An agreement was signed Tuesday ending months of complex negotiations and settling claims by an estimated 165,000 holders of annuities issued by Baldwin-United insurance companies before the parent company’s collapse two years ago.
Metropolitan Life Insurance, which will administer the agreement, announced the signing at a New York press conference.
The agreement calls for Metropolitan to offer Baldwin-United annuity holders new policies backed by Metropolitan and offering a higher rate of return than that available under a court-approved rehabilitation announced last May.
Return on Investment
Holders who decline the Met offer will continue to receive the 5.5% return on their investment through November, 1987, as provided for in the rehabilitation plan.
“We are anticipating that the crediting rates (of the new annuities) could run from just under 7% to approaching 8.5%,” said William Poortlviet, Metropolitan’s chief actuary and senior vice president.
As reported earlier, 22 brokerage firms have agreed to pay a total of $157 million to settle claims against them by customers to whom their agents sold Baldwin-United annuities. On Tuesday, 50 insurance companies led by Metropolitan agreed to contribute an additional $50 million.
Disposal of Baldwin-United’s assets could yield $185 million more, making up to $392 million available to rescue the policyholders’ investments.
John J. Creedon, Metropolitan’s president and chief executive, said it will be “some months,” however, before annuity holders begin receiving statements showing their accounts’ worth under the rehabilitation plan and the so-called enhancement plan signed Tuesday. “Continued close cooperation of all the parties will be necessary to implement this comprehensive, complex and innovative plan,” Creedon said.
The National Assn. of Insurance Commissioners, a support group for the states’ insurance regulators, called on the insurance and brokerage industries to help develop such a plan last fall. Negotiations also involved NAIC, the insurance commissioners in Arkansas and Indiana who developed the Baldwin rehabilitation plan, state attorneys general and lawyers representing Baldwin policyholders in the New York class-action lawsuit.
Court Approval Needed
“Our common goal was to obtain a unified settlement that would allow settlement monies to flow into the enhancement plan while, at the same time, eliminating the need for lengthy and expensive legal proceedings across the country,” said Bruce W. Foudree, Iowa commissioner and NAIC president.
The enhancement plan must now be approved by bankruptcy courts in Arkansas and Indiana as well as by the federal court in New York having jurisdiction over the class-action case, but Poortlviet said, “We have no reason to believe we won’t get those approvals.”
More than $3 billion of the annuities--offered as high-return, low-risk, tax-deferred investments--were sold to 165,000 people nationwide by six insurance subsidiaries of Cincinnati-based Baldwin-United from 1979 through July, 1983, when the subsidiaries were taken over by insurance commissioners after the units and their parent were unable to convince creditors to grant extensions on nearly $1 billion in debts.
Baldwin-United later filed for reorganization in federal bankruptcy court in Ohio.
Purchasers of the annuities made a single payment--typically $20,000--and were promised interest rates averaging 14% for the first year and a guaranteed minimum of 7.5% for the next 10 years, with interest income remaining untaxed until the investor began drawing benefits, generally at retirement.