When California’s Biggest Life Insurer Failed: The Executive Life Collapse

Original article: Former Executive Life Insurance Company Policyholders Have Incurred Significant Economic Losses (California State Auditor)

The financial strength of an insurance company matters, and one of the clearest examples comes from California. On April 11, 1991, the state insurance commissioner seized Executive Life Insurance Company, once the largest life insurer in California.

What Happened

• Risky investments. During the 1980s, Executive Life put roughly 55% to 60% of its portfolio into high-yield “junk” bonds, according to the California State Auditor.
• The crash. The junk-bond market fell sharply starting in late 1989. Worried policyholders began pulling money out, much like a run on a bank.
• The seizure. In early 1991, regulators found the company’s financial statements were badly overstated and that the company was insolvent. More than 300,000 policyholders and retirees were affected.
• The losses. The insurance business and the bond portfolio were sold off. Policyholders lost an estimated $4 billion, and years of lawsuits over the sale followed.

Lessons for Policyholders Today

Company strength matters. A life insurance policy is a promise that may need to be kept 20, 30 or 50 years later. For that reason, we favor long-standing insurers with strong ratings from independent agencies like A.M. Best, as explained in Beyond the Bailout.

There is a safety net, but it has limits. Every state has a life and health insurance guaranty association that steps in when an insurer fails, up to set limits. Large policies or annuities above those limits can still lose value, as many Executive Life customers learned.

Be wary of returns that look too good. Executive Life attracted customers with high crediting rates made possible by risky investments. When a policy or annuity promises much more than competitors, ask how the company pays for the difference.

To check the strength of the company behind an existing policy, contact us.

Read the original articles: California State Auditor report on Executive Life (2008) · Insurance Journal: Credit Lyonnais Suit Dismissed by Federal Judge (May 13, 2002) · California Department of Insurance: Executive Life settlement
This post looks back at a historical event and is for general education. It isn’t personalized financial or legal advice.