Insurer First Executive Reports $466-Million Loss for Quarter

Battered by huge investment losses, First Executive Corp. reported a $466-million fourth-quarter loss and revealed that its accountants believe there is substantial doubt about the company’s ability to survive.

The company, the Los Angeles-based parent of Executive Life Insurance Co., blamed the losses on defaults in its huge junk bond portfolio. The firm also said the market value of its junk bond holdings had fallen $2.6 billion below the value carried on its books at year-end.

First Executive said it is attempting to resolve its serious financial woes. As part of that effort, it recently entered into preliminary discussions “with a major European financial institution” to restructure the company and its insurance operations.

However, First Executive would not provide any details about the possible deal except to emphasize in a prepared statement that “the nature and timing of any possible transaction is uncertain and there can be no assurance that any agreement will be reached.”

The company’s fourth-quarter loss compares to a loss of $836 million in the same period in 1989. For the year, First Executive said it lost $366 million in 1990, compared to $776 million in the previous year.

The company said recent defaults on junk bonds--high-risk, high-interest debt securities--in its portfolio have eaten into the money regulators require insurers to set aside to ensure the safety of policyholder funds.

The firm said the defaults will have a “significant adverse impact” on required capital and surplus levels at Executive Life. That increases the chance of further regulatory restrictions on the company’s operations, First Executive said.

As a result, Price Waterhouse, its independent auditor, “indicates they believe that there is substantial doubt about the company’s ability to continue as a going concern.” Price Waterhouse officials would not comment.

Meanwhile, insurance regulators are barring Executive Life from paying money due to First Executive. That $30 million in annual interest is the bulk of the life insurance holding company’s income. If these payments continue to be withheld, First Executive will not be able to pay on its debts, said Bill Adams, senior vice president of First Executive Corp.

That could force the company to seek the protection of the federal bankruptcy court, Adams added. However, such a decision will not be made until the company’s next interest payment is due at the end of the second quarter, he said.

The California Department of Insurance is also evaluating the life insurance company’s ability to stay in business, First Executive revealed. The regulators said they are in close touch with First Executive and stressed that any deal to sell assets or restructure the firm will have to meet with department approval.

“We are in very close contact with everything that is happening with Executive Life,” Deputy Insurance Commissioner Tom Epstein said. “Any serious proposals will be closely analyzed.”

First Executive boasted dramatic growth in the mid-1980s by offering higher interest rates to life insurance policyholders. However, the company’s fortunes faded quickly last year with the demise of the high-yield bond market, which supported First Executive’s payments to policyholders and its ultimate growth.

A close look at the company’s financial results underscore how bleak the picture is at First Executive and its two large life insurance subsidiaries, Executive Life and Executive Life of New York, said Irving Kellogg of the securities research firm of Kellogg Associates.

During the year ended Dec. 31, premiums written fell to a fraction of their year-ago levels. Total premiums and deposits slid to $702.5 million at the end of 1990, compared to $1.26 billion in 1989.

“Absent an infusion of capital, it is just a matter of time” before regulators seize the company, Kellogg said.