American Financial Corporation
American Financial Corporation
Public Company With Privately Held Common Stock
Incorporated: 1955 as Henthy Realty Company
Assets: $11.97 billion
Stock Exchanges: Cincinnati Pacific
American Financial Corporation is a diversified holding company with 53% of its assets in property and casualty insurance, life insurance, and tax sheltered annuity programs. Other subsidiaries include a savings and loan association, food products, television and radio operations, film/video production, petroleum marketing and crude oil production, and portfolio investment, as well as two theme parks and a sports center located in Cincinnati, Ohio.
American Financial Corporation’s principal founders were chairman and president, Carl H. Lindner, and his younger brothers, Robert D. and Richard E. The Lindner family, born and raised in Ohio, started in business without benefit of a formal education, family connection, or family money. Carl Henry Lindner, born April 22, 1919, and his brothers left high school before graduating to help with the family’s small dairy business. The business finally succeeded in the 1940s under Carl Lindner’s leadership, with an entrepreneurial concept credited to their father. The Lindners’ United Dairy Farmers outlets, stores where purchasers could save on the cost of milk by direct purchase instead of home delivery, were spread through the Cincinnati area. While United Dairy is still in operation under the direction of Robert Lindner, primary owner and manager, the success spurred the Lindner brothers into further business ventures.
On November 15, 1955, Henthy Realty Company was incorporated in Ohio by the Lindners. By 1959, the company owned three small savings and loan associations in Ohio and recorded assets of $17.7 million.
In September 1960, the company adopted its present name, American Financial Corporation (AFC). Through its subsidiaries, this financial holding company owned office buildings in Cincinnati, Norwood, and Loveland, Ohio; leased motor vehicles; and developed commercial properties.
In 1962 American Financial Corporation obtained property and casualty insurance business with the acquisition of Dempsey & Siders Agency. In 1963 AFC undertook life insurance business by acquiring United Liberty Life. The same year AFC acquired 98% of the outstanding shares of Athens National Bank in Ohio. The stock purchase totaled $2.3 million in cash and assumption of seller debt.
During the 1960s, American Financial Corporation acquired large stock positions in a number of companies, including the Insurance Company of North America, Chubb & Son, and Ohio Casualty. From 1968 to 1972, AFC pursued several companies, acquiring or gaining control of 16 concerns and their subsidiaries, 7 of which were insurance related.
AFC remained active in the financial arena, and in 1966 sold its interest in Athens National Bank before acquiring a 92% share of The Provident Bank in Ohio. According to Barron’s, July 4, 1988, the management of Provident Bank resisted the takeover bid. AFC triumphed and its assets increased to nearly $350 million.
In February 1971, AFC pursued a new venture—The Cincinnati Enquirer. AFC acquired 95.5% of the daily newspaper, beating out such competitors as the Knight-Ridder chain and Omaha investor Warren Buffett. At the close of 1971, AFC’s stockholders numbered more than 14,000, and its assets stood at over $538 million.
By late 1973 AFC had amassed approximately 96% of common stock and 85% of the warrants and had gained financial control of a West Coast conglomerate, National General Corporation. The merger was completed in March 1974.
National General Corporation, incorporated in Delaware in 1952 as National Theatres, Inc., was involved in the operation of motion picture theatres in the United States and abroad, motion picture production and distribution, and cable and closed-circuit television, but 70% of National General Corporation’s (NGC) assets were in insurance and publishing.
NGC’s holdings included the publishers Grosset & Dunlap, Inc., and Bantam Books, Inc.; the Great American Life Insurance Company of East Orange, New Jersey, procured in 1968; and its parent sponsor, the Great American Insurance Company.
Great American Life Insurance Company (GALIC) was originally domiciled in East Orange, New Jersey. The company was sponsored by Great American Insurance Company, and initial resources were generated by the purchase of 100,000 shares of common stock. GALIC was incorporated and licensed in 1959. In 1962, GALIC sold an additional 100,000 shares of common stock to its sponsor for nearly $1.3 million. At that time, GALIC, licensed in all states except Kansas and New York, wrote nonparticipating life insurance, accident, and health insurance.
The Great American Insurance Company (GAIC) was incorporated in New York on March 6, 1872, and began business in New York City the following day with $1 million in authorized capital. The company remained at this status until 1903, when it received additional capital of $500,000 and was paid surplus funds of over $913,000. Eight years later, in May 1911, The Rochester German Insurance Company, located in Rochester, New York, merged with GAIC.
Starting in 1918, Great American Insurance Company began steadily to increase its capital from the $2 million gained in 1911 from the merger. GAIC created a holding company in 1929, which was dissolved in 1953. The increases in capital were facilitated by the trading of shares in a number of other insurance companies, including the Detroit Fire & Marine Insurance Company, the American Alliance Company, Great American Indemnity Company, and the Rochester American Insurance Company.
