California Life Insurer Seized by State After Years of Losses

Citing continued operating losses, the California Department of Insurance took over Golden State Mutual Life Insurance Co. and ordered it to discontinue selling new policies immediately.

Golden State management did not oppose the conservation order implemented by the department's Conservation and Liquidation Office. The 84-year-old Los Angeles-based insurer operates in 12 states. Its primary products and services are life insurance and annuities; it also provides final expense coverage, disability income and mortgage protection.

The Web site BlackPast.org, an online reference guide to African-American history maintained by University of Washington Prof. Quintard Taylor, cites Golden State as the largest black-owned insurance company in the West.

In April, A.M. Best Co. downgraded the company's issuer credit rating to b from b+ and affirmed its financial strength rating of C++ (Marginal); the outlook for both ratings was revised to negative from stable (BestWire, April 24, 2009). At the insurer's request, A.M. Best then withdrew its ratings and assigned categories of NR-4 to the FSR and an nr to the ICR.

According to A.M. Best, the rating actions reflected Golden State's large decline in capitalization in 2008, consistent operating losses and high exposure to real estate as reflected in its significant investment in California commercial mortgage loans relative to its declining capital position (BestWire, April 24, 2009).

In a statement, California Insurance Commissioner Steve Poizner said, "For some time, my department has been concerned with Golden State Mutual's continued operating losses and repeatedly warned the company that continuing to sell assets to cover losses was hazardous to its policyholders and would eventually lead to conservation."

State law requires that a company like Golden State have more than $5 million in capital and surplus, according to the insurance department. At the end of June 2009, the company reported capital and surplus of $1.65 million, according to an AMB Credit Report, down from $7.64 million in June 2008.

The company has experienced notable net operating losses each year for the past five years. Through Aug. 31, 2008, those losses totaled $6.1 million, according to CDI, and the company will report losses of approximately $600,000 for the third quarter of 2009.

CDI statistics show the company had direct written premiums of $5.4 million -- 46.4% of total direct premiums -- in California and $2.2 million, 18.8%, in Texas, its second-largest market.

The Conservation and Liquidation Office will oversee the payment of claims and the receipt of premiums while developing a plan to wind-down operations. Policyholders are required to continue paying their premiums in order to keep their policies active.