about the company.

The state on Friday took control of Golden Eagle and ousted its flamboyant majority owner, thoroughbred racehorse breeder John Mabee, after regulators discovered a $138-million shortfall in the company’s cash reserves for potential future losses. Regulators last week said the company also could not account for $66 million that Mabee had borrowed from an affiliate of the fast-growing insurer.

To stem any further financial damage, regulators arranged for Golden Eagle policies to be covered by a group that includes the U.S. arm of the Zurich Centre Group. The Swiss company could emerge as a buyer of Golden Eagle following a review of the company’s books, State Insurance Commissioner Chuck Quackenbush said.

“We put together this agreement to send a signal to agents that this is still a viable company,” said Quackenbush in a telephone interview. “We don’t want to lose a competitor in the marketplace.”

The agreement, which is subject to court approval, specifies that Golden Eagle, which also sells homeowner and automobile insurance, be renamed San Diego Casualty Insurance Co. and requires that the company and its approximately 1,000 employees remain in San Diego, Quackenbush said. Mabee’s ownership rights and the equity he has in the company will remain with the shell of the old Golden Eagle Co. along with all past non-insurance liabilities and lawsuits against Golden Eagle.

Mabee had waged a months-long campaign against the Insurance Department and its probe into his company. He has denied any financial improprieties and has claimed the investigation and takeover of Golden Eagle are politically motivated. He could not be reached for comment.

The agreement, announced with Zurich Centre Group and its partners, Superior National Insurance Co. and Insurance Partners L.P., soothed the nerves of many Golden Eagle brokers.

“It makes me feel a lot more comfortable than I was over the weekend,” said John Morey, an independent insurance broker in San Jose who sells Golden Eagle policies. “This is going to be taken care of by a company [Zurich Centre Group] that has the capacity to continue the business.”

Industry observers warned, however, that insurance rates--particularly for Golden Eagle customers--could rise substantially under the reorganization. Under Mabee, Golden Eagle pursued an aggressive expansion focused on offering low-price workers’ compensation insurance policies. That strategy was popular among small-business owners, who often faced higher rates than larger employers, but drew the ire of rival insurers.

Insurance industry expert J. Dale Debber said Golden Eagle rivals have long claimed that Mabee’s prices and costs were unrealistic. “Part of the comments they were making were self-serving,” said Debber. “As it turns out, they were all correct.”

The fallout from Golden Eagle’s financial problems could also lead the Guarantee Fund, an insurance industry pool of money designed to cover claims from failed companies, to impose a surcharge on all insurers. Those insurers would then be expected to pass along that surcharge to their customers.

Mabee, who made his fortune in the supermarket business, is a prominent breeder of racehorses. His 560-acre Golden Eagle Farm of Ramona has long been considered one of the state’s best racehorse producers. Mabee is scheduled to receive the 1996 Breeder of the Year award from the California Thoroughbred Breeders Association in Pasadena on Monday.

In 1995, Golden Eagle Farm collected $3.3 million in winner’s purses, with 91 of its mounts winning among the 568 horses it started in California races. Mabee’s most famous racehorse is Best Pal, who finished second in the 1991 Kentucky Derby.

Mabee, who has been breeding horses for 35 years, is also chairman of the Del Mar Thoroughbred Club, which runs the Del Mar race meet each summer.

The son of an Iowa farmer, Mabee, in 1947, opened a grocery store that would become the nucleus of the San Diego County-based Big Bear supermarket chain. He and his wife Betty also once owned the Jonathan’s and Cook’s chains in San Diego and Imperial Counties. Mabee sold all 24 outlets in 1993 after losing market share to Vons, Ralphs and Lucky.