In May 1948, GAIC’s corporate structure was simplified. Its wholly owned subsidiary, County Fire Insurance Company, in Philadelphia, was dissolved, the outstanding capital stock cancelled, and its assets and liabilities transferred to GAIC. In 1953 the group was simplified further by dissolution of the affiliate, Great American Corporation, and a merger with the affiliate, American Alliance Insurance Company.
First Insurance Company of Hawaii was acquired by GAIC in 1963. Another acquisition, that of Constellation Insurance Company, renamed in 1975 Constellation Reinsurance Company, was completed two years later. By 1966, GAIC’s assets had grown to $15.6 million.
In 1967 control of Great American Insurance Company was taken by the newly formed Great American Holding Corporation. The following year this holding company became a subsidiary of National General Corporation and then was merged with that organization less than four months later. The administrative offices of Great American Insurance Company were moved to the National General Corporation’s headquarters in Los Angeles, California, in 1970.
The offices were again moved after the merger of National General Corporation and American Financial Corporation, this time to Cincinnati, Ohio, AFC’s headquarters. AFC had already gained control of GAIC in December 1971. AFC’s 1974 merger with National General Corporation gave AFC direct ownership and all outstanding capital stock in GAIC, whose assets totaled $566 million. According to Barron’s, July 4, 1988, “What attracted [Carl] Lindner to the company [National General Corporation] was its giant property and casualty operation, Great American Insurance Co....”
With the NGC merger and the acquisition of Great American Insurance Company and GALIC, AFC’s assets escalated to over $2 billion. The merger also launched American Financial Corporation as one of the country’s major international insurance concerns.
Great American Insurance Company and its subsidiaries were licensed to write and were writing practically all forms of insurance in every state and territory, as well as in Canada and in other countries. There were approximately 5,600 agents and brokers representing the company worldwide, with regional offices in 18 U.S. cities.
While Carl Lindner remained in active control as chairman, GAIC administration was directed by Stanley R. Zax, president since December 1973. GALIC was led by Jovite LaBonte, who had been appointed president and director in 1972.
Under LaBonte’s direction, GALIC stopped writing group life coverage and individual and group accident and health policies in 1974. The company’s business—produced through managing general agents, agents, and brokers—included non-participating ordinary life and term contracts. In 1975, GALIC introduced a new product line—tax sheltered and single-premium annuity contracts. By 1980 these contracts produced 97% of all premium income.
Although the property and casualty insurance industry experienced some difficulty at the time of NGC’s merger, AFC had now moved decisively into the insurance industry. The National Underwriter, October 24, 1975, reported that, according to Charles Keating, who was AFC’s executive vice-president from 1973 to 1977, “... the management of AF[C] has been intentionally evolving toward the insurance business ever since it was formed....” An estimated 60% of AFC’s revenues in 1975 were being generated from property and casualty insurance, mostly from Great American Insurance Company.
The stock market collapse in 1973-1974 lessened the values AFC was able to realize from the sale of Bantam Books, Grosset & Dunlap, and the various theatre units gained from the NGC merger. Inflation caused insurance claims and expenses to soar above premium income. Housing starts plummeted during the 1974-1975 recession. The merger was costly—more than $500 million in cash, security, and debt assumption.
By early 1975, American Financial Corporation was facing a serious crisis—the maturity of an $85 million debt issue without cash or bank lines for payment. This situation existed in spite of the fact that, at the close of 1974, GAIC’s new premiums written exceeded $387 million and consolidated policyholders’ surplus funds totaled $112 million. To cover the debt, AFC sold several small insurance operations. American Empire Insurance Company and Constellation Reinsurance Company were sold to and absorbed by Great American Insurance Company. AFC also sold The Cincinnati Enquirer, the price in excess of $50 million providing a $10.6 million profit for AFC. In addition, GAIC increased premiums for commercial lines and shortened auto policies to six months. AFC was soon back on solid ground.
AFC’s insurance divisions underwent considerable structural change in 1976. AFC sold its 68% interest in United Liberty Life Insurance Company to GAIC for consolidation purposes. Great American Insurance Company in Cincinnati was incorporated as the result of the merger of Great American Insurance Company in New York with American Continental Insurance Company of Ohio. The latter had been incorporated in October 1942, as Manufacturers & Merchants Indemnity Company, and had undergone several name changes: to Selective Insurance Company in 1956, to American-Financial Insurance Company, and then American Continental Insurance Company in 1972. In October 1976, all AFC’s insurance operations were consolidated under Great American Insurance Company.
At the close of 1976, GAIC had 4,320 employees and had written $578 million in net premiums. Its subsidiaries included Agricultural Insurance Company, American National Fire Insurance Company, Great American Life Insurance Company, Republic Indemnity Company of America, American Alliance Insurance Company, Fidelity National Life Insurance Company, American Insurance Agency, American Financial Insurance Group, and the Constellation Reinsurance Company. In 1977, the latter was reorganized and sold.
