Dark-horse bid may win race for Executive Life.

Industry experts like offer made by French companies

Despite California Department of Insurance Commissioner John Garamendi's recommendation of an association of life guaranty funds as the top bidder for failed Executive Life Insurance Co., insurance experts say another bid may have a better chance of ultimately being selected.

Garamendi recommended to Los Angeles County Superior Court Judge Kurt Lewin on Oct. 24 that he choose an insurance industry trade group, the National Organization of Life and Health Guaranty Associations, to take over failed Executive Life Insurance Co., which is based in Los Angeles.

The judge's final decision is expected Nov. 18.

The bid favored by industry experts is one of two Garamendi recommended as alternatives to the NOLGHA bid, an offer made by French investors headed by Altus Finance and Mutuelle Assurance Artisanale de France.

The main reason some insurance experts favor the Altus-Mutuelle bid is that it would sell off the insurance company's junk bond portfolio, whose decline triggered the chain of events which led to the company's seizure in April.

In addition, severing the junk ties to the company would indicate Altus-Mutuelle has the policyholders' interests at heart rather than the fate of the junk bond portfolio, which is considered the primary interest of many other bidders, said Peter Karp, a insurance consultant based in Santa Monica.

Other insurance experts agreed the bid was the favorite. "The staff of the commissioner is pushing toward Altus," said Martin Oliner, representative of another group of bidders, the First Executive Corporate Creditors Committee. "That's the plan they negotiated with."

The Altus-Mutuelle bid already has the endorsement of a leading lobbying group for executive life policyholders, the Action Network for Victims of Executive Life, which said that a bonds-out bid is the safest one for the policyholders.

"Executive Life policyholders unwittingly took one roller-coaster ride in the junk bond market. The risk of participating in an upswing in that market is not one these conservative older investors wish to take," said Maureen Marr, the group's coordinator, in a last-minute letter to Garamendi before he made his recommendation.

Another bidder, a group representing buyers of municipal bonds backed by Executive Life Guaranteed Investment Contracts, is not expected to gain control of the new company but could possibly receive equity in it if Judge Lewin rules that "muni-GIC" holders should be accorded the same status as buyers of Executive Life's life insurance, annuities and pension-GICs.

If that happens, the other classes could see a 20 percent drop in the average amount of policyholder could recover under most of the bids, said Robert Knight, chairman of the Nebraska-based Bondholder Protective Committee, an advocacy group of muni-GIC holders.

A bid made by RRH Capital Management on behalf of the muni-GIC holders, however, would preserve the amount of policyholder values of the other classes by offering to trade muni-GIC claims against Executive Life for stock ownership of the new company.

Garamendi has said that he considers muni-GIC holders investors and not policyholders, and he is excluding them from receiving benefits.