John Hancock Financial Services, Inc.
John Hancock Financial Services, Inc.
Incorporated: 1862 as John Hancock Mutual Life
Insurance Company Employees: 9,700
Total Assets: $87.35 billion (2000) Stock Exchanges: N
ew York Ticker Symbol: JHF
NAIC: 524113 Direct Life Insurance Carriers
John Hancock Financial Services, Inc. provides a wide range of insurance and investment products and services. Its historic mainstay, the issuance of insurance policies, remains an important part of the company. Its variable, universal, and term life insurance account for almost 40 percent of revenues. Annuities and mutual funds make up the bulk of its investment products. In recent years Hancock has been expanding into institutional asset management and alternate sales channels, including the Internet.
Civil War Beginnings
John Hancock Mutual Life Insurance Company was founded in 1862. Of six life insurance companies founded that year in the United States, it alone survives. A total of 28 such companies were founded between 1860 and 1865; only seven survived to the 1950s. In the two years following the Civil War, 24 more were started. It was a boom time for life insurance, and hard selling by the new companies reaped a rich harvest. Life insurance in force rose to an estimated $2 billion in the 1860s.
Hancock was chartered on April 21, 1862, in Massachusetts, where a Department of Insurance had been established in 1855, the first of its kind in the United States. It was the first company to be formed under two recently signed laws that helped to regularize a previously uncertain and at times dishonest business. As if to emphasize the point, the new company took for its namesake the Massachusetts native John Hancock—first to sign the Declaration of Independence and later governor of the state—whose signature became synonymous with a pledge of fidelity.
The more important of the two laws dealt with nonforfeiture. The practice in the industry had been to confiscate policies after one payment was missed. Nonforfeiture, paying surrender value of a life policy after the fifth year, became the U.S. norm after passage of this 1861 law in Massachusetts. The other law, passed in 1858, required each insurance company to demonstrate its worth yearly.
Hancock’s first president was George P. Sanger. At 43 years of age, Sanger was district attorney for Suffolk County, in which Boston is located, and a former judge. Indeed, he continued as district attorney for seven years. Only then, in 1869, did he quit public office to be a full-time insurance executive.
By November 1863 Hancock had 176 policies in force, for a total value of $332,700. In the next two months, the company wrote 111 more policies. The company continued to experience success and, in 1869, moved from a small office, where the company medical examiner screened applicants in a crowded corner, to roomier quarters in the Sears Building. In 1872 the company redeemed its guarantee capital and became a mutual company.
Sanger returned to public life as U.S. attorney for Massachusetts in 1874; his successor was George Thornton. During the economic depression of that time, Hancock suffered financially, but it remained solvent and honored its obligations.
1880s: Pioneer in Industrial Life Insurance
Prudential Insurance Company had at the same time introduced industrial life insurance for the less affluent. Premiums were paid weekly rather than annually or semiannually. Its premiums and benefits were lower than those of ordinary life insurance. Policies were started for as little as five cents. For many years it was the only insurance available on the lives of children—a feature that was to envelop it in controversy. Industrial life was new, and no one knew how closely U.S. mortality would mirror English mortality rates, on which this insurance was based. In addition, U.S. companies had to keep fixed reserves, while the English did not.
Industrial agents’ work was part social work. The agent was expected to know everyone on his route. His territory required up to 1,000 calls a week for collection of premiums. If the total collections for which the agent was responsible held steady, he was rewarded; if they fell, he was penalized. Agents were to make calls three or four days a week and solicit new business on the other days. They were welcome to sell other kinds of insurance as well.
Prudential had the field to itself for four years. Then, in March 1879, Hancock got a new president, no less a figure than the Massachusetts insurance commissioner, Stephen H. Rhodes, who by midsummer was selling industrial insurance in Boston. By year’s end, Hancock had 9,327 industrial policies totaling $951,000, after only six months of selling the coverage. It was a welcome addition to the line. Metropolitan Life Insurance Company entered the industrial field the same year. These three—Prudential, Metropolitan, and Hancock—were to dominate that business, with Boston-based Hancock trailing a distant third behind the other two, both based around New York.
By 1881 Hancock had 36,012 industrial policies in force, and by 1889 it had issued 256,000 industrial policies worth $30 million. Hancock’s burgeoning prosperity was demonstrated in part by its move in February 1891 to its own richly ornamented home office building in Boston, with “monumental figures in colored mosaic” in the staircase hall, against a background of “nearly thirty thousand cubes or’t essera’ of enamel overlaid with gold and covered with a thin film of glass … made by a process known alone to the Venetians,” as described by R. Carlyle Buley in The American Life Convention, 1906–1952: A Study in the History of Life Insurance. Such grandeur was and for some time remained typical of insurance companies, whose home offices and other downtown buildings provided almost as much commentary for architects as their policies did for insurance writers.
