American General Corporation - Company Profile, Information, Business Description, History, Background Information on American General Corporation

2929 Allen Parkway
Houston, Texas 77019
U.S.A.

Company Perspectives:

American General is dedicated to enriching the communities where we live and work. We mobilize our resources, time, and talents to improve the quality of life for our communities through a focused involvement in education advancement, health and human service, cultural enrichment, and character development.

History of American General Corporation

American General Corporation (AG) is one of the nation's largest insurance and financial services organizations. The company is the second-largest issuer of life insurance in the United States. It operates a substantial business in retirement planning, designing group retirement plans and also managing annuities. It ranks as the third-largest writer of annuities and number one in issuing fixed annuities in the nation. Through its financial services division, AG runs one of the country's largest networks of consumer lending branches. It provides a variety of loans, from consumer loans to home mortgages. American General also manages investments for institutions and for individuals. 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. After continuing its acquisition spree in the 1990s, AG was itself bought up in 2001 by American International Group, Inc. (AIG). AIG is a U.S.-based international insurer, operating in approximately 130 countries.

Roots in the Early 20th Century

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.

Postwar Acquisitions

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 eventually included 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.

Doubling in Size in the 1980s

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 what was the largest single life insurance company acquisition in history at the time, with its 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 its workforce by over 25 percent, automating many processes, and overhauling the organizational structure, which had been in place since the subsidiary was founded.

More Growth and a Sale in the Late 1990s

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 states, Puerto Rico, the Virgin Islands, and Canada. Moreover, AG led 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 the seller of more life insurance policies than any other shareholder-owned life insurance organization in the United States. But the company was not content to settle at its current size. By 1994, AG's market capitalization had grown to $5.7 billion, and CEO Hook told investors he would double that by the year 2000. The company's acquisition strategy continued even as Hook stepped aside and Robert Devlin became CEO in 1996. Devlin added ten new people to the top rank of management, and then kept on much as his predecessor had. Between 1994 and 1997, the company made five acquisitions, spending over $3 billion. It bought up Franklin Life for $1.2 billion in 1995. That company, based in Springfield, Illinois, had a substantial business in upper-income life insurance. Later that year AG paid out some $362 million for the Independent Insurance Group, based in Jacksonville, Florida. It also picked up Home Beneficial, an insurer based in Richmond, Virginia, in 1996 for $665 million. In another major deal, AG spent $1.8 billion for USLife Corp. in 1997, another insurer with a major market share in life insurance for wealthier clients. With this acquisition finalized, AG became the third largest life insurer in the United States, calculated in terms of number of policies sold. AG had bought 40 percent of Western National Life Insurance in 1994. In 1997, the company acquired the remaining portion of that company. This deal vaulted AG to the number three spot nationwide as a writer of individual annuities. In spite of the rapid pace of acquisitions, AG was able to assimilate its new purchases and save operating costs by cutting redundant units. The new companies it acquired in the mid-1990s also changed the tenor of the company somewhat. AG had long profited from insurance sold the old-fashioned way, door-to-door. With its new acquisitions, a higher percentage of its sales came through other distribution channels--for example, from banks. Working through banks and independent insurance agents was on the whole less costly for the company than paying its own door-to-door sales people.

Another change for AG in the late 1990s was its first foray into the Mexican market. The company had previously operated in Canada and in Puerto Rico and the Virgin Islands. In 1997, AG bought a 40 percent stake in a joint venture with a Mexican financial services company to administer public and private pensions in that country. Its domestic pension and retirement planning subsidiary, Valic, meanwhile continued to prosper. Between 1994 and 1997, Valic approximately doubled its sales, bringing them to $1.7 billion in 1997. It was the leading company in the overall education market and held the number two spot for pension and retirement planning in the higher education market. Valic also held the number three spot in the health care market.

American General had a banner year in 2000. Operating earnings rose 13 percent, and AG's assets under management rose about six percent to $114 billion. The company performed strongly in all its divisions. The company soon found itself, as it did ten years earlier, the object of a complex takeover. In early 2001, AG received a bid from the large British insurer Prudential PLC. AG's board voted to accept the offer in March, but the deal was soon quashed when AG received a bigger offer from another company, American International Group. AIG, based in New York, had a large overseas insurance business, though it was far less known in its home country. AIG listed its stock in London, Paris, Tokyo, and on the Swiss Exchange, as well as in New York, and it operated in 130 countries worldwide in a wide variety of financial services fields. Among its many business lines, the company leased airplanes, invested in real estate, handled retirement plans, and engaged in consumer finance. AG agreed to pay $600 million to Prudential to get out of its previous agreement and cemented the merger with AIG in August 2001. AG folded many of its operations into its new parent's. The alliance of the two companies gave AIG a much bigger slice of the North American market, while AG hoped to benefit from AIG's expertise abroad.

Principal Divisions: Life Insurance; Retirement Services; Consumer Finance.

Principal Subsidiaries: Variable Annuity Life Insurance Co.; American General Finance, Inc.

Principal Competitors: Prudential Financial; John Hancock Financial Services Inc.; CUNA Mutual Life Insurance Co.

Chronology

  • Key Dates:
  • 1926: The company begins operating.
  • 1945: Seaboard Life Insurance is acquired.
  • 1964: The company doubles its size by purchasing Maryland Casualty.
  • 1988: The consumer finance division of Manufacturers Hanover is acquired.
  • 1990: The company thwarts a takeover bid by Torchmark.
  • 2001: The company is acquired by AIG.

Additional Details

  • Wholly-Owned Subsidiary of American International Group, Inc.
  • Incorporated: 1926 as American General Insurance Company
  • Employees: 7,500
  • Total Assets: $11 billion
  • NAIC: 524113 Direct Life Insurance Carriers; 524292 Third Party Administration of Insurance and Pension Funds; 522291 Consumer Lending

Further Reference

  • American General Corporation: History 1926-1986, Houston: American General Corporation, 1986.
  • Byrne, Harlan S., "American General," Barron's, December 21, 1992, pp. 39-40.
  • ------, "Winning Policies," Barron's, December 15, 1997, p. 23.
  • Connolly, Jim, "Amer. Gen'l to Buy Other 55% of Western Nat'l," National Underwriter, September 22, 1997, p. 61.
  • ------, "American General's Buying Spree Continues Apace," National Underwriter, December 12, 1994, p. 23.
  • Friedman, Amy S., "American General Makes Entry into Mexican Pension Mkt," National Underwriter, November 17, 1997, p. 49.
  • Ivey, Mark, "Harold Hook: A Hunter Who Feels Hunted," Business Week, April 22, 1991, pp. 92, 94.
  • Niedzielski, Joe, "American General Will Acquire Home Beneficial," National Underwriter, January 6, 1997, p. 49.
  • ------, "Am. General's Independent Deal Affirms Strategy," National Underwriter, October 30, 1995, p. 4.
  • Panko, Ron, "Four Companies, Four Strategies," Best's Review, February 1998, pp. 37-39.
  • Schmitt, Frederick, "Amer. General to Buy USLife for $1.8 Billion," National Underwriter, February 17, 1997, pp. 1, 62.
  • Thomas, Trevor, "AIG Closes American General Acquisition," National Underwriter, September 3, 2001, p. 49.
  • ------, "Winning American General Makes AIG Major Player in U.S. Life Industry," National Underwriter, May 21, 2001, p. 48.

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