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American General Corporation (AG) is one of the nation's largest insurance and financial services organizations, consisting of three business segments--retirement annuities, consumer finance, and life insurance. The life insurance division includes American General Life and Accident; focusing on the door-to-door sale and service of traditional life insurance products in the home, this division accounted for about 44 percent of the corporation's operating earnings in 1993. American General Finance and its subsidiaries--which together comprised about 31 percent of the corporations 1993 operating earnings--offer a wide range of consumer loans and other credit-related products and services through a national network of 1,200 branch offices. AG's retirement annuity segment is represented by The Variable Annuity Life Insurance Company (VALIC), which specializes in providing tax-deferred retirement plans for teachers and other employees of not-for-profit organizations and contributed about 25 percent of the company's operating earnings in 1993. Beginning in the 1980s, American General developed a reputation for buying other insurance companies--a practice unprecedented in the industry--and assimilating them profitably. This strategy of growth through acquisition became a corporate hallmark, and AG's assets quadrupled during the 1980s.
The history of AG may be traced to Gus Sessions Wortham, a native of Houston, Texas, who established the John L. Wortham & Son Agency insurance firm with his father early in the twentieth century. Gus was managing the agency when his father died in 1924, and, the following year, he formed his own business after the Commission of Appeals of Texas ruled that single insurance companies could combine lines of business, allowing multi-line underwriting of both fire and casualty insurance. With the backing of several business associates and the John L. Wortham & Son Agency, Gus formed one of the nation's first multi-line insurance companies on May 8, 1926: the American General Insurance Company. Operations began on June 7, 1926.
With the help of Wortham's experience and business instincts, AG earned an underwriting profit in its first year of operation. The company paid its first dividend on common stock during its third year, shortly before the stock market crash of 1929. Despite the effects of the Great Depression and numerous economic downturns in the ensuing decades, dividends were paid every year, without reduction or interruption, into the 1990s.
AG, like the city of Houston in general, saw tremendous growth through the 1930s. The company's capital and surplus topped the $1 million mark by 1936; three years later, the company was licensed to operate in nine states, including Texas, and had assets of nearly $2.2 million. In 1939, AG established its first subsidiary, The American General Investment Corporation, which was the company's first foray beyond fire and casualty insurance. The American General Investment Corporation eventually expanded its original offerings--financing for automobiles and real estate projects--to become a main link in the company's mortgage and real estate business segment. In 1945, AG made its first acquisition, implementing the growth strategy for which it would later become unique in the industry. The acquired company, Seaboard Life Insurance Company, was a successful Houston-based life and health insurer that predated AG by one year.
In 1953, AG hired Benjamin N. Woodson away from the National Association of Life Underwriters, where he was managing director. At AG, Woodson focused on expansion into the national market, using his extensive business contacts to find and acquire other companies. The company's emphasis during the 1960s was on expanding its life and health insurance segment. Toward that end, AG purchased life insurance companies in Nebraska, Hawaii, Oklahoma, Pennsylvania, and Houston, as well as a fire and casualty company in Marshall, Texas.
A milestone was reached in 1964 when AG purchased the Maryland Casualty Company, a Baltimore-based property and liability company dating to 1898. Through this acquisition, long a goal of Gus Wortham, AG doubled its size and became a major property and casualty insurer in all 50 United States as well as in Canada. Moreover, construction of a new 24-story AG headquarters building was begun one mile west of downtown Houston, on the banks of Buffalo Bayou. The corporation moved in 1965, and this location would include 36 acres and five office buildings by 1990.
The New York life insurance market became AG's next territory, with the acquisition of Patriot Life Insurance Company in 1966. The following year, the Variable Annuity Life Insurance Company (VALIC) attracted AG's interest. VALIC was noted for innovations in sales of tax-deferred annuities to the employees of nonprofit organizations. AG acquired majority stock in VALIC by 1975, and VALIC eventually became a wholly owned subsidiary. At the end of 1968, AG surpassed $1 billion in assets when it acquired a 65-year-old regional insurer, the Life and Casualty Insurance Company of Tennessee. That year, AG bought one-third of California-Western States Life Insurance Company (Cal-West), increasing its share to 63 percent over the next few years. Cal-West was a large but struggling company, and a new, dynamic 38-year-old president and CEO was striving to achieve a turnaround in the company's fortunes.
AG showed increasing interest in the man who was engineering Cal-West's rebound: Harold Swanson Hook. Hook had been raised on his family's dairy farm outside of Kansas City, Missouri, and, upon graduating from the University of Missouri, he was hired as an assistant to the president of National Fidelity of Kansas. Within five years, the 31-year-old Hook made industry history as the youngest insurance company president in the nation. Hook later served as president of U.S. Life Insurance in New York, and he became known for his successful development of management programs. His success in bringing Cal-West back to profitability drew notice from AG, and he was hired by AG in 1975 as president, overseeing the network of acquisitions made by Woodson. Hook became chairman and CEO when Woodson retired in 1978.
