Burdened by billions of dollars in junk-bond losses, First Executive Corp. filed for bankruptcy protection six weeks after its chief insurance unit was seized in the biggest insurance failure in U.S. history.
The Chapter 11 filing was made Monday in U.S. Bankruptcy Court. Chapter 11 allows a company to continue operating and hold off its creditors while it puts its finances in order.First Executive's insurance subsidiaries - Executive Life and Executive Life Insurance Co. of New York - are not affected by the filing, regulators said. The subsidiaries have 400,000 policyholders.
On April 22, state Insurance Commissioner John Garamendi obtained a court order that permitted Executive Life, under conservatorship, to continue payment of death claims, some medical claims and about 70 percent of certain other payments.
As a result, said Deputy Insurance Commissioner Tom Epstein, policyholders need not worry.
"People who should be worried about the filing should be the stockholders and bondholders in First Executive," he said.
On April 1, state regulators seized First Executive's main insurance unit, Los Angeles-based Executive Life, because it was in hazardous condition from the declining value of its assets. Five days later, New York officials seized a much smaller subsidiary, Executive Life of New York.
Executive Life has outstanding policies in all 50 states and the District of Columbia with total face value of $38 billion, plus annuities and other investment contracts worth about $5.5 billion.
The parent company's longtime chairman and chief executive officer, Fred Carr, was removed as top officer of the California and New York units.
The mess at Executive Life resulted from the decision by First Executive Corp. to invest heavily in high-risk, high-yield junk bonds. The companies prospered in the 1980s but lost billions when the junk bond market collapsed.
Calls to First Executive Corp. after business hours Monday went unanswered.