American General Corporation

views updated

American General Corporation

2929 Allen Parkway
Houston, Texas 77019
U.S.A.
(713)522-1111
Fax: (713) 831-1980

Public Company
Incorporated: 1926 as American General Insurance Company
Employees: 13,205
Assets: $32.06 billion
Stock Exchanges: New York Pacific London Zürich Basel Geneva Lausanne

Founded in 1926 as a fire and casualty insurance business, American General Corporation is one of the nation’s largest insurance and financial-services organizations. Divided into three business segments—home service insurance, special markets insurance, and finance and real estate—more than half its earnings still come from traditional door-to-door insurance sales. During the 1980s, American General (AG) developed a reputation for buying other insurance companies— a practice unprecedented in the industry—and assimilating them profitably. This strategy of growth through acquisition has become a trademark. Since 1980, AG’s size has tripled.

Gus Sessions Wortham, a native of Houston, Texas, first worked in the insurance firm he and his father had founded, John L. Wortham & Son Agency. Gus Wortham was managing the agency when his father died in 1924, and the next year Wortham 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. Thus, with the backing of several business associates and the John L. Wortham & Son Agency, Gus Wortham 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 Gus Wortham’s experience and business instincts, AG earned an underwriting profit in its first year in operation. It paid its first dividend on common stock in its third year, shortly before the stock market crash of 1929. Dividends have been paid every year since, without reduction or interruption.

AG, like the city of Houston itself, saw tremendous growth through the 1930s. The company’s capital and surplus exceeded the $1 million mark by 1936; three years later, AG was licensed to operate in nine states, including Texas, and had assets of nearly $2.2 million. In the same year, 1939, AG’s first subsidiary was established, The American General Investment Corporation. This 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 AG’s mortgage and real estate business segment.

In 1945 AG made its first acquisition, implementing a 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, a healthy and thriving AG hired Benjamin N. Woodson away from the National Association of Life Underwriters, where he was managing director. AG hired Wood-son, an industry leader who came with extensive contacts, specifically with an eye toward expanding into the national market. Those contacts were quickly put to use finding and acquiring other companies. Known as “Woody,” AG’s future president oversaw enormous expansion from the time of his hiring to his retirement as chairman and CEO in 1978.

In the decade that followed the addition of Woodson to the AG team, the company’s emphasis 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, Maryland-based property and liability company dating to 1898. In one move, AG doubled its size and became a major property and casualty insurer. This single purchase, long a goal of Gus Wortham’s, made AG a presence in every state, as well as in Canada. Thus, AG became a major player in the national property and liability markets very quickly.

In the meantime, a new 24-story home was being built for AG one mile west of downtown Houston, on the banks of Buffalo Bayou. The corporation moved in 1965, and this location expanded to 36 acres and 5 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. In 1967, 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 it later 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 same year, AG bought one-third of California-Western States Life Insurance Company (Cal-West). Cal-West was large but ailing. In 1970 Cal-West hired a new, dynamic 38-year-old president and CEO, with hopes of achieving a turnaround. By 1973 AG owned 63% of Cal-West, but was showing yet more interest in the man who was engineering that company’s rebound: Harold Swanson Hook.

When Hook was hired by Cal-West, he had already served as president of two life insurance companies and had developed two very successful management programs. Hook had been raised on his family’s dairy farm outside of Kansas City, Missouri, and was hired immediately after graduating from the University of Missouri, as an assistant to the president of National Fidelity of Kansas. Within five years, Hook made industry history as the youngest insurance company president in the nation. He was then 31. Later, Hook became president of the U.S. Life Insurance, a subsidiary of USLIFE, in New York. Still climbing, Hook moved to Cal-West in Sacramento, California, where he stopped losses and built earnings back up. By 1975, Hook had joined AG and set about the task of managing what Woodson had purchased.

Harold Hook was elected the third president of AG in 1975. He became chairman and CEO when Woodson retired in 1978. Hook philosophized that size equals survival in the insurance industry, stating that acquisition is the only efficient way to grow. As he told Business Week, May 9, 1983, “our competitive advantage is our ability to acquire, integrate and control complex operations.” To achieve this, Hook has applied his theories of management in a system he devised. Hook’s management theories are taught to more than 80% of AG’s employees, usually by graduates of Hook’s Sacramento, California, school, Main Event Management Corporation. Hook contends that this implementation of a uniform philosophy and language accounts for AG’s remarkable record with regard to assimilation and management. To date, it has successfully integrated more than 20 companies.

Since Hook became president, the corporation has tripled its size. Cal-West was acquired in 1975; VALIC in 1977. AG concentrated on acquisition-expansion in the state of New York and developed a long-term business strategy that has helped it to focus its energies and shed companies outside its business interests. In 1980, American General Insurance Company became American General Corporation. With the name change, it became a general business corporation.

Between 1982 and 1984, the corporation doubled its size. In 1982, AG attracted attention when it launched what AG itself called “the most aggressive acquisition program” in insurance-industry history—a strategy that has since become its trademark. 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. AG needed the state of Tennessee’s approval to pass the 10% stock maximum and was declined. The company then offered a stock swap, which NLT refused. NLT in turn made a bid for AG. AG rejected the bid and filed suit to stop the takeover proceeding, then announced what was dubbed the “godfather offer:” a $46-a-share merger proposal. This $1.5 billion, two-step merger was completed in late 1982. There were initial concerns about debt, but Hook shaved NLT staff by one-third and divested overlapping and irrelevant subsidiaries, increasing cash flow more than $50 million. It was reported that NLT was 70% absorbed within six months of the purchase.

That same year, AG acquired Credithrift Financial of Indiana and thus stepped into the consumer-credit business, later expanded further by the addition of General Finance Corporation. AG then ran a close second to its own life insurance acquisition record when it purchased, for $1.2 billion, Gulf United Corporation’s insurance properties.

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, concentrating then 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 “Zürich” 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 itself was the subject of a takeover bid in April 1990, when the much-smaller Torchmark Corporation offered $6.3 billion to acquire AG. The bid was withdrawn within days, after receiving a chilly reception. 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% victory persuaded the American General board to take action. At the May 2, 1990, annual meeting Hook announced that American General 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 said that if an acceptable offer was not received in several months, the company was prepared to dismantle and sell its subsidiaries.

Principal Subsidiaries

American General Life and Accident Insurance Co.; Gulf Life Insurance Co.; The Variable Annuity Life Insurance Co.; American General Life Insurance Co.; American General Life Insurance Company of New York; American-Amicable Life Insurance Company of Texas; Financial Life Assurance Company of Canada; American General Finance, Inc.; American General Investment Corp.