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Wednesday, March 03, 2004, 12:00 A.M.

Western United, Mortgage Met's largest unit, under state control

By Drew DeSilver
Seattle Times business reporter

Western United Life Assurance, the largest operating unit of bankrupt financial conglomerate Metropolitan Mortgage & Securities, was placed under receivership yesterday at the request of the state insurance commissioner's office.

The move, which puts the insurer under direct state control, was prompted by a recent opinion from Western's lawyers that it would likely lose a dispute with the IRS over a 5-year-old tax shelter.

The amount at stake, $18.4 million, normally would not be enough to force a company into receivership, said spokesman Bill Ripple of the Office of the Insurance Commissioner. But given the financial turmoil surrounding Metropolitan, he said, the office decided receivership would be prudent.

"Obviously we've got concerns," Ripple said. "There's a lot that's been going on over there."

Western President Dale Whitney called the receivership a step along the road to rehabilitation.

"This restructuring will help us achieve separation from our parent company while we continue to conduct business," Whitney said in a statement. "We are confident Western United will emerge from receivership as a healthy and strong company."

Western has been under state supervision since late December, meaning executives needed approval from the commissioner's office to buy or sell real estate, hire people, transfer assets to or from other Metropolitan affiliates, or undertake other financial transactions.

But with chief deputy receiver Wayne Metcalf now directly running Western, Ripple said, "this gives us more control."

Both Western and Metropolitan are based in Spokane.

Besides operating Western, Metcalf's job will be to straighten out company finances and represent the interests of its estimated 35,000 policy-holders as Metropolitan struggles to right itself.

With $1.73 billion in assets, Western is the biggest of the Metropolitan complex's many subsidiaries, and the third-largest insurer headquartered in Washington state, although the great bulk of its business comes from selling annuities rather than insurance policies.

As of Dec. 31, Western had nearly $1.3 billion in annuities outstanding, compared with $60.1 million in life insurance.

Yesterday's move was, in part, designed to assure Western policy-holders that regulators were working to preserve the assets that underpin their investments.

Metropolitan and its sister company, Summit Securities, filed for bankruptcy protection Feb. 4. Until recently the controlling shareholder of both companies was C. Paul Sandifur Jr., the son of Metropolitan's founder. Sandifur resigned as chairman and chief executive on Jan. 27; his ownership, as well as small stakes held by other Sandifur family members, likely will be wiped out in the bankruptcy.

The companies plan to work out a restructuring plan that would combine their remaining operating subsidiaries mainly Western, two smaller insurers and a property-management firm under a single corporate umbrella.

However, the Western receivership could complicate the restructuring.

While the insurance commissioner's job is to protect Western's policy-holders, the bankruptcy process is geared toward maximizing payment to Metropolitan's and Summit's creditors primarily the thousands who bought those company's unsecured notes. The interests of the policy-holders and the creditors don't necessarily coincide.

The two smaller insurers, Idaho-based Old Standard Life Insurance and Old West Annuity & Life of Arizona, also have been under supervision by their respective state insurance departments since December. None of the insurance subsidiaries has filed for bankruptcy.

There was no opposition to the receivership order from Thurston County court. In a Jan. 13 resolution, Western's board agreed not to contest any receivership application by the insurance commissioner's office.

Drew DeSilver: 206-464-3145 or