Straining under the effects of the national recession, Spokane-based North Coast Life Insurance Co. suspended quarterly dividend payments on its preferred stock indefinitely two years ago.


It expects to restore those dividends at the end of this year, but perhaps just as significant to the 273 mostly Spokane-area shareholders who own that stock is North Coasts sharp financial rebound last year.


The 40-year-old company more than doubled its operating income in 2004, to just under $31 million, due largely to a sixfold increase in annuity income, which leaped to $18 million. Both figures were records.


North Coasts net income of about $297,000 in 2004 was down from about $455,000 the previous year, due largely to higher federal income taxes and to a sizable transfer of money into reserves to help restore them to healthy levels. However, it reported a net gain before federal income taxes of almost $942,000, up from about $775,000 in 2003. Its total assets, meanwhile, jumped more than 20 percent to a record $119.7 million.


I consider it a remarkable turnaround, considering what weve been through, says Rob Ogden, the companys executive vice president in charge of sales and insurance operations. He cautions, though, Were not planning on that type of growth every year, and expect gains this year to be much more moderate.


Nevertheless, his father, Bob Ogden, North Coasts still active 81-year-old founder and president, says, Im very comfortable with the position of the company and where were going.


The improving economy contributed to last years dramatic upswing, but a strong new focus on Internet-based recruitment of independent agents and brokers also was a key contributor, Rob Ogden says. Additionally, he credits his father for remarkable handling of the companys bond portfolio.


Located in a stately building at 1116 W. Riverside that bears its name, North Coast offers insurance and annuities in 11 Western states, plus Hawaii, Guam, and the Commonwealth of Northern Mariana Islands, and employs about 30 people here. It sells its products, which are aimed at individuals rather than businesses, through about 250 independent agents and brokers, and invests policyholders money in the corporate bond market.


Companies like us are rare, Ogden says. We are a rather small player in a big-conglomerate industry. Our market is the family market. Were not trying to compete with the high-face-amount, high-volume market.


The company markets its productsand seeks to recruit new agentsthrough its main Web site, at www.nclife.com. It also is in the process of setting up a separate Web site, at www.insureyourfamily.com, through which it hopes to provide educational insurance-related calculating tools and, eventually, to market simple insurance and annuity products directly to the public, Ogden says.


We see the ability to continue to have an active agent force for selling some of the companys products, while offering others to consumers directly, he says. The company hopes to begin doing consumer-direct marketing in a year or two.


Ogden adds that North Coast also has implemented electronic-processing features designed to make its agents jobs easier and to speed up policy writing. We have introduced the ability for them to be paperless in front of the client, and even to accept a credit card or other form of electronic funds transfer for the first payment on a new policy, he says.


Bob Ogden is confident about the strategic move his son is spearheading.


This whole industry is migrating into an electronic world. I foresee it opening a lot of doors for the company, he says.


Focusing on stability


Due partly to efficiencies provided by electronic processing, North Coast has been able to take on more business without boosting the size of its mostly veteran work force here, he says. The number of independent agents and brokers selling its products also has remained fairly stable, though the Internet marketing success has allowed it to cull underperformers from those ranks, and the company has no plans to expand its presence geographically, he says.


Were happy with what weve got and the territory here, Rob Ogden says, adding that North Coast believes it has plenty of room for growth in the markets it already serves.


California is really key. Its a critical state for a company like us to have, typically accounting for one-third or more of the companys revenues, he says.


In its investments, North Coast buys only what are called investment-grade bonds. The quality of a portion of those bonds eroded during the recent recession, and some issuers defaulted, Ogden says. Due partly to changes in the companys investment policy spurred by those market conditions, though, as well as the improved economy since then, the market value of its bond portfolio now exceeds book valuewhat it paid for the bondsby about $1 million, which is a good indicator, he says.


North Coasts rating by A.M. Best Co., the national insurance-rating service, fell from a B- to a C++ with a negative outlook during its bond-market struggles, but that outlook was raised to stable recently, and North Coast is working to get the rating back into the B range, Ogden says.


North Coast currently has about 363,000 outstanding shares of preferred stock, which it sold in a 1993 offering, and about 612,000 shares of common stock, about 75 percent of which is owned by the Ogden family. Other directors and employees of the company also own some of that stock. Overall, the company has just under 200 common shareholders.


North Coast sought to begin building a public market for its preferred stock about 11 years ago when it applied for and was granted a listing on the Nasdaq computerized trading network. However, it was delisted from that network in June 2003 for failing to meet minimum listing requirements. Its stock currently is traded on the over-the-counter market.


North Coast occupies about 17,000 square feet of space on the second floor of the building on Riverside Avenue just west of downtown Spokane. It has a majority interest in a partnership that owns that building and the adjoining North Coast Plaza building.


Lauds shareholders


Of the dividend suspension on its preferred stock, Ogden says, Weve been very, very thankful of the support weve received from the shareholders, and for their patience during a protracted tough economy.


Along with the increases in the companys operating income, annuity business, and total assets, one of the most encouraging areas of progress has been a steady reduction in its outstanding financial reinsurance balance, Ogden says.


Like many insurers, North Coast has used what is called financial reinsurance as a risk-management tool. It basically is the transfer, or ceding, of insurance risk from one insurer to another to protect the reinsurance buyer from possible dramatic negative occurrences. In other words, for a price, the reinsurer agrees to provide coverage to another insurance company for all or part of the losses that the ceding company might incur for certain policies.


In North Coasts case, the company has been able to reduce its outstanding financial reinsurance balance from a high of about $4.8 million in 1992 to about $350,000 today by aggressively paying it down. The company expects to pay off the remaining balance this year.


That will be something to pop the champagne cork when that things paid off, because those reinsurance payments cut into the companys surplus funds, Ogden says.


North Coast ended last year with capital and surplus of $6.1 million, up from $5.7 million at the end of 2003 and about $5.3 million at the end of 2002. That figure is important because Washington state requires it to maintain at least $4.8 million in capital and surplus and California requires $5 million.


Another indicator that the company watchesand that has a strong influence on its A.M. Best ratingis its net capitalization, which is its capital and surplus plus its asset valuation reserve. The latter fund is used to protect it against bond defaults. North Coasts net capitalization was $6.4 million at the end of 2004, up from $5.2 million and $4.8 million at the end of 2003 and 2002, respectively.


North Coast had about $508 million worth of insurance in force at the end of last year, which is down from $592.4 million in 2000.


Wed like to grow the face amount of the company, and life insurance is really our key business, but premium is more a key component that weve been trying to build than face amount, he says.


The company had total life insurance premiums of just under $5.9 million last year, up from about $5.7 million in 2003.