Cut in Executive Life Payout Appealed : Insurance: State Commissioner John Garamendi will fight a reduction of the amount policyholders will get.
State Insurance Commissioner John Garamendi on Wednesday appealed a court ruling that would reduce initial payments to policyholders of failed Executive Life Insurance Co. under proposed rehabilitation plans.
The ruling last week by Superior Court Judge Kurt Lewin, who is overseeing Executive Life’s conservatorship, would cut payouts to policyholders to 72 cents on their investment dollar, instead of the 89 cents on the dollar that would have been paid under a state-supported plan.
“We have gone directly to the state Supreme Court to provide certainty for Executive Life policyholders as rapidly as possible,†Garamendi said in a statement. “With $2 billion of people’s life savings at stake, no one benefits from a long, drawn-out series of legal decisions and appeals.â€
Under Lewin’s ruling, investors who bought $1.85 billion in municipal bonds backed by guaranteed investment contracts issued by Executive Life would be treated the same as consumers who bought insurance policies from the company.
Garamendi contends that under an amendment to the insurance code passed in 1988, these investments, publicly traded securities known as muni-GICs, should not be considered insurance policies. Those who hold them, he said, must wait in line with other creditors to be paid.
Mary Sue Maurer, a spokeswoman for the insurance department, said it was unfair to pay bondholders as if they were policyholders.
“The majority bondholders right now are arbitragers who purchased these bonds on the open market, and who will make a tremendous profit from this,†Maurer said. “They (muni-GICs) were trading at 32 cents on the dollar, and under this decision they’re worth 72 cents.â€
Lewin’s decision came a day after Garamendi recommended that a French investor group headed by Altus Finance and Mutuelle Assurances Artisinale de France be allowed to acquire Executive Life for $3.55 billion.
The ruling threw into uncertainty the proposed rehabilitation of Executive Life, which collapsed in April from junk bond losses and demands for policy cash-ins by consumers.
The decision could cost the insurance industry more than $1 billion. State insurance funds, which depend on premiums paid by individual insurers, will be called on to make up any shortfalls in policyholder payments by Executive Life’s new buyer.
The National Organization of Health and Life Guaranty Assns., which represents state insurance funds nationwide, is pushing its own plan for rescuing Executive Life. Garamendi previously rejected NOHLGA’s plan because of legal and financial uncertainty.
Hearings before Lewin on Executive Life’s sale began Monday and are continuing.
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