During 1891 Hancock’s insurance in force reached $54.5 million, up from $17.8 million in 1886. Hancock had managed to find its way in the uncharted waters of the early industrial insurance years.
Prudential and Metropolitan still were the leaders by far. Other companies had dropped from the race. Industrial insurance had a high lapse rate, with most lapses occurring in the first six months of the policy. In this period lapses were costly to the companies, who tried hard to prevent them.
The problems of insuring children came to a head in 1895, when Massachusetts considered the prohibition against insuring children under ten. The practice was denounced for five days in a Boston hearing room as encouraging cruelty and even murder. The tide turned when Haley Fiske, the Metropolitan vice-president and a lobbyist, testified, and the bill was soundly defeated. Other states considered such a bill, but only Colorado passed one; it lasted into 1921.
Early 20th-Century Changes and Reforms
In 1902 Hancock’s industrial agents were urged to push ordinary life insurance. The name of the company newsletter for agents, “Our Industrial Field,” was changed to “The John Hancock Field.” Hancock was diversifying, and growing; by 1905 it had 1.5 million policies. Its insurance in force came to $245 million, up from $115 million. This was small compared with Metropolitan and Prudential, who with Hancock together held some 15.5 million industrial policies, of the total of 16.8 million such policies in the United States, worth $2.3 billion.
In 1905 the Armstrong Committee’s investigation of the New York State insurance industry achieved a general overhaul of the life insurance industry, and it led to needed reforms. At Hancock, however, 1905 was remembered for its exposure of “the mistakes and misdeeds of a few individuals prominent in the business, followed by an investigation of Draconian severity,” according to Historical Sketch of the John Hancock Mutual Life Insurance Company of Boston, Massachusetts: A Half Century Completed, 1862–1912 .
The investigation produced “tremendous shock” but did “not for a second impair or suspend” operations and “furnished moreover an example of the inherent soundness … of the old line insurance plan,” according to The Satchel, the company magazine, in 1907.
In 1906 Stephen Rhodes died at 83, after more than 30 years at the Hancock helm. He was succeeded by Roland O. Lamb, 58, who had been with the company since 1872. Lamb was no sooner installed than another home office building was completed. It was fire-resistant with an exterior of pink granite; its interior displayed several kinds of marble. Modern for its day, it boasted eight elevators and a drinking fountain offering refrigerated water on each floor.
The mission of John Hancock is to be the highest quality financial services company. We offer a broad range of insurance and financial products and services nationally and internationally to meet the needs of our customers and provide our customers with the highest quality service. We maintain superior financial strength, offering those products and services that provide attractive rates of return, competitive product value and expectations for growth. We offer challenging career opportunities and personal development for all associates, enable all associates to contribute to their fullest potential and promote open cooperative relationships among all associates, customers and the public. In all that we do, we exemplify the highest standards of business ethics and personal integrity, and recognize our corporate obligation to the social and economic well-being of our community .
In 1924 Hancock helped launch the group insurance business in the United States by offering such insurance to employers. By 1990 the company would have 1,000 group clients. Group policies, with life and industrial policies, were to form the core of business through Hancock’s first 100 years.
The Great Depression shook up the world; Hancock, however, saw business rise 7.3 percent in 1930, the Depression’s first full calendar year. New business began declining by 1932, and Hancock cut its dividend.
Guy W. Cox became Hancock president in 1936. In 1937, its agents picketed the company’s New York office on Christmas Eve. Six months later, the National Labor Relations Board considered filing a complaint against Hancock in connection with the petition for union election by the United Office and Professional Workers of America. In November of that year, Hancock’s industrial agents sought a union election among Hancock employees.
The company purchased an aircraft carrier, the Hancock, in 1944, for use by the U.S. Navy in World War II. It was the result of a joint financing effort by agents, other employees, and policyholders. Agents carried patriotism a step further with their pledge to bring the appeal for a wastepaper-salvage drive to homes they visited in the course of business.
In 1944 Guy Cox became chairman, and Paul F1. Clark, a former agent, became president at age 51. Clark would become chairman three years later. In the spirit of postwar recovery, Hancock began on-the-job training for returning veterans in 1946. In the same year, the company advertised on radio for the first time, sponsoring Boston Symphony Orchestra performances.
