State regulators seized junk bond-laden First Capital Life Insurance Co. in the second-biggest insurance company failure in U.S. history.
The move Tuesday came one day after creditors tried to force the company's parent into bankruptcy. Insurance Commissioner John Garamendi said he seized the insurer so that its more than 250,000 customers, not lenders, get first claim on its assets."We place the insurance company in a protective envelope, if you will, walling it off from all of its other creditors," he said.
The First Capital takeover came about a month after regulators in New York and California seized Executive Life Insurance Co. and Executive Life of New York, the two main insurance subsidiaries of First Executive Corp.
That seizure constituted the largest insurance company failure in U.S. history. First Capital's seizure was No. 2, Garamendi said.
Both insurers had grown rapidly by investing in junk bonds and suffered huge losses when the market for the high-yield, high-risk securities collapsed.
Garamendi said First Capital life insurance policyholders and annuity holders will continue to receive full payments. First Capital has assets of $4.5 billion, 190,000 life insurance policyholders and 62,000 annuity beneficiaries in 49 states.
Citibank and other lenders, in a petition filed Monday, had sought to force First Capital Holdings Corp. into Chapter 11 reorganization.