Met insurance affiliate’s worth down sharply

Metropolitan Mortgage & Securities’ large insurance affiliate is worth half what it was a year ago when state regulators seized control, a worrisome development as creditors await word on the sale of Western United Life Assurance Co.

The insurance company has equity of about $49 million, down from $108 million when put into receivership 18 months ago by Washington Insurance Commissioner Mike Kreidler. As recently as last March, when Kreidler put the company up for sale, Western United’s equity – also called capital and surplus – stood at $63 million.

The declining value of the company is one aspect of the poor working relationship between bankrupt Metropolitan Mortgage and Western United.

Metropolitan is trying to push a liquidation plan through bankruptcy court so that it can return money to creditors, namely the thousands of people who bought unsecured bonds called debentures. More than a third of the money Metropolitan’s new management team hopes return to creditors is expected to come from the anticipated sale of Western United.

Kreidler, while publicly promising creditors he would do everything he could to maximize their return, must first ensure Western United is financially sound and won’t require a bailout by the taxpayer-financed Washington State Guaranty Association.

These dual responsibilities sometimes appear at odds, as Western United continues to press a $200 million claim against Metropolitan that could water down repayments to investors.

The claim frustrates Metropolitan managers who regard it as a counterproductive measure that will accomplish little but high legal fees — a sensitive topic in a case where most creditors are older people who lost much of their savings.

The companies, with so much in common and so much at stake, continue to fight over the gritty details of Metropolitan’s liquidation plan.

During a hearing Thursday about Metropolitan’s prospectus for its liquidation plan, Western United lawyer Michael Lubic accused Metropolitan lawyer Ford Elsaesser of breaking a confidentiality agreement with Kreidler by using certain statistics in the prospectus.

Elsaesser took umbrage and said he has upheld his deal with Kreidler, while at the same time obtaining permission from the commissioner to use certain numbers for the sake of accuracy.

At one point, U.S. Bankruptcy Judge Patricia Williams interjected that the whole disagreement could be tossed aside if the commission would hurry up and sell Western United.

As for alleged breach of confidentiality, Judge Williams said her court was the wrong place to level such a charge and suggested Lubic consider another venue.

The sides are still arguing over tax issues related to the liquidation plan, but that disagreement should be ruled on yet this month.

Creditors, meanwhile, can expect to have the prospectuses, officially called a disclosure statement in bankruptcy court, mailed to them this autumn. The document provides information on the liquidation plan, which will need the approval of Judge Williams and investors.

If approved, Metropolitan could cut the first round of checks to creditors by early next year.

Creditors may receive several checks as the remaining assets of Metropolitan are liquidated and proceeds from a sale of Western United are realized.

Two other affiliated insurance firms, Old Standard Life Insurance Co., of Idaho, and Old West Annuity and Life Insurance Co., of Arizona, also are being sold. Proceeds from those sales will only go to debenture holders of Summit Securities Inc., a sister company of Metropolitan.

The Washington insurance commissioner’s office is handling the sales and has not released information on them, including the number of bids received.

Upon announcing the decision to sell, Kreidler said his goal would be to recover the approximately $100 million of equity in the three firms.