Western United Life Assurance Co., a former subsidiary of now-defunct Metropolitan Mortgage & Securities Co., says its assets are growing and it's expanding its network of agents, but for now is strategically slowing the sale of its sole product—annuities—until the U.S. economy begins to rebound.

Dale Whitney, president of the Spokane company, says Western United, like other insurers, is pulling back on offering annuities because currently it can't earn the investment margin it needs to be able to offer them at competitive rates.

"All of us are in a holding pattern right now," Whitney says. "We're pulling in our horns."

Annuities are a type of insurance contract in which customers make a lump-sum or series of payments to an insurance company, typically in exchange for long-term payouts. Those products make up all of Western United's volume.

The company, which at one time employed 190 people, today has 44 employees and is housed in a building it owns downtown at 929 W. Sprague.

Western United was sold last year to Global Life Holdings LLC, which is jointly owned by Armonk, New York-based Global Secured Capital LLC and Wilton, Conn.-based DLB Capital LLC. The transaction, valued at $52.5 million, was overseen by Washington state Insurance Commissioner Mike Kreidler, who had been granted receivership of the insurer in 2004, after Spokane-based Metropolitan filed for bankruptcy.

Companies such as Western United make their money by investing the funds their customers pay in for annuities and earning a greater return on those investments than the yield they must pay their customers in their regular annuity payouts.

With the investment markets having been battered by the recession, however, Western United hasn't been able to make the returns it needs to be able to offer rates that will attract consumers to annuities, Whitney says.

To cover its operational costs and earn a profit, Western United needs to make a market return of at least 1.5 percentage points higher than the interest rate on the annuities it sells. The current yield on corporate bonds, Western United's choice for investment, has been too low to achieve that spread, he says.

"We'll just sell a lower volume of annuities, and bide our time until the market comes back," Whitney says. "Everything's cyclical. This will all pass and things will turn around."

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Insurance companies are the only entities that can sell annuities, Whitney says. Customers who buy them, either with a lump-sum investment or payments over time, are guaranteed to receive periodic payments either beginning immediately or at a future date. Annuities typically offer tax-deferred growth of interest earnings and sometimes include a death benefit that will pay a beneficiary a guaranteed minimum amount, such as a customer's total purchase payments.

Western United's customers are typically more than 60 years old, likely retired, and are looking for a secure place to put their money, Whitney says. The average-size of the annuities it sells is $40,000, he says.

Western United, which has been in business since 1963, sells a variety of fixed-rate annuities with three-, five-, and seven-year terms and corresponding interest rates. The five-year annuity has been the most popular product, he says. The short-term annuities represent about 80 percent of the company's product sales. The company also sells immediate annuities, in which a customer makes a deposit in exchange for regular payments for a period of time or for the person's lifetime; and equity-indexed annuities, in which it pays the customer based on changes in an equity index, such as the S&P 500-stock index.

The company's annuities are sold by a network of independent life-insurance agents in 14 states, mostly in the western U.S. During the past year, the company has boosted the number of agents that offer its products by 175 percent, Whitney says.

Western United's annuity sales jumped 320 percent during the first half of this year, while demand was high as customers sought a safe place to put their money. Meanwhile, the investments the company made in corporate bonds during the first half of the year still provided a high margin, he says.

Now, with those margins razor thin, Western United has less of an appetite for taking on new annuity contracts, Whitney says, adding that the challenge ahead is to ensure the company earns enough spread between its own investment returns and the yield it pays customers.

Like other annuity sellers, Western United has had to lower the rates it offers on annuities, and that, in turn, has dampened customer demand for the products, as consumers seek higher yields in other investment products. Interest rates on the fixed annuities lately have been running between 1.5 percent and 2 percent. Whitney sees a contraction in demand until those rates go up.

"The majority of rates being credited nationally on new business have been reduced to unattractive levels," says Whitney. "This induces many people to leave their funds where they're at right now."

Still, he says Western United is making money, and has $826 million in assets, substantially more than it did five years ago. Of those assets, it has $726 million of reserves to support its in-force annuity contracts, he says.

In terms of employment, however, the company is much smaller than it used to be. In June 2008, it employed 77 people, down substantially from its pre-receivership work force of 190. Its current staff of 44 employees is split among its insurance-operations department, finance department, information systems, actuarial services, legal department, and executives.

Though the number of employees is down, Whitney foresees growth.

"We're trying to grow the company as prudently as possible," he says.

Whitney says the company this year strengthened its upper management ranks. It hired a new chief financial officer, Todd Bareika, in March; a new chief operating officer, Rahul Sharma, in January; and a chief actuary, Paul Anderton, in June. The COO is a new job at the company.

He says the company's five-year business plan calls for significant growth, though he declines to provide specific details about the plan. He does say the company plans to expand its market reach by seeking regulatory approval to sell annuities in additional states. It also plans to improve coverage within the states where it already does business, Whitney says.

Western United has only one office, which occupies 25,000 square feet of space in the building it owns downtown. It leases part of the building to Knitting Factory Entertainment for a concert hall that has a street address of 919 W. Sprague. Whitney says the building, which he says isn't a good fit for the company because the space is disjointed, is for sale.

If the building sells, the company will move, "to some place that's more conducive to business. I'd like to get us all on one floor," Whitney says.

Where exactly that new location will be hasn't been determined, but it will be in the Spokane area, he says.

The company moved to its current location in 2007, after occupying space in Key Tronic Corp.'s building at 4424 N. Sullivan since 2004, and in what then was known as the Metropolitan Financial Center downtown. That tower now is called Wells Fargo Center.

Looking ahead, Whitney says that when investment conditions improve for companies such as Western United, the company plans to get back into the annuity market full bore, though he adds, "I can't say when that will be."

Since 2004, one of the significant challenges facing the company was cleaning up its investment portfolio. Under Metropolitan's control, Western United had invested heavily in real estate assets like property, mortgages, and mortgage-backed securities. Whitney says more than half of the company's investments were in real estate prior to Metropolitan being placed in receivership in 2004.

Due to the nature and the high cost of holding such assets, the insurance commissioner's office and Western United's senior management decided it was prudent to realign its investment portfolio, bringing it in line with those of more traditional annuity companies, Whitney says.

He says the majority of the real estate assets were sold at or above book value, and the proceeds have been repositioned in investment-grade bonds. Today, about 97 percent of the company's investments are in bonds, and Whitney says Western United will unload the remainder of its real estate assets as soon as possible.

"Real estate investing is not in our future," Whitney says.