Garamendi Calms Fears of Executive Life Clients

State Insurance Commissioner John Garamendi told about 500 worried insurance investors Friday that he would “call upon every resource and strength I have” to equitably resolve the failure of Executive Life Insurance Co.

In a two-hour meeting in downtown Los Angeles, Garamendi answered questions from a diverse group--from a Phoenix entertainer to a Downey cardiologist--who had invested in life insurance policies, annuities and other investments backed by Executive Life.

The Los Angeles-based insurer, which was hurt by the plummeting value of its risky junk-bond portfolio, was placed in state conservatorship April 11. The seizure, the largest ever of a life insurance company, limits payouts on many policies and annuities and prohibits cashing in of policies.

While Garamendi offered few definitive answers and no guarantees, many participants left the meeting organized by the Action Network for Victims of Executive Life with renewed hope.

“I still didn’t get an answer to my question, but I feel a lot more secure than before,” said Pepe Saogoian, a 66-year-old Huntington Beach resident who had invested in Executive Life insurance policies and annuities. “It’s so nice to see that so many people are banding together.”

In his opening remarks to the group assembled at the Los Angeles County Hall of Administration, Garamendi lashed out at companies that switched their employees’ government-insured pension funds into Executive Life annuities or guaranteed investment contracts. (Holders of annuities, contracts to provide income for life or for a specified time, are being paid 70% of what they should be. Holders of GICs, similar to bank CDs, are being paid nothing.)

“We think these companies and the Pension Benefit Guarantee Corp. have a responsibility to the pension holders and we will pursue that,” Garamendi said. The PBGC provides federal protection for pension funds but does not protect pension money invested in annuities or GICs.

Garamendi also urged the investors to oppose a $643-million Internal Revenue Service claim against Executive Life that would leave little left over for policyholders and annuitants. He said that if the IRS claim is upheld, “it is a virtual certainty that we would have to liquidate the company.”

In response to a question, Garamendi said the junk bond holdings that undermined Executive Life and First Capital Life Insurance Co., a San Diego-based insurer taken over by the state earlier this week, would not be disposed of in a “fire sale.” Such action would further erode their value and wreak havoc on the junk bond market, he said.

Earlier this week, Garamendi said he would attempt to sell Executive Life and its $10.1 billion in assets to the highest bidder. He said three bidders have surfaced in addition to a French-led consortium that has promised to provide up to $3 billion to rebuild the company.

In all, nearly 20 people stepped up to microphones and asked Garamendi and his staff questions.

“They are worried. They are frightened. They are concerned,” said Wallace Albertson, an Executive Life annuitant who was an organizer of the meeting. “People want to get information. It’s important for them to try and talk with Commissioner Garamendi.”