Emphasizing the importance of size to a company's success in the insurance industry, Hook focused on acquisition as the most efficient policy in a growth strategy. As he told Business Week in 1983, 'our competitive advantage is our ability to acquire, integrate and control complex operations.' To this end, Hook applied his theories of management in a system taught to more than 80 percent of AG's employees, usually by graduates of Hook's Main Event Management Corporation in Sacramento, California. Hook contended that this implementation of a uniform philosophy and language accounted for AG's remarkable record with regard to acquisition, assimilation, and management. The company successfully integrated more than 20 companies during the 1980s, and the company's name was changed to American General Corporation to reflect its wider concerns.
Between 1982 and 1984, the corporation doubled in size, launching what it called 'the most aggressive acquisition program' in insurance industry history. In 1982, under this program, AG made the largest single life insurance company acquisition in history, with the purchase of NLT Corporation. NLT was the parent company of the National Life and Accident Insurance Company of Nashville, Tennessee. When AG failed to receive approval from the state of Tennessee to purchase the ten percent stock maximum, AG offered a stock swap. However, NLT refused and, in turn, made a bid for AG. AG rejected the bid and filed suit to stop the takeover proceeding, announcing what was dubbed the 'godfather offer' in that it was difficult to refuse: a $46 per share merger proposal. This $1.5 billion, two-step merger was completed in late 1982. In response to initial concerns over the new company's debt load, Hook shaved NLT staff by one-third and divested overlapping and irrelevant subsidiaries, increasing cash flow more than $50 million. NLT was reportedly 70 percent absorbed within six months of the purchase.
That year, AG also acquired Credithrift Financial of Indiana, entering into the consumer credit business, which was later bolstered by the addition of General Finance Corporation. Another important acquisition during this time included the insurance properties of Gulf United Corporation, purchased for $1.2 billion.
In 1988, AG's consumer finance operations were doubled by the acquisition of the consumer finance division of Manufacturers Hanover. In order to rid the firm of its most cyclical units and concentrate on the faster-growing operations, AG shed its property-liability insurance business, as well as its group life and health insurance operations. On May 26, 1989, AG sold its property liability segment to Zurich Insurance Company--a multi-line, Swiss-based insurer--for $740 million. An agreement for the sale of AG's group insurance operations to Associated Insurance Companies for total consideration of up to $195 million, including $175 million in cash, was announced on September 21, 1989.
AG was the subject of a takeover bid in April 1990, when the Torchmark Corporation offered $6.3 billion to acquire AG. The bid was withdrawn within days, after receiving a chilly reception, and Torchmark then undertook a proxy battle to win five seats on AG's 15-member board. Once again, AG rebuffed Torchmark, but its slim 60 percent victory persuaded the American General board to take action. At the May 2, 1990 annual meeting, Hook announced that AG was putting itself up for sale, and that he expected the company to fetch more than $7 billion. The board's decision to put AG on the block was made, according to Hook, because 'we recognized that ... we were in play. We wanted to be in control of the process.' Hook also noted that if an acceptable offer was not received in several months, the company was prepared to dismantle and sell its subsidiaries.
AG's stock soared during the proxy battle, but by the time Hook took the corporation off the auction block late in 1990, its price had plummeted to a six-year low. Hook agreed to sell portions of the company in September but rejected Torchmark's $3.6 billion bid for the home-service (door-to-door) life insurance as too low. During this time, Hook kept AG's options open, while continuing to streamline operations and expand through acquisitions. Divesting its real estate segment, AG acquired New Jersey Life Insurance Co.'s 28,000 policies worth $3 billion in 1993. Another aspect of American General's retrenchment involved a long-term stock buyback: from 1987 through 1992, the company invested over $1.5 billion to repurchase about 29 percent of its outstanding shares.
After having its home service insurance operations up for sale for nearly three years, AG announced its decision to remain in that segment of the business and expand those operations through acquisitions. AG consolidated this division in Nashville, Tennessee, reducing workforce by over 25 percent, automating many processes, and overhauling the organizational structure, which had been in place since the subsidiary was founded.
In the mid-1990s, AG referred to itself as 'a company for all years,' a designation based, in part, on its consistent stockholder returns and overall financial stability. In 1993, the company's ratings for both debt-paying and claims-paying ability were among the strongest in the industry. The company provided financial services to over six million households in all 50 United States, Puerto Rico, the Virgin Islands, and Canada. Moreover, AG lead its principal markets, ranking as the largest provider of voluntary savings plans to employees in public education; one of the largest consumer finance branch office networks, serving over two million customers; and selling more life insurance policies than any other shareholder-owned life insurance organization in the United States.
Principal Subsidiaries: AGC Life Insurance Co.; The Variable Annuity Life Insurance Co.; American General Finance, Inc.; American General Investment Corp.; Financial Life Assurance Co. of Canada; Knickerbocker Corp.; Lincoln American Corp.
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