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Met affiliate’s worth plunges

The net worth of Metropolitan Mortgage & Securities Co.’s insurance affiliate has tumbled to $41.7 million as state insurance regulators continue to rework its financial holdings and strategy.

Western United Life Assurance Co. is considered the most valuable asset of Metropolitan’s bankruptcy. It was seized by Washington State Insurance Commissioner Mike Kreidler two years ago as Metropolitan collapsed.

Kreidler’s receivership team was charged with protecting and rehabilitating Western United – an important effort that, if successful, would help pay back more than 10,000 investors who were badly burned by the Metropolitan collapse.

Maggie Lyons, the trustee for Metropolitan, declined to comment until she could analyze the financial statements.

Western United once had capital and surplus funds of nearly $120 million, at least according to financial statements that are now suspect.

What this means to investors is that the net worth of their insurance affiliate might have dropped by more than $75 million in less than 24 months.

In 2004, Kreidler’s team began changing Western United’s investment holdings to more closely align with industry norms – namely by selling and taking writedowns on higher risk commercial and residential real estate loans.

A spokesman for Kreidler said the equity number continues to fluctuate as Western United makes changes in its investment portfolio. It could rise or fall further, the spokesman said.

During 2004, the investment changes incurred a $54.6 million equity loss. This year the fall in equity was $21.6 million, including $9 million from October through December.

Kreidler announced an intention to sell the insurance affiliate a year ago. The attempt fell short even as Metropolitan’s other two insurance affiliates were sold.

Bill Ripple, Kreidler’s spokesman, acknowledged the difficulty of selling Western United but said Kreidler and the receivership team is still talking to potential buyers. He declined to elaborate on a timetable or say if a sale was imminent.

The changes at Western United have been expensive. For example, the affiliate paid outside lawyers and accountants $8.35 million last year.

By comparison, Metropolitan has paid a total of $4.4 million in professional fees.

Some of the cost has been preparing Western United’s bankruptcy claim – now $250 million – against Metropolitan.

That claim is part of a complicated formula that Kreidler’s office put together to estimate the damage that the regulated insurance affiliate suffered under the direction of Metropolitan.

Barry Davidson, a bankruptcy attorney for Metropolitan, asserts that Western United is owed one dollar for damages.

The two sides are set to argue the claim April 19-20 in front of U.S. Bankruptcy Judge Patricia Williams.

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