Conservative Investing Mid-Century
In 1948, Hancock had assets of more than $2 billion. New investments in 1947 had topped $300 million. At that time, Hancock was earning 3 percent, down from 5 percent in the prior years. With a surplus of $166 million, its portfolio was unspectacular; fewer than $15 million was in common stock, though by law the insurance firm was allowed to carry ten times that amount. In addition, Hancock was lending on real estate to only 50 percent to 55 percent of market value rather than the 66.7 percent allowed. Yet Hancock, the largest life insurance company in the United States outside the New York metropolitan area, had the third highest growth rate at that time of all insurance companies. The company’s finance committee, by Massachusetts law, made final decisions in investments. Guy Cox chaired the committee, and caution ruled its deliberations. Before investing in the stock of a paper company, analysts were sent to view the whole paper industry. Hancock was willing to take three months to decide on a given issue.
More than 30 percent of Hancock investments lay in U.S. government bonds, with almost as much in public utility bonds and notes. Average net interest for 1947 was 2.91 percent, but the new investments averaged 3.14 percent. Things were looking up, after more than a decade of having to buy low-interest-bearing securities.
During this period, Hancock was experimenting with financing of rental housing. Two “Hancock villages” went up, one in Boston, another in Dearborn, Michigan. The latter encountered labor and other problems. Meanwhile, in Boston a new 26-story home office was constructed, making it the highest building in town. It also had the longest escalator in the United States. As high as the new building was, it was “dwarfed by the life insurance idea,” said President Clark at its opening. It replaced a ten-story building that in 1922 had won the Boston Society of Architects award for its designer, J. Harleston Parker.
The 1940s wrought a marked change in the life insurance industry. Government investment rose sharply during the war, to an all-time high of 46 percent of the total. By 1951 it had dropped to 17 percent. The nation looked to the industry for capital, with its net yearly rise in assets of $4 billion to $5 billion. The industry responded, looking beyond the bond market to private, or individual, placements.
The 1950s was a time of political nervousness. Senator Joseph McCarthy of Wisconsin held the stage on Capitol Hill, and the Cold War was a fact of life. Hancock succumbed at least temporarily, refusing a lease renewal in 1953 to the Community Church of Boston, which had rented its home office auditorium for 30 years for its liberal lecturers.
What to do with the money was the main life insurance issue, however. By 1954 Hancock ranked fifth among U.S. insurance companies, with $3.8 billion in assets, and was investing as much as $4.6 million a week. Investments had earned 3.07 percent in 1953, up from the all-time low of 2.9 percent in 1947. Hancock moved to higher yields, looking increasingly to mortgage loans, which had risen to 20 percent of its portfolio, from not quite 12 percent in 1949. High return, however, had to be joined with safety, which made the task difficult.
- John Hancock Mutual Life Insurance Company is founded.
- Company redeems its guarantee capital and becomes a mutual company owned by its policyholders.
- Hancock offers industrial life insurance.
- Hancock’s insurance in force reaches $54.5 million.
- Hancock helps launch the group insurance business in the United States by offering such insurance to employers.
- Company is fifth largest U.S. insurance company, with assets of $3.8 billion.
- Hancock forms a real estate subsidiary and enters the mutual fund business the next year.
- Company enters the property and casualty insurance markets.
- Company ranks eighth among U.S. life insurance firms, with assets of $27.3 billion.
- Following a class-action lawsuit on behalf of policyholders, Hancock denies any wrongdoing related to “policy churning” but agrees to a settlement approaching $471 million.
- Hancock converts from a mutual company to a publicly owned company.
By the mid-1960s another story was unfolding. Hancock was showing a new aggressiveness. According to the January 15, 1966 issue of Business Week, it was “second to none of the old-line mutuals in selling itself,” as it did in building its skyscraping monument in Chicago, the John Hancock Center, then second in height only to the Empire State Building. Hancock had just elected its youngest-ever chief executive officer, 49-year-old Robert E. Slater, an actuary and a firm believer in the use of the computer. Slater was busy reshaping the company, looking ahead to a time in which baby boomers, born in the post-World War II decade, would be buying much of the country’s life insurance.
In the 1960s ordinary life insurance was the company’s biggest moneymaker, followed by group accident and health, group annuities, and group life. The old industrial insurance was no longer a consideration.