From 1977 to 1979 AFC and GAIC pursued a number of stock and acquisition interests. In 1977 AFC purchased the Stonewall Insurance Company, which included two property-casualty insurance and two life-health subsidiary companies. GAIC purchased the outstanding stock in these enterprises, but later sold the two life insurance divisions.
In 1978 GAIC acquired K.C.C. Holding Company and purchased all outstanding stock in American Continental Insurance Company and its two affiliate insurance companies. In late 1979, the outstanding capital stock was acquired in Transport Management Company in Dallas.
Ronald F. Walker, GAIC’s executive vice president since 1972, took over its presidency in 1980. During Walker’s first year in office, Great American Insurance Company sold two of its life insurance subsidiaries to Great American Life Insurance Company: United Liberty Life Insurance Company and FN Life Insurance Company. The latter was absorbed by GALIC, now located in Ohio, by a merger in 1982. Carl Lindner continued to serve actively as chairman and CEO.
In 1981, Lindner made the company private. He and his immediate family owned nearly 90% of AFC and the majority of its subsidiaries, including Great American Insurance Company and Great American Life Insurance Company.
Lindner had long established a reputation for insurance company acquisitions. During the 1980s AFC made major stock purchases in Mission Insurance Company (MIC), a property-casualty insurance concern in California, which concentrated on workers’ compensation insurance. The insurance industry was beginning to emerge from the past decade’s recession years, and by early 1984 Lindner had acquired a 49.9% interest in the MIC group.
Mission Insurance Company’s financial troubles soon came to light—a situation blamed on poor underwriting and the company’s reinsurance business. Final reports in 1983 showed a loss of $37.3 million. Stock plunged from 41 to 6⅜ a loss of $198 million was recorded in 1984, leaving a net worth of $43 million to support the $400 million of premiums in force.
In March 1985, AFC initiated a recapitalization program for MIC. Shares of the Transport Indemnity Company, a trucking insurance company acquired by GAIC in 1981 that had been losing money, were added to MIC’s capital and surplus.
AFC’s efforts did not solve the failing concern’s problem. In October 1985, the California Insurance Commissioner declared MIC insolvent and placed it under conservatorship. For the first nine months of the year, AFC was $31 million in the red. According to Barron’s, July 4, 1988, “Lindner’s American Financial took a loss of $162 million, writing off the entire value of its stock interest and Mission loans.”
During AFC’s harried involvement with MIC, Great American Insurance Company, then ranked number 24 among casualty insurers, was operating as the company’s core insurance operation and generating enormous cash revenues. In mid-1984, about the same time MIC’s flaws had surfaced, GAIC implemented significant price increases.
By 1986, the property and casualty insurance industry had rebounded from its crisis era. AFC added several new product lines including life. Great American Life Insurance Company’s activity had by then become focused predominantly on individual tax-sheltered annuities, which accounted for almost all premium income in 1986.
American Financial Corporation’s annual report for 1987 showed that property and casualty insurance represented 27% of its revenues, with life insurance and annuities at 8%. While ranked as the second-largest contributor of revenues, property and casualty insurance was AFC’s highest source of assets, with life insurance and annuities second at 26% and 21%, respectively. That year, Great American Insurance Company showed net earnings of $200 million. The years 1988 and 1989 saw slightly smaller net earnings of $188 and $102 million, respectively.
Nearly all of the 1987 premiums of AFC’s annuity and life insurance business were related to annuities, sold primarily to teachers. These annuity premiums increased 26% from 1985 to 1986, and decreased by 11% from 1986 to 1987. The decline was attributed to a reduced demand for IRAs due to new tax regulations.
Since 1959, American Financial Corporation, with Carl Lindner always at the helm, has grown from a small company with $17.7 million in assets and 50 employees, to a conglomerate with 53,000 employees and $12 billion in assets. American Financial’s primary insurance business in 1990 was in multi-line property and casualty insurance, headed by its wholly owned subsidiary, Great American Insurance Company. Continually evolving to capture long-term success, in 1989 the company introduced a new group of specialty product lines, including animal mortality and a broad range of individually tailored insurance programs. In January 1989, GALIC stopped writing additional life insurance policies. Great American Life Insurance Company’s business remains almost exclusively in tax-sheltered annuities.
Great American Insurance Company; Great American Life Insurance Company; Hunter Savings Association; Chiquita Brands International, Inc. (81%); Great American Communications Company (65%); Hanna-Barbera Productions, Inc.; The Charter Company (51%); American Money Management Corporation; Kings Island Company; The Penn Central Corporation (34%); Sprague Technologies, Inc. (32%); Spelling Entertainment Inc. (45%); The Circle K Corporation (15%).
“Carl Lindner Wields His Clout in the Boardroom,” Business Week, July 2, 1984; Norris, Floyd, “Rescue Mission: Saving Carl Lindner’s Ailing Insurer Won’t Be Easy,” Barron’s, October 14, 1985.