Aetna Life and Casualty Company

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Aetna Life and Casualty Company

151 Farmington Avenue
Hartford, Connecticut 06156
(203) 273-0123
Fax: (203) 273-0079

Public Company
Incorporated: 1853 as Aetna Life Insurance Company
Employees: 45,500
Assets: $87.10 billion
Stock Exchanges: New York Pacific Basel Geneva Zürich

Aetna Life and Casualty Company markets a diverse array of insurance lines and financial services to individuals, public and private institutions, and corporations. Aetna is investor-ownedowned by its stockholdersrather than a mutual companyowned by its policyholders. It is the largest investor-owned insurance and financial-services company in the nation and, based on assets, is classed among the 15 largest U.S. corporations.

Aetna was founded in 1853 as the Aetna Life Insurance Company. In the mid-19th century, fire and then life insurance grew to fill the vacuum left by the reduced need for marine insurance as the shipping industry declined. Aetna Life was originally formed as an affiliate of the older Aetna Fire Insurance Company and profited from its association with Aetna Fires reputation for reliability and quickness in paying claims. However, a new state insurance regulation passed in New York in 1849 and strengthened in 1853 prohibited the same company from providing both fire and life insurance. In 1853, the Connecticut legislature granted a petition for the separate incorporation of the Aetna Life Insurance Company.

Aetna Lifes founding president, Eliphalet Bulkeley, originally divided his time between practicing law and developing the fledgling life insurance firm. He was also active in the formation of the Republican Party in Connecticut, starting a long tradition of political activism by Aetna leaders. Bulkeley guided Aetna through its difficult first years, when new insurance laws in some states required capital deposits beyond the stockholders resources, hindering Aetna from doing business in those states. The depression of 1857 further threatened the firms financial stability, but Aetna survived in the face of multiple bank closings. During this period the company regained its financial footing partly by hiring its first midwestern agent, a Connecticut man, who opened an office in Wisconsin to serve the burgeoning market in those states.

The year 1861 was significant for two reasons: the Civil War began and Aetna modified its form of ownership. Both events profitably affected Aetnas growth. Seeking security during the uncertain war years, many people bought life insurance policies for the first time. In addition, Aetna modified its form of investor ownership to permit policyholders to control their own funds in a separate mutual department that operated within the overall management structure. Originally, Bulkeley had resisted the mutual plan that placed ownership in the hands of policyholders; he disliked the speculative nature of dividend payment and could not countenance an approach to management that divided responsibility among all policyholders. Pressure from the public and from competing insurance companies helped change Bulkeleys mind. The result was the creation of a mutual department whose accounting system was separate from that of management; within this department, policyholders controlled their own funds and received dividends, but did not vote for the management of their interests in the company. The firm as a whole continued as an investor-owned company with all the efficiency of management Bulkeley believed was inherent in that arrangement. Partly due to this revision of the ownership structure, in just five years, from 1861 to 1866, Aetna jumped from 15th among 40 life insurance companies nationwide to 5th among 80.

Bulkeley died in 1872 and was succeeded by Thomas O. Enders, first clerk and later secretary of the firm. Bulkeley had presided over Aetna during the speculative postwar years, and had maintained careful control over the risks the company assumed. The 1870s were a period of national economic crisis, and Enders was hard-pressed to keep the firm alive, despite its earlier successes. Not only did Enders have to contend with a nationwide depression that began in 1873, but he also oversaw the disastrous results of a major change in premium payment made toward the end of Bulkeleys presidency. Until then, Aetna and most other insurance companies had accepted interest-bearing notes as half payment for premiums. In the wake of questions from the state insurance commissioner about the booking of these notes as assets and the negative press elicited by the commissioners reportAetna management decided to start requiring full cash payment for premiums. Although Aetna was innovative in this change and most other insurance companies soon began to follow the new practice, the firms policyholders were outraged. Many canceled their policies, and new policyholders were not forthcoming. In desperate straits following the policy change and weakened by the financial crisis of the 1870s, Aetna steadily declined. Enders resigned in 1879.

Aetna passed back into family hands when Morgan G. Bulkeley, Eliphalet Bulkeleys son, took over the firm and remained in that position for the next 43 years. Although Morgan Bulkeley had been a director on the Aetna board since his fathers death, he had chosen to apprentice as a dry goods merchant rather than rise through his fathers firm. His primary interest was in politics. He was active in the state Republican Party his father had helped form. By 1879, he had been a councilman and alderman and was successfully running for mayor of Hartford. He subsequently became governor of Connecticut and then a U.S. senator. Bulkeley maintained firm control over both his government office and his corporate office. While governor, Bulkeley loaned the state of Connecticut $300,000 from Aetnas funds during a period of financial need. In 1911, Bulkeley lost his senate seat and returned full-time to his position with Aetna.