New Markets and Strategies: 1970s–80s
With 32 percent of its portfolio in mortgages (compared with 42 percent for Prudential), 63 percent in bonds, and only 5 percent in stocks, Hancock was unquestionably a conservative investor. Changes were coming, however. Hancock formed a real estate subsidiary in 1968 and entered the mutual fund business the next year. An international group program was begun. It was the start of broad diversification.
Hancock entered the Canadian market in 1969, and in 1971 entered the property and casualty insurance markets. Its 1972 income topped $2 billion for the first time. The company was in the securities business by then, with its John Hancock Income Securities Group. Slater resigned in December 1969 and was replaced by Gerhard Bleicken as chairman and CEO. In May 1972 the first black director, who was also the first woman director, Mary Ella Robertson, was elected.
Hancock was again making architectural history with the John Hancock Tower, its new home office building in Boston. The Chicago John Hancock Center, a $95 million investment, had been hailed as innovative and workable. The Hancock Tower, built five years later, was another issue. In 1974, the tower’s windows, some 60 stories high, began to blow out and fall to the ground. The cause was a flaw in the design of the windows. The double-pane windows were replaced for $47 million, and the cost of the whole structure rose from an original $52 million to $144 million. The initial construction of the building had created other problems, including a weakening of the foundation of nearby Trinity Church, which sued Hancock for $4 million. Hancock in turn sued the architects, I.M. Pei & Associates; the general contractor; and the window glass manufacturer, who in turn countersued Hancock.
The late 1970s were bringing what Hancock called winds of change into the life insurance industry. Rising inflation and interest rates and deregulation offered circumstances in which policyholders borrowed on life policies at 5 percent or 6 percent to reinvest in money-market securities paying twice that. The prime rate shot up, and in 1980 many life insurance companies found themselves faced with a negative cash flow, for the first time in memory. The prime rate dropped later in the year, from an astronomical 20 percent, and the crisis eased. Insurers knew things would never be the same, however. From this realization came substantial changes in the company that would outdo any changes of the 1970s.
One of the first things to change was the investment strategy. There would be no more fixed-interest, long-term loans. The company would build a liquidity reserve of short-term securities. The fixed-income portfolio would be examined constantly by means of thorough computerized programs.
During the 1980s, Hancock entered most segments of the financial services industry and become a vocal proponent, alone among life insurance companies, of deregulation. The “level playing field” became a byword: all financial institutions—banks, brokerages, insurers—should have equal access to all financial services. By 1985 Hancock was in money management, stock brokerage, venture-capital management, equipment leasing, and real estate syndication. Hancock wanted to be a financial supermarket, but it was an old conservative company in a still more conservative industry. As a mutual company, it had no shareholders and had never been run with profit in mind. It was the sixth largest insurer, down from fifth, with assets of $25 billion. Its old ways had sent it into sharp decline. Its policyholder base had shrunk 30 percent in the previous ten years. New business bookings had peaked in 1981, as consumers moved from whole-life policies to cheaper term coverage.
Hancock had to change. To stay with traditional life insurance would have meant to “shrink the company,” said Chairman and CEO John G. McElwee. Instead, it would offer banking, investment, and insurance products. It already had gone into credit cards and a half-dozen other non-insurance products and had bought a regional brokerage house and banks in Ohio and New Hampshire. There was, however, the question of whether its predominantly middle- and lower-income policyholders would buy such services.
McElwee was succeeded by E. James Morton in March 1986. Stephen L. Brown became president and chief operating officer. In 1986 Hancock helped found the Financial Services Council, a coalition of 18 manufacturers, retailers, and financial firms who lobbied for “pro-competitive” reform of laws affecting financial services. Normally rivals, these firms coauthored a draft bill for reform that was unveiled in October 1987.
The United States lagged behind England and Canada in rallying government, business, and consumers around the idea of integration of financial services. Hancock was prevented from buying a savings-and-loan institution, for example, because the savings and loan owned a brokerage that underwrote corporate equities and debt. Instead, Hancock bought a consumer bank, First Signature Bank and Trust Company, in New Hampshire, a limited-purpose bank with a 7 percent growth cap as required by the 1987 banking law. It was the most Hancock could do. Forbidden to become a holding company because it was mutually held, it was unable to demutualize for lack of enabling legislation in Massachusetts.
President Brown offered a goal of “reciprocal access” to financial services, whether for banks or insurance companies, and a vision of financial services as one competitive industry controlled by appropriate legislation. By 1986 Hancock had slipped to number eight among life insurance companies, with assets of $27.3 billion. Manufacturers, retailers, and foreign competitors already had entered the insurance and other financial markets, while bank holding companies and mutual life insurers operated under restraint.
