Rival May Back French Bid for Executive Life : * Insurance: The National Organization of Life and Health Guaranty Assns.’ turnabout may make it easier to resolve the fate of the failed Los Angeles-based insurer.

A group of state insurance guaranty funds signaled Friday that it may support the sale of Executive Life Insurance Co. to French investors after all, which could hasten the end of a 7-month-old auction for the failed insurer.

The National Organization of Life and Health Guaranty Assns., a rival bidder for Los Angeles-based Executive Life, said it is asking its members to back the French group as part of a new rescue plan for the insurer.

NOLHGA coordinates activities for guaranty funds in 47 states that cover policyholder claims when an insurance company fails. The funds stand to pay $1.9 billion to cover the mess at Executive Life, which failed in part because of massive losses in risky junk bonds.

In an effort to reduce its tab for policyholder claims, NOLHGA had offered to buy Executive Life. The group almost succeeded last month, when state Insurance Commissioner John Garamendi recommended it as the winner over eight other bidders. But when NOLHGA failed to meet conditions he placed on the bid, Garamendi switched his support to the French group.

Any bid must be accepted by Los Angeles Superior Court Judge Kurt Lewin, who is overseeing the disposition of Executive Life.

NOLHGA said the new plan for Executive Life was hammered out in meetings earlier this week with Garamendi and representatives of Altus Finance, the French company that is leading the bid-winning group.

The plan allows NOLHGA to share in proceeds from the sale of Executive Life’s real estate, an arrangement that will help reduce NOLHGA’s cleanup tab. The French group has agreed to place the real estate in a liquidating trust for NOLHGA and uncovered policyholders. It was not clear Friday how the proceeds would be divided between the two groups.

The value of Executive Life’s real estate has been estimated at $300 million to $500 million.

A NOLHGA spokeswoman said the agreement provides full reimbursement for 95% of Executive Life’s policyholders, those with policies valued at $100,000 or less.

The French group would provide partial reimbursement, with NOLHGA paying the rest.

It wasn’t clear how many state guaranty funds would go along with the deal.

The support of most of the funds is needed for the pact to be approved.

So far, state funds in California, Florida and Illinois have indicated support, a NOLHGA spokeswoman said.

NOLHGA gave its members a deadline of next Thursday to decide whether to support the agreement. If too few state funds go along with it, NOLHGA will continue to press its bid for Executive Life in Superior Court, the spokeswoman said.

In the past, NOLHGA criticized the French group’s bid as too low. But a person familiar with the discussions said Friday that the French bidders had raised their offer for Executive Life’s junk-bond portfolio to $3.25 billion from $2.7 billion.

The deal with the French group, which includes the small French insurer Mutuelle Assurance Artisanale de France, came after Lewin ruled that the claims of holders of $1.85 billion in municipal bonds backed by Executive Life-issued guaranteed investment contracts are equal to claims by annuitants and policyholders.

The ruling significantly reduced the amount the French group would pay to cover policyholder claims--to 72 cents from 89 cents on the dollar.

That means that the amount the state guaranty funds must pay would rise to $1.9 billion from $900 million. The state funds and the state Insurance Department are appealing the ruling.