Saying the state has mismanaged a former insurance affiliate of bankrupt Metropolitan Mortgage & Securities Co., creditors have asked a judge to force Washington Insurance Commissioner Mike Kreidler to relinquish control of the valuable asset.
The insurance commissioner seized Western United Life Assurance Co. four years ago in the wake of Metropolitan’s financial failure. A successful sale of the insurance affiliate could mean more cash in the pockets of Metropolitan investors, who were left holding $360 million in worthless investments.
In a petition filed in Thurston County Superior Court, a trust representing creditors asserts that real estate held by Western United Life has been sold without adhering to competitive bidding standards.
Bill Ripple, spokesman for the insurance commissioner’s office, said termination of the receivership would be “vigorously opposed.”
“We categorically deny any allegations or assertions of mismanagement concerning the commissioner’s oversight during the past four years,” he said.
Ripple suggested that the Metropolitan trust’s motivations were “a desperate attempt to block the sale of Western.”
Kreidler’s receivership team is hammering out final details of a sale and anticipates seeking court approval for the transaction by the end of the year.
Metropolitan trust officials contend they have been cut out of the negotiations. They don’t know who the prospective buyer is or how much money is on the table.
“It’s impossible to reject an offer that you don’t know anything about,” said Metropolitan trustee Maggie Lyons.
The Metropolitan trust has high expectations for any sale of Western United.
The trust paid Metropolitan creditors about 9 cents on the dollar in September 2006.
Lyons said an offer for Western United that would have returned a nickel on the dollar has been rejected.
Her expectation is that a sale of the insurance company would net investors at least 10 cents on the dollar.
“But until we have control of that company, I can’t really value it with authority,” she said.
In the petition, Lyons proposes turning control of Western United over to a handpicked group of insurance and real estate experts led by Arthur Dummer, who would serve as chief executive with the charge of engineering a bidding process that would find a buyer within two years.
“What we’ve proposed is an outcome that would produce the most value to shareholders and do a very good job for policyholders as well,” Dummer said.
The takeover plan was presented to Kreidler’s office as a way to insist that any successful offer “be north of $65 million.”
“Unless that amount or more is realized from the sale, we would insist on our plan,” Dummer said.
He said information between the sides has not been exchanged since a meeting last autumn.
“We have been on our knees begging them to engage us in a meaningful dialogue regarding our plan,” Dummer said. “They have chosen not to do so.”
Ripple said insurance commission officials have given Metropolitan trustees access to information but will not forfeit their state-mandated duty of acting in the best interests of Western United’s policyholders.
Ripple said the commissioner is required to ensure every action by Western is based on a business strategy that doesn’t jeopardize policyholders. If the company did fail, the annuities held by thousands of policyholders would be protected by the Washington State Guaranty Association – which as a last resort would tap taxpayer funds to meet Western United’s annuity obligations. He said Kreidler remains committed to striking a sales agreement that also will leave money available for Metropolitan’s creditors.
Dummer and Lyons contend that Western United has capital and a surplus of $45 million, improved grades from ratings agencies and adequate risk-based capital (RBC) scores, which act as regulatory indicators of financial health.
If the judge decides against terminating the receivership, Lyons said she wants a court order allowing her access to Western United’s real estate negotiations and sales. She also asked the court to rigorously oversee the receivership to provide assurances against mismanagement.
Subscribe to the Morning Review newsletter
Get the day's top headlines delivered to your inbox every morning by subscribing to our newsletter