Hancock’s group insurance unit, which provided health and life insurance to employees of more than 1,000 companies, contributed to companies’ problems. Operating at a loss of $40 million in 1987, the unit was handed over to David D’Alessandro for fixing. He promptly laid off 400 employees and sold unprofitable businesses, including some HMOs. Within a year, the unit was profitable and D’Alessandro was on his way up Hancock’s corporate ladder.
Troubles in the 1990s
By 1990, however, John Hancock had fallen to the nation’s ninth largest life insurer, with $198 billion of life insurance in force covering 17 million lives. A weakened real estate market fueled concerns about the company. Hancock held 40 percent of its assets in real estate and mortgage loan holdings, for a total of $9.7 billion. To cover any losses, Hancock established a mortgage real estate valuation reserve of $137 million in 1990. Earnings fell, and the company sold its credit card, property/casualty, and banking businesses. In 1992, Hancock passed on its $40 million disability insurance business to Provident Life and Accident Insurance Co. through a reinsurance agreement.
In the mid-1990s, John Hancock struggled with accusations of market misconduct. Along with several other prominent insurance companies, Hancock was fined for misleading advertising and policy churning (persuading customers to use the cash value of their whole life policies to pay for new policies with the mistaken assumption this would eliminate any premium payments). After New York fined Hancock $1 million in 1995, Hancock faced a class-action lawsuit from policyholders. Although Hancock denied any wrongdoing, it agreed to a $350 million settlement in 1997. By 1999 the number of aggrieved policyholders had risen to almost four million, and the settlement cost, to $471 million.
The company expanded overseas in the mid-1990s, primarily in the Pacific Rim. It acquired interests in insurers in Thailand and Singapore and set up a life insurance joint venture in the Philippines in 1997. The same year, Hancock sold its group health and life business for $86.7 million. In 1998, that unit’s former head, David D’Alessandro, was named president of John Hancock.
IPO in 2000
The company began preparations in 1999 to demutualize, with plans for an initial public offering (IPO) of stock early in 2000. D’Alessandro, now CEO, hoped the conversion to a public company would make Hancock more results-oriented and would provide cash for more timely acquisitions. First, however, the company had to devise an acceptable plan for compensating policyholders, who owned the mutual company. The proposed plan to distribute a combination of cash, stock, and enhanced benefits hit a snag when Hancock had to spend several months searching for approximately 750,000 policyholders it had lost track of.
The company also had to resolve its share of disability insurance liability in a reinsurance fiasco. Sandwiched in the middle of several layers of reinsurance agreements, Hancock was liable for an uncertain amount of money, although one PaineWebber analyst claimed Hancock was vulnerable to as much as $1 billion in losses. In January 2000, Hancock laid to rest these fears when it announced it would take a non-operating after-tax charge of $134 million to cover its worker’s compensation liabilities.
The company continued to prepare for its demutualization, changing its name to John Hancock Financial Services, Inc., and converting its agents into brokers. On January 26, John Hancock completed its IPO of 102 million shares. At $17 a share, the IPO raised $1.7 billion for the company. Policyholders received 230 million shares and some received cash from the IPO.
By mid-2001, the company’s conversion to a public company seemed a success. The stock price had more than doubled, to $40 a share. In addition, Hancock continued to diversify its distribution and expand its product line. Internet sales were booming, with 60 percent of its term life policies being sold online in 2000. The company planned to expand its online offerings to include variable annuities, variable life, and long-term care policies. Under the leadership of D’Alessandro, who had been named chairman in May, John Hancock seemed poised for a revitalization of its almost 140-year-old business.
John Hancock Life Assurance Company Ltd. (Singapore) ; John Hancock Subsidiaries; John Hancock Variable Life Insurance Company of Boston; The Maritime Life Assurance Company (Canada) ; First Signature Bank & Trust Company; Hancock Natural Resource Group, Inc.; Independence Investment LLC; Investors Guaranty Life Insurance Company; John Hancock Advisors, Inc.; John Hancock Advisors International Ltd. (U.K.) ; John Hancock Funds; John Hancock Realty Advisors; Signator Financial Network; John Hancock Real Estate Finance, Inc.
AIG; The Charles Schwab Corporation; Hartford Insurance Group; MassMutual; Merrill Lynch & Co., Inc.; Metropolitan Life Insurance Co.; Morgan Stanley Dean Witter & Company; Mutual of Omaha; New York Life Insurance Company; Principal Financial; Prudential Insurance Company of America; Transamerica Corporation.
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—update: Susan Windisch Brown