Mission Insurance Co. and the state Department of Insurance tentatively agreed Tuesday on a plan that would allow the financially beleaguered company to meet its insurance obligations by reinsuring most of its policies with another company.
Mission, taken over by the state insurance commissioner on Oct. 31 because of insolvency, would reinsure its direct liability, property and workers' compensation business with Mission American Insurance.
Reinsurers accept part of other insurers' risks in exchange for a share in the premium payments. Earlier this year, Mission announced its withdrawal from the reinsurance business.
The tentative agreement comes nine months after Mission American, a subsidiary of Los Angeles-based Mission Insurance Group, was established as part of a rescue effort by Mission Insurance Group's major shareholder--privately held American Financial Corp. of Cincinnati. Mission Insurance Co. is also a subsidiary of Mission Insurance Group.
Capital Infusion Needed
Those efforts ran aground last month when the insurance department took control of the insurer after concluding that its liabilities outstrip its assets by $169 million.
Lawrence G. Becker, a vice president and general counsel for Mission, declined to return several calls to his office. Other Mission officials were unavailable for comment.
The tentative agreement announced Tuesday is conditioned upon Mission American receiving a capital infusion of $125 million through the sale of preferred stock by Mission American to American Financial Corp.
The plan is subject to approval by the state insurance commissioner and the Los Angeles Superior Court. If approved, it could head off what had loomed as one of California's biggest insurance failures, said Ansel Shapiro, the insurance department's chief examiner.
"A lot depends on the . . . other insurance companies" whose policies Mission reinsured before getting out of that business, Shapiro said. If those companies don't compromise and if Mission American doesn't get its $125 million in promised capital, "the situation is hopeless," Shapiro said.
If the plan announced Tuesday fizzles, Shapiro said, the insurance department will proceed with liquidation and pass unpaid insurance claims to an industry-financed association for payment. The Los Angeles-based California Insurance Guarantee Assn. was created by the Legislature in 1969 to pay claims of insolvent property-casualty insurance companies, including workers' compensation claims.
The association has so far handled 25 insolvencies, with the largest amounting to about $40 million.
Separately, five subsidiaries of Mission Insurance were placed under conservatorship Tuesday by regulators in California and Texas. Four were placed under conservatorship by California--Mission National Insurance and Enterprise Insurance, both of Los Angeles, and Holland-America Insurance and Mission Reinsurance, both of Kansas City, Mo.
The fifth, Mission Insurance Co. of Texas Inc. of Irving, Tex., was placed under receivership by Texas regulators.
California Insurance Department spokesman Jorge Sandoval said the subsidiaries had $133.1 million more in liabilities than assets.