Liquidation Comes For Lavish Insurer

In 1990 Chicago insurance executive Raymond Ankner flew about 100 of his top agents to

Germany to celebrate Oktoberfest in Cologne. The cost of the trip was $800,000, billed to Ankner`s businesses.

Most of those acquainted with him didn`t view the expensive junket or other lavish activities as out of line. To them, the red-haired, Brooklyn-born Ankner epitomized thesuccessful insurance man, with a fast-growing operation, a company plane, homes in Florida and Vermont and an apartment in Water Tower Place.

But insurance regulators were already beginning to question expenses at his main insurance unit, InterAmerican Insurance Co. of Illinois. When the Illinois Insurance Department obtained a court order last month to liquidate the company, court papers showed a balance sheet crowded with overvalued real estate and questionable intercompany transactions and reinsurance arrangements.

The collapse of InterAmerican is expected to be the biggest life insurance failure in Illinois history, with a gap of more than $30 million between assets and liabilities. It has placed in the hands of state regulators the largest real estate and mortgage portfolio ever managed by the department. InterAmerican`s $33 million portfolio of mortgages and real estate covers several investments on Chicago`s Near West Side, including a loan on its headquarters at 901 W. Jackson Blvd. There also are more far-flung holdings, such as loans to donut shops in Michigan and a bed-and-breakfast in Vermont. Nearly half the $20.5 million in mortgage loans are behind on payments, according to department officials.

Regulators are still investigating the possibility that company funds were improperly used. No charges have been filed, and Ankner denies any suggestion of wrongdoing.

A report by an independent accountant hired by the Insurance Department highlights several questionable charges, such as a $53,681 check to Neiman-Marcus Co. for catering a 1989 Christmas party at Ankner`s apartment here, the company`s payment of most of his $5,200 monthly rent and even a portion of the salaries of Ankner`s gardener and housekeeper in Vermont.

The failure of InterAmerican is a major headache for the many independent agents who represented the company. Many of them apparently believed that the insurer had virtually all its investments in government bonds and was financially sound-or ``hunky-dory,`` according to Eric Wiltshire.

``The agent`s got egg on his face,`` said Wiltshire, chairman of a Birmingham, Mich.-based pension-consulting and insurance firm that dealt with InterAmerican.

InterAmerican`s approximately 25,000 customers can`t currently cash in their insurance policies and annuity contracts or collect benefits. Most of their claims are expected to be covered in the next few months by life insurance guaranty associations in Illinois and the other 44 states in which InterAmerican did business.

Though big by Illinois standards, InterAmerican`s demise is small potatoes compared with several widely publicized out-of-state failures that rocked the life insurance industry last year. Failed Executive Life Insurance Co. of Los Angeles, for example, had assets of about $10 billion;

InterAmerican`s assets totaled about $140 million as of year-end 1990.

Yet the company`s problems are typical of many ailing life insurers, regulators say. Besides a heavy dose of non-performing real estate, the troubles include rapid growth supported by a controversial financial technique known as surplus relief reinsurance, used by insurers to boost their regulatory capital.

InterAmerican`s collapse raises questions about the effectiveness of state insurance regulation, especially in cases involving complex financial transactions. Illinois is usually ranked among the top three states in policing insurers, along with New York and California.

But some insurance experts who have examined InterAmerican`s books say it was clear several years ago that the company was headed for a fall.

Illinois insurance director Stephen Selcke defends the department`s actions, calling them ``appropriate and timely.`` But he and other insurance department officials say the agency`s staff is overworked, particularly in the area of monitoring financially troubled life insurance companies.

Five people are assigned to spot potential problems among the nearly 900 life and health insurers operating in the state, including 160 based here for whom Illinois is the main regulator. Selcke said he hopes to get legislative approval to beef up the staff for fiscal 1993, beginning July 1, when a law takes effect that requires insurance companies to pay more of the department`s budget.

Arnold Dutcher, the department`s deputy director in charge of life and health insurance, is pushing for tighter limits on the kind of surplus relief reinsurance used by InterAmerican. The National Association of Insurance Commissioners, which coordinates the activities of state regulators, is considering stricter standards.