Met-owned insurance firms ordered sold
Proceeds would increase return to creditors
Sat., March 26, 2005
Insurance commissioners from Washington and Idaho have ordered the combined sale of three insurance companies owned by bankrupt Metropolitan Mortgage & Securities Co.
Money from the sale should boost the financial recovery of Metropolitan creditors, estimated now at around 15 cents on the dollar, and marks significant progress in the bankruptcy case.
While a sale of the companies has been anticipated, Washington Insurance Commissioner Mike Kreidler said the time was ripe.
“We have seen some good interest by very respected, well-established companies,” he said.
Kreidler declined to estimate how much money the insurance companies could fetch.
He said, however, that a laudable goal would be to recover the equity – estimated to be less than $100 million – of the three solvent companies.
The companies – Spokane-based Western United Life Assurance Co., Old Standard Life Insurance Co., of Idaho, and Arizona-based Old West Annuity and Life Insurance Co. – will be appraised by insurance consultant Milliman USA.
Bids are due May 27 and a sale could be completed in June.
“This is the best news the creditors have gotten in the case thus far,” said Ford Elsaesser, an attorney involved in Metropolitan’s bankruptcy case.
The insurance businesses are considered among the largest sources of potential cash for the 16,000 creditors who hold more than $580 million in company bonds.
Metropolitan, a former financial and political powerhouse in Spokane, collapsed early last year under the weight of government investigations and an accounting scandal. Its $2.7 billion Chapter 11 bankruptcy is Spokane’s largest, and prompted insurance commissioners from Washington, Idaho and Arizona to put its three insurance subsidiaries into receivership.
For the past year, Kreidler’s team has restructured Western United so that its financial holdings more closely mirror the traditional, safer investments of other insurance companies.
Despite those efforts, however, the insurance companies could fail if sold separately, Kreidler said. Unsecured loans between the companies, along with weighty re-insurance policies, tie the firms together.
A fact sheet distributed by Kreidler said: “Simply put, it’s almost impossible to separate the companies for the purpose of individual sales, without the potential for causing significant fiscal trauma to all three.”
Maggie Lyons, who was appointed Metropolitan CEO last year, said a sale means more money for creditors.
Though there are plenty of issues to work out, she said an amended bankruptcy plan of reorganization due next week will include many more details.
There are three major sources of recovery left for creditors, she said. Among them:
— The sale of the three insurance affiliates.
— The sale of Metropolitan’s Hawaiian real estate.
— Arbitration against accounting firm Ernst & Young LLP and perhaps claims against other professional firms involved in the sale, preparation and financial oversight of Metropolitan’s stocks and bonds.
The sale of the insurance companies will not affect their 35,000 policyholders, Kreidler said.
Western United has 180 employees in Spokane and paid $10.8 million in wages last year. Kreidler said he envisions the buyer of the company maintaining its operations here.
Though Kreidler’s regulatory duty is to protect policyholders, he spoke of a personal connection to the case in an interview Friday.
Kreidler said a friend told him of tremendous financial losses due to Metropolitan.
“He had tears in his eyes as he told me most of his money was in Metropolitan,” Kreidler recalled. “That put a personal face on this … and now it is something I continue to feel personally motivated about.
“I don’t want to bring more harm to these people or this community.”
P.J. Grabicki and Kevin O’Rourke, lawyers who represent creditors of Metropolitan and sister company Summit Securities Inc. in the bankruptcy case, said selling the insurance companies was good news for their clients.
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