Aetna did very well under the second Bulkeley. Its total assets increased from $25.6 million in 1879 to $207 million in 1922, while premium income increased more than twenty-fold during the same period. The number of employees grew from 29 to 2,000. Aetnas success was in large part due to innovations in forms of insurance. The first years of Bulkeleys presidency were spent getting the ailing company back on its feet, but in the 1890s Aetna made its first move to diversify, initiating a period of rapid expansion. In 1891, under its existing charter, Aetna began to write accident insurance, and in 1899 added health insurance. In 1893 its charter was expanded, allowing Aetna to pioneer in the development of liability insurance. In 1902 it opened a separate accident and liability department to handle employers liability and workmens collective insurance. Eager to profit from the rapidly growing market for automobile insurance, in 1907 Aetna management transformed the liability department into Aetna Lifes first affiliate, the Aetna Accident and Liability Company.

For a few years, this new company issued all the new forms of insurance Aetna offered, but soon further diversification was necessary. In 1912 Aetna offered the first comprehensive auto policy, providing all kinds of auto insurance in one contract, and in 1913 a second Aetna affiliate was formed, the Automobile Insurance Company. The charter of this second affiliate also allowed it to handle other insurance lines: loss of use, explosion, tornado and windstorm, leasehold, rent. In 1916 Aetna Auto began to offer marine insurance, a line that was greatly broadened during World War I. Meanwhile, the Aetna Accident and Liability Company was expanding its business in fidelity and surety bonds, and in 1917 changed its name to the Aetna Casualty and Surety Company.

When Bulkeley died in 1922, Morgan Bulkeley Brainard, grandson of the original Bulkeley, succeeded his uncle as president. Unlike his uncle, Brainard was a company man. Following college, law school, and two years in a law firm, he joined Aetna as assistant treasurer, later becoming treasurer and then vice president. According to Richard Hookers Aetna Life Insurance Company: Its First Hundred Years, A History, Brainard described his uncle as having built up an unusually strong organization by the sheer force of his personality. Brainard intended to initiate a new style of leadership. Where Governor Bulkeley could bring men around him and have them work for him by the inspiration of his presence, I cannot. I have got to surround myself with as able a group of men as I possibly can. Accordingly, Brainard focused on efficiency of administration, concentrating particularly on relations and communications with agents in the field. He streamlined procedures, regularized paperwork, and reduced the costs of doing business. The new approach worked. In 1922 life insurance in force was $1.3 billion. By 1929 assets amounted to $411 million and life insurance in force to $3.79 billion. In 1924, Aetna had also acquired a third affiliate, the Standard Fire Insurance Company, which further strengthened its position.

Such expansion, however, did not come without costs. The Automobile Insurance Company, one of Aetna Lifes affiliated companies, had contributed to the spectacular increases of the 1920s. In 1922 its premium income reached $11 million; in 1923, $19 million; and in 1924, premium income reached $30 million, but its success was not grounded in a solid financial base. In March 1926, Brainard discovered that Aetna Auto had understated its liabilities and taken on more business than it could handle. The marine division of the affiliate had expanded swiftly during the war years, but had exercised poor judgment in selection of risks, especially following World War I, when solicitation of marine business should have been curtailed. The Automobile Insurance Company had also gained new business by assuming risks from other companies. As his forebears had done in times of financial crisis, Brainard rapidly retrenched. He cut business drastically, resulting in premium income of just $7.9 million by 1927 for the auto affiliate. Reserves were increased to cover liabilities and future underwriting losses.

This crisis during the mid-1920s helped prepare Aetna for the economic shock of the Great Depression. Brainard had, in effect, stemmed the tide of speculation within Aetna while the rest of the country continued to speculate up to the stock market crash of 1929. As a result, during the worst years of the Depression, Aetnas income dropped by only a little more than 10%. Cautious management kept the company solvent. Dividends were not paid between 1932 and 1934, but no Aetna employees were dismissed. In 1929 only 11.7% of Aetnas assets were in common stock, and almost half of that in the stock of Aetna affiliates, another condition that helped Aetna survive during the 1930s. Although the company did suffer because it had assumed growing numbers of farm mortgages which defaulted during the Depression, Brainards careful business practices kept the losses to a minimum.

World War II finally helped pull Aetna and the nation out of the Depression. The war gave Aetna several opportunities to develop new types of insurance coverage. In cooperation with other insurers, Aetna issued a bonding contract for $312 million that insured the construction of seven aircraft carriers. Aetna was also involved in insuring the production of the atom bomb under the Manhattan Project, a uniquely challenging actuarial task since much of the information was classified. In addition, Aetna was centrally occupied with developing its lines of employee group insurance during these years. Ordinary life insurance premiums remained almost steady during World War II, but group insurance increased dramatically during the war years, increasing overall premium income by almost 65%. Group insurance premiums declined quickly after the war with the switch to a peacetime economy, but Aetnas prewar experience with group insurance helped it rally with relative ease.

