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SAN DIEGO-A bidding war may be heating up for the business of Golden Eagle Insurance Co. as California regulators spell out details of the alleged mismanagement that triggered their seizure of the insurer Jan. 31.

Acting only days after the takeover, the California Insurance Department last week announced a rehabilitation proposal in which Golden Eagle's workers compensation and property/casualty business would be transferred into a newly formed company backed by Superior National Insurance Co., units of Zurich Centre Group and Insurance Partners L.P.

San Diego Casualty Insurance Co., a newly created insurer, would take over Golden Eagle's book with reinsurance support from Zurich Centre.

Superior National would provide underwriting, claims management and other services and would also eventually assume a portion of the business, though it will not assume obligations on Golden Eagle policies written before March 1, said Tom Boggs, a Superior National senior vp.

To support the expansion, Superior National's publicly traded parent plans to sell $65 million innew common stock, half of which will be bought by Insurance Partners and half offered to Superior National's existing warrant and shareholders.

Insurance Partners would also buy any shares not taken by the existing shareholders.

Zurich Centre is one of three major investors in Insurance Partners, which in turn is already a large shareholder in Superior National.

All non-insurance liabilities would remain in the shell of the old Golden Eagle, which would eventually be liquidated, said Karl Rubinstein, a lawyer with Rubinstein & Perry in Los Angeles who is acting for the Insurance Department as conservator.

After last Tuesday's announcement, though, the California department began receiving calls from other companies interested in Golden Eagle.

Fremont Compensation Insurance Group is working jointly with American Re-Insurance Co. to develop a competing bid, confirmed James E. Little, Fremont's president and CEO.

Details of that offer are still being worked out, but the bid will similarly cover the takeover of Golden Eagle's book and management of the ongoing operations of San Diego Casualty, Mr. Little said.

California regulators were also contacted last week by Liberty Mutual Insurance Co. and Zenith National Insurance Corp., according to Mr. Rubinstein.

A Liberty Mutual spokesman declined to comment.

Zenith Chairman Stanley Zax said he has asked the department for the same information given to Zurich Centre Group and for notification of future court dates.

"We ought to be entitled to the same information that everybody else has to decide, A., what's going on, and B., if we have an interest." he said.

Zenith has not decided whether to enter a bid for Golden Eagle's business.

While the Zurich Centre Group's bid came in first, the process of court approval required for the rehabilitation will allow competitors to enter the bidding, Mr. Rubinstein said.

Meanwhile, Golden Eagle Chairman and owner John C. Mabee has attacked the takeover in a San Diego radio interview, and his lawyers say he will go to court to try to regain control of the company.

Mr. Mabee controlled both Golden Eagle and its main reinsurer, Mesa Reinsurance Co. Ltd. of the Turks & Caicos Islands, which was also named in the conservation action.

"This case in a nutshell is a $1 billion-plus fine because the insurance commissioner was not satisfied with some aspects of the company's operations," said Wil-liam Cahill, a lawyer for Golden Eagle with Cahill, Christian & Kunkle in Chicago. "The penalty does not match the charge."

Mr. Cahill rejected regulators' assertions that Golden Eagle was threatened by $66 million in unsecured loans to Mr. Mabee through Mesa Re and by alleged manipulation of financial data by the insurer's management.

"To suggest that somehow these loans were some sort of slush fund is ridiculous," Mr. Cahill said. "John Mabee put a ton of money into Golden Eagle as the company got successful, and that money is still there."

Golden Eagle is California's third-largest workers comp insurer, writing about $400 million in workers comp premiums and $300 million in other property/casualty lines in 1996. The insurer reported policyholder surplus of $232.1 million at year-end 1995, though an Insurance Department exam cut surplus to $81.6 million after deducting higher-than-reported losses and expenses.

The insurer was acquired in 1983 by Mr. Mabee, an entrepreneur who built a fortune in the supermarket business and is the owner of Golden Eagle Farm, a large Ramona, Calif., racehorse breeder.

Golden Eagle's seizure is the latest round in a long-running feud between Mr. Mabee and the Insurance Department, which ordered Golden Eagle last year to boost its reserves by $138.5 million.

The insurer lost court challenges to the department's authority to demand the reserve increase. At one point, Mr. Mabee offered a $100,000 reward to anyone who could prove that Insurance Commissioner Chuck Quackenbush was biased in favor of Golden Eagle competitors that contributed to his election campaign (BI, Oct. 28, 1996).

By last month, Golden Eagle management had finally offered a plan to comply with the department's reserving demand. It was apparently taken by surprise, though, when regulators instead went to San Diego County Superior Court on Jan. 31 seeking the conservation order that ousted Mr. Mabee and several other top Golden Eagle officers.

One of those officers, former President Grant Luna, has been missing for more than two weeks, lawyers confirm. The San Diego Union-Tribune reported last week that Mr. Luna's black BMW was dropped off at a company parking lot south of San Diego with a Spanish-language instructional tape in the car.

In a filing that totals several hundred pages, the California department charges that millions of dollars of loans taken by Mr. Mabee and alleged manipulation of financial data by Golden Eagle management made the insurer a threat to policyholders.

