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Settlement, ruling ends utility's ordeal


© St. Petersburg Times, published September 28, 2000

Florida Progress Corp. finally can see the end of its costly misstep into the insurance business.

Two events Tuesday cleared the way for the St. Petersburg utility company to walk away from its $120-million stake in Mid-Continent Life Insurance, its troubled Oklahoma-based insurance subsidiary, and end litigation with customers who claimed the company broke promises to never raise premiums on their policies.

First, Florida Progress settled the lawsuit by agreeing to pay $17.5-million to help protect policyholders against future rate increases. Then, a judge approved a rescue plan that transfers 128,000 Mid-Continent policies to American Fidelity Assurance Co. of Oklahoma City.

The deal ends an embarrassing chapter in Florida Progress history, getting the issue out of the way before Carolina Power & Light completes its $5.3-billion purchase of the utility company.

Mid-Continent, Oklahoma's oldest insurer, would cease to exist when Oklahoma County District Judge Noma Gurich gives final approval to the deal, likely by late November, Florida Progress spokeswoman Melanie Forbrick said.

American Fidelity agreed not to raise premiums for at least 17 years on so-called extra-life policies, the main insurance product sold by Mid-Continent. Floridians hold about 7,800 such policies.

While Florida Progress regretted losing the investment and disputed charges in the lawsuit, officials said it was time to end the long, costly battle with Oklahoma regulators and policyholders.

"Negotiating a reasonable settlement is in the best interest of all parties and removes some of the uncertainty surrounding Mid-Continent, which has gone on for far too long," Florida Progress chairman and chief executive Richard Korpan said in a statement.

Florida Progress bought Mid-Continent in 1986 for $87-million as part of an ultimately flawed plan to diversify beyond its core electric power business. The strategy led to investments in everything from orange groves to aircraft leasing.

Mid-Continent began aggressively selling the extra-life policies, a blend of traditional whole life and term insurance, outside the Southwest after its sale to Florida Progress. The majority of the policy was made up of term coverage that decreased in value every year. But the dividends were used to buy add-ons to the term insurance to guarantee a fixed level of protection -- a big selling point. Mid-Continent heavily promoted the policy as having "level" premiums, suggesting the annual cost of a policy would not change over the years.

Former Oklahoma Insurance Commissioner John Crawford seized Mid-Continent in 1997 after determining the company was insolvent because of a huge shortfall in reserves. Florida Progress fought the move, saying the company could raise premiums to cover future liabilities.

An Oklahoma judge agreed but put Mid-Continent in receivership. Crawford sued Florida Progress, seeking to make the company financially responsible for the deficit, which he estimated at $348-million. But Crawford was defeated in his 1998 re-election bid. His opponent, insurance agent Carroll Fisher, received more than $20,000 in campaign contributions from Florida Progress executives.

Fisher put off the lawsuit to come up with a rehabilitation plan for Mid-Continent. Last year he backed a plan to sell the policies to Iowa-based Life Investors, which guaranteed no premium increase for 10 years. Florida Progress agreed to pitch in $10-million to soften the impact of premium increases beyond that time.

The plan was attacked by a group of policyholders and competing bidders. Policyholders argued they were promised premiums would never increase.

Gurich, the judge, ordered Fisher to hold another round of bidding on the policies.

American Fidelity agreed to freeze rates for 17 years. The company also will allocate $160-million to policyholders' reserves, enough to make up the deficiency in reserves that landed Mid-Continent in receivership in the first place.

On Tuesday, the sixth day of testimony on the American Fidelity plan, Florida Progress sweetened its offer to policyholders by $7.5-million.

Florida Progress wrote off the original $10-million offer last year, Forbrick said. Only the additional $7.5-million, plus up to $4.4-million for the plaintiffs' attorney costs and court fees, still must charged to the company, she said. "There will be no material adverse effects on earnings," Forbrick said.

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