In the postwar years, Aetna continued to diversify cautiously. It explored the possibilities of insurance coverage for air travel, became involved in several large bonding issues, and pioneered in the area of drivers education. In 1955, two years after Aetnas centennial, Brainard resigned. Vice president Henry Beers succeeded him as Aetnas fifth president. Brainards association with Aetna did not end, however, with his resignation; at that time, he became Aetnas first chairman.

With Beerss inauguration, the long history of family control ended and a new era of shorter presidencies began. In 1962 Beers became chairman and J. A. Hill took over as president. One year later Olcott D. Smith succeeded Beers as chairman. In 1972 John H. Filer succeeded Smith as chairman, and Donald M. Johnson was named president in 1970. In 1976, William O. Bailey succeeded Johnson. Through these years of fairly rapid changes in management, the position of chairman and chief executive officer gained ascendancy over that of president and chief operating officer.

In 1960, Aetna entered the international market with the purchase of Excelsior Life Insurance Company of Toronto. To facilitate flexible management of these expanding operations and allow diversification into noninsurance fields, Aetna Life and Casualty Company, a holding company, was created in 1967 with subsidiaries: Aetna Life Insurance Company, Aetna Casualty and Surety, Standard Fire Insurance, and the Automobile Insurance Company. Later that same year Aetna purchased the Participating Annuity Life Insurance Company, becoming the first major insurance firm to enter the variable-annuity market. In 1968 Aetna was first listed on the New York Stock Exchange.

In the late 1960s, Aetna experienced sharp drops in earnings, a trend that reflected an industrywide increase in claims. The decline was reversed in the early 1970s, partly due to nationwide decreases in losses and increases in premiums and partly due to Aetnas move to control costs and concentrate on the most profitable lines of insurance. However, rapid diversification into noninsurance fields later in the same decade seemed to undermine earlier gains. Particularly ill-fated acquisitions were Geosource Inc., an oil-field-services concern, and Satellite Business Systems, a communications firm.

In 1972 Chairman Smith initiated a management change that echoed Brainerds initiation of his new leadership style 50 years before. In place of administration by one man, Smith introduced the corporate office approach, a consensual relationship of the four top managerschairman, president, and two vice presidentswith the chairman still slightly dominant. Corporate structure was also reorganized.

In 1981 the company reorganized its operations into the current five insurance divisions. The employees benefits division offered group insurance, health-care services, and pension and related financial products to business, government units, associations, and welfare trusts. The personal-financial-security division provided automobile and homeowner insurance, life and health insurance, and retirement funding and annuity products to individuals, small businesses, and employer-sponsored groups. The commercial insurance division marketed property-casualty insurance and bonds for businesses, government units, and associations, including workers compensation. The American Re-Insurance Company reinsured commercial property and liability risks in domestic and international markets. The international insurance division handled insurance and investment products in non-U.S. markets. The activities of these five insurance sectors were supported by the operations of a financial division that managed all of the firms investment portfolios.

Income declined in the early 1980s. In 1981, hoping to lead industrywide price increases, Aetna raised commercial insurance prices, a mistimed move that cost it as much as 10% of its business. In addition, the company was forced to lower its 1982 statement of earnings by 39%, in response to a ruling by the Securities and Exchange Commission that disallowed Aetnas practice of booking future tax credits as current earnings.

In 1984, James T. Lynn became chairman and chief executive officer. Like his predecessors in the Bulkeley family, Lynn was active in Republican politics when he accepted the post with Aetna. Trained as a lawyer, he served as secretary of housing and urban development from 1973 to 1975, and as director of the Office of Management and Budget from 1975 to 1977. He implemented a policy of prudent retrenchment, selling subsidiaries that were not performing well and emphasizing Aetnas long-standing priority on insurance. As it had in the past, this policy again proved profitable for Aetna: earnings more than doubled from 1984 to 1985, with record increases in 1986 and 1987.

Ronald E. Compton became president in 1988. Earnings declined by 23% from the previous year, a downturn reflecting increased competition in commercial property-casualty business, rising loss costs in auto and homeowners insurance lines, and losses in international operations. In 1989 the decline continued at the rate of 5% from the previous year, with commercial property-casualty insurances lines affected by two natural disasters, Hurricane Hugo and the San Francisco Bay-area earthquake.

During its first century of existence, control of the company remained largely in the hands of the family of its founding president, Eliphalet A. Bulkeley. Known as a pioneer in new types of insurance, Aetna effectively managed innovations with prudent corporate management and rapid financial retrenchment in periods of decline. In more recent years, its leadership structure has changed and its business diversified into noninsurance fields, not always to the advantage of the company. Under Chairman James T. Lynn, Aetna had benefited from a renewed priority on insurance.

Principal Subsidiaries

Aetna Life Insurance Company; Aetna Life Insurance & Annuity Company; Aetna Casualty & Surety Company; American Re-Insurance Company; Aetna International, Inc.

Further Reading

Hooker, Richard, Aetna Life Insurance Company: Its First Hundred Years, A History, Hartford, Connecticut, Aetna Life Insurance Company, 1956.

Lynn M. Voskuil