The filing focuses in part on Mesa Re-owned by Mr. Mabee and his wife-which provided quota share and excess of loss reinsurance to Golden Eagle. The insurer reported $194.3 million recoverable from Mesa Re at the end of 1995 and had withheld $191.6 million to secure the recoverables.

In an affidavit, the department's Mr. Rubinstein says he sought a current financial statement for Mesa Re and that Mr. Mabee provided a one-page handwritten statement, saying it was the best he could do. The statement showed about $80 million in assets, including "$55 million to $60 million" in loans to Mr. Mabee.

Mr. Rubinstein later obtained copies of dozens of promissory notes evidencing loans from Mesa Re to Mr. Mabee totalling $66.3 million from 1989 to year-end 1996. The individual loan amounts ranged from just over $100,000 to $6 million and carried interest rates ranging from roughly 4% to 8% annually, documents show.

None of the loans was secured by collateral, and none has been repaid, according to the department's filing. In addition, the loan funds never actually passed through Mesa Re, with Mr. Mabee receiving the money by Golden Eagle checks, the filing says.

Mesa Re is merely an alter ego of Mr. Mabee, and the loans are "merely vehicles by which he has taken money out of Mesa Re and (Golden Eagle)," Mr. Rubinstein charged. Reserve strengthening by Golden Eagle, he added, would also require similar action by Mesa, which "does not appear to have the ability to do so unless Mr. Mabee repays his 'loans.'*"

While not mentioned in the court filing, Golden Eagle documents obtained by regulators show another related party transaction involving Mr. Mabee: In a September 1993 memo regarding preparation of Mesa Re's financial statements, Golden Eagle Chief Financial Officer Ted E. Wilkins noted Mesa was writing off as a bad debt expense $130,000 paid to "Big Bear Profit Sharing Plan."

Mr. Mabee is the owner of Big Bear Supermarket No. 3, a California corporation.

Mr. Mabee's lawyers said they were not familiar with the transaction; Mr. Wilkins could not be reached.

The Insurance Department filing also objects to a provision of the Mesa Re treaty that allows for cancellation in the event of insolvency of either the reinsurer or Golden Eagle and which may "undercut" the treaty's standard insolvency clause.

Mr. Cahill, Golden Eagle's lawyer, dismissed the Mesa-related charges, noting that Golden Eagle has ceded business to Mesa Re for years without objection from California regulators.

"Where has the department been? That treaty has been on file for 13 years," he said.

The loans to Mr. Mabee, he added, were all from "excess funds" not needed to cover claims and that "this is not Golden Eagle's money, it's Mesa's money."

Mr. Cahill contended that Mr. Mabee has contributed $107 million to Golden Eagle over the years, including at least some of the proceeds of his loans from Mesa.

"John Mabee never took money out of Golden Eagle. He just put money in," Mr. Cahill said.

Meanwhile, the Insurance Department filing also charges that Golden Eagle management has manipulated its financial data, concealing reserving information on its computer system from regulators and moving large liability losses from the late 1980s and early 1990s to more recent years.

Included in the filing is an affidavit of Kevin Curry, a former Golden Eagle claims adjuster who left the insurer last year.

Mr. Curry sued Golden Eagle in San Diego on Jan. 30, charging the insurer fraudulently induced him to leave his previous job. Mr. Curry alleges he was harassed by senior Golden Eagle officials after he complained to Mr. Mabee that several large losses had been shifted from years in which they had actually occurred. The suit seeks class action status on behalf of other Golden Eagle employees hired since 1992, said Andrew Dunk III, Mr. Curry's San Diego lawyer.

In the affidavit, Mr. Curry says he stumbled on the problem when an irate policyholder called to complain that a 1993 loss had shown up on a 1995 Golden Eagle loss run, damaging the policyholder's efforts to get new insurance.

Mr. Curry later reviewed his cases and found that between 15 and 20 large losses totaling $10 million to $15 million had been moved to later years.

The effect of the changes was to improve the appearance of Golden Eagle's reserving levels before 1995 at a time the Insurance Department was examining the earlier years, according to Mr. Dunk, Mr. Curry's lawyer.

The Insurance Department's Mr. Rubinstein also charges in his filing that Golden Eagle management took steps to conceal claim information from regulators. For example, the insurer's CFO, Mr. Wilkins, instructed a company computer technician to install a program that would mask changes in claim data made by Mr. Wilkins and other workers.

"These circumstances tend to corroborate allegations that outright fraud is being committed by company management," Mr. Rubinstein charges.

Golden Eagle's lawyer, Mr. Cahill, confirmed there were "obvious errors" in the insurer's computer records, but said they were unintentional and resulted from an Insurance Department request that Golden Eagle revise its claim data to separate out a particular class of claims.

"For Mr. Curry to speculate that he knows the motive for it is preposterous," Mr. Cahill said.

On Jan. 30, the day before the conservation filing, Raul Aguilar, a San Francisco lawyer for Golden Eagle, wrote to the Insurance Department suggesting that Mr. Curry himself may have tampered with the computer records.

Mr. Curry's lawyer dismisses that charge.

The conservation case is being moved from San Diego to San Francisco Superior Court.