Aurora National Life Seeks Buyer

Aurora National Life Assurance Co., a Santa Monica-based insurer that has come under legal attack for its role in the takeover of the assets of defunct Executive Life Insurance Co., is putting itself up for sale.

Aurora officials have been negotiating a deal with Swiss Re, a Zurich, Switzerland-based firm, that would divest the insurer of its $4.4 billion in assets and 180,000 life policyholders, sources say. Officials of both companies declined to comment.

California Insurance Commissioner Chuck Quackenbush, who would have to approve any sale, said Friday that he was aware of preliminary discussions involving Aurora’s proposed sale but, as of Friday, he had not received a formal application.

Quackenbush said his department remains “concerned” about ongoing litigation that may involve the insurer. Quackenbush probably would block any deal in which Aurora’s French owners would move assets out of the reach of the commissioner’s lawyers. Quackenbush said he will name Aurora, its major shareholder, French billionaire Francois Pinault, and other French companies as defendants in a suit arising from the sale of Executive Life.

“It’s going to be a long cold day in hell before Aurora would be allowed to sell under circumstances that would allow them to take proceeds to France,” said Gary Fontana, a San Francisco attorney who is representing the commissioner in his suit on behalf of policyholders who are seeking to recover losses resulting from the Executive Life takeover. Fontana said that if necessary “we will take steps to assure that the proceeds of any sale be paid to a court until there is an adjudication of the commissioner’s claim.”

Already named in the commissioner’s suit are French government-controlled bank Credit Lyonnais, its subsidiary Altus Finance and a consortium of French and Swiss insurance and finance companies involved in acquiring Executive Life’s insurance assets and junk bond portfolio.

After then-Insurance Commissioner John Garamendi took over the insolvent Executive Life in 1991, he agreed to a package deal: He sold its junk bond portfolio to Altus for $3.25 billion and the insurance business to the Swiss and French consortium for $300 million. The new insurer became Aurora National Life Assurance.

Pinault’s firm, Artemis, eventually purchased Aurora and a large chunk of the junk bond portfolio from Altus.

Pinault, who owns Christie’s auction house, Gucci and Yves Saint Laurent, owes a large part of his fortune to the junk bonds that gave him large stakes in U.S. companies, including Samsonite Corp., shoemakers Florsheim Group Inc. and Converse Inc. and Vail Resorts Inc.

Lawyers for Quackenbush say Altus and later Pinault illegally obtained the Executive Life assets. Altus allegedly used the consortium as a front to acquire the bonds and the insurance business.

Under state and federal law, a foreign bank such as Credit Lyonnais is prohibited from owning a California insurer.

In Paris, a statement from Pinault last week said, “Artemis . . . had no reason to suspect that there were any irregularities in the transaction, which was overseen by the Insurance Department and validated by the California courts.”

Aurora has been slowly winding down its Santa Monica operations. Last month, the company laid off 40 employees and offered retention bonuses for the remainder to stay with the company until its eventual handoff to new owners.

Aurora receives a “D,” or weak rating, from Weiss Ratings of Palm Beach Gardens, Fla. Ted Brownstein, Weiss’ director of insurance safety, said he wasn’t surprised that Aurora was being sold.

“There are lot of hidden problems when you take over a failed business,” Brownstein said. “If you owned a vacant lot where a big building burned down, wouldn’t you want to sell it?”