Kenneth W. Hines figured he had built himself a fortress of financial security.
Over the years, the salesman of gift shop merchandise had salted away $30,000 in commissions. He had been disappointed once by the stock market, and wanted a haven for the money.
The "single premium life" policy with Fidelity Bankers Life Insurance Co., an insurance company in Richmond, Va., seemed to have everything. It would earn about 8 percent annually, tax free. He could borrow against it with no requirement to pay it back and it had a death benefit of $70,000.
With his $30,000 nest egg in that insurance basket, Hines saved more money, and earlier this year put down $5,000 on a new $160,000 house on Oak Lodge Road in Baltimore County for himself, his wife, Charlene, and his son, Christopher. He planned to keep his old house in the Huntsmoor subdivision of Baltimore County and rent it out.
But his fortress came under siege with a call one night in May, when his broker told him the $30,000 was inaccessible because Fidelity Bankers had been seized by Virginia regulators.
"I've lost some sleep about this," Hines said recently. "I still don't consider this money safe; it is still in jeopardy."
Hines is one of the thousands of Marylanders who hold policies in five major insurance companies that have been seized this year. While much of the money is covered by a state guaranty program, operated by the insurance companies, it is uncertain how long the investors will have to wait for their money.
The five seized companies are Executive Life of California, Executive Life of New York, First Capital Holding Corp., Fidelity Bankers Life Insurance Co. of Virginia and Mutual Benefit Life Insurance Co. of Newark, N.J.
While the companies continue to pay death benefits and annuities, customers who have cash value in their policies are prevented from borrowing against them or redeeming them.
Most of the attention has been focused on Executive Life of California, one of the biggest failures and one of the most financially weak. The California insurance commissioner is scheduled to consider bids on the company at the end of this week.
Meanwhile, the states that seized the other insurers are working on various plans to either sell the companies or to rehabilitate them and put them back in business.
Hines is luckier than some of the investors because his money was in a company that was financially strong, getting a superior rating from the A.M. Best Co., an insurance rating firm. But Fidelity Bankers' parent company, First Capital Holdings, was not as healthy and Fidelity investors started pulling out their money en masse. Virginia regulators seized the company to stop the run.
It is uncertain when investors will have access to their money, although regulators are hopeful that Fidelity Bankers will be sold by the end of the year.
The whole episode has left Hines uneasy about his financial situation. Even though he still plans to go ahead with the purchase of his new home, which is scheduled for completion later this year or early next year, it will be tight.
Hines is also angry that when he invested his money in 1986 and 1987, he was told it was one of the safest investments he could make. "I'm looking for some accountability," he said.
Marylanders with money in the seized insurance companies are covered by the Life and Health Insurance Guaranty Corp., a cooperative effort among insurance companies operating in Maryland. The guaranty program is triggered when a company is put into receivership and liquidated. So far, none of those companies has reached that point.
The guaranty corporation raises the money to pay claims by assessing the premiums earned by insurance companies operating in the state. The fund can assess up to 2 percent of the premiums per line of insurance. This means the guaranty fund can raise a maximum of $20 million from life insurance operations, $13 million from the annuity business and $18 million from the health insurance firms, for a total of $51 million.
The state program is working with other guaranty programs from around the country to reduce the amount of money it has to pay out.
The focus of their attention in recent months has been Executive Life of California, the most impaired of the insurers that have been seized. The National Organization of Life and Health Insurance Guaranty Associations is considering two plans to rescue the California company that had been ravaged by junk bond investments.
Both plans propose that policyholders would have to wait up to five years before having complete access to their money, according to Gary C. Harriger, president of the Maryland guaranty fund. If investors want their investments sooner, they will get only 60 percent of their money, he says.