Principal Mutual Life Insurance Company
Principal Mutual Life Insurance Company
Incorporated: 1879 as The Bankers Life Association
Assets: $23.31 billion
Principal Mutual Life Insurance is the primary member of The Principal Financial Group. The Principal Financial Group encompasses 20 insurance and financial-services companies, most of which are subsidiaries of Principal Mutual Life Insurance Company, which is among the ten-largest mutual life insurance companies in the United States. Other companies in the group are involved in stock brokerage, financial planning, investment management, and health, homeowners, and automobile insurance.
The U.S. Civil War, of 1861 to 1865, had increased interest in life insurance, which previously had been primarily an investment for the wealthy. By 1869, 110 companies in the United States were selling life insurance, but many of them sold policies that could be canceled easily, so the companies could collect premiums without ever having to pay benefits. The Principal Mutual Life Insurance Company began in 1879 as The Bankers Life Association. Edward A. Temple, a banker in Chariton, Iowa, was seeking a way to provide lowcost life insurance for fellow bankers and their employees. In addition to the plentitude of disreputable insurers, most life insurers were based in the East, and Temple was suspicious of eastern companies. He also believed that even reputable local companies charged excessive premiums.
Upon hearing of a life insurance plan set up by a group of ministers, under which each member of the group helped pay benefits when one of the members died, Temple set out to develop a similar system for bankers and bank employees. Under his plan, each participant would pay a deposit of $1 multiplied by his age upon joining, plus an initiation fee of half that much, for an insurance certificate with a face value of $2,000. The number of certificates a person could buy depended on his age. Once in the association, members would be assessed quarterly for funds to pay for the death losses that had occurred within the period, with the total annual assessment not to exceed 1% of the insurance in force.
The concept caught on quickly among Temple’s fellow bankers, and in June 1879 they incorporated The Bankers Life Association. On July 1, the association’s directors elected Temple president. They also voted to extend membership beyond bankers and bank employees to anyone recommended for membership by a bank the association used as a depository, who could meet the association’s strict standards, which were designed to keep mortality rates low. The association screened out people in occupations or geographic areas perceived to be hazardous or with intemperate lifestyles. Women were also excluded, because childbearing was deemed too risky.
Bankers Life grew quickly; by the turn of the century it was open for membership in 21 states. With its selective standards and frugal operation—it had no paid staff until 1893, relying instead on volunteer labor—it was able to keep assessments low, and agents’ sales pitches emphasized the low cost. By 1900 the association had $143 million worth of insurance in force; it surpassed the $200 million mark by its silver anniversary in 1904.
As the century turned, however, many assessment insurance companies were going out of business because of increasing assessments. Bills were introduced in many state legislatures to outlaw assessment companies. Bankers Life lobbied successfully against such measures, but at the same time there was a push within the association to convert it to a mutual legal reserve company, charging level premium rates and maintaining a required surplus fund. Temple strongly opposed such a change, so there was no action on it until after his death in 1909. His successor as president, Ernest E. Clark, was more sympathetic to the idea, and the conversion was effected in 1911, with the association becoming The Bankers Life Company.
The conversion was not an immediate hit; within the following three years, 195,000 of the 245,000 assessment certificates that had been in force in 1911 remained so. Of the other 50,000, one-third had been converted to level premium policies, but the rest had been allowed to lapse. By 1915, the amount of insurance in force had dropped to $398 million, a loss of $100 million since 1911. This loss came despite the fact that in the year after conversion of the company, it had for the first time made insurance available to men as young as 15—the previous minimum age had been 21—and, finally, to women.
George Kuhns, who was elected president in 1916 after Clark resigned because of ill health, set out aggressively to make Bankers Life Company grow once again. He embarked on a strenuous, but not initially successful, drive to get more certificate holders to convert to level premium policies; again, the number of outstanding certificates declined because of more lapses than conversions. The company also dropped many of the occupational, travel, and residency restrictions on policyholders. Growth of insurance in force returned in the first six months of Kuhns’s presidency, with a rise to $415 million, and it continued to grow.
Growth did slow during World War I, partly because of a shortage of salespeople and partly because the federal government offered free insurance to armed forces members on active duty. The war did not create a major drain of the company’s reserves, but the influenza epidemic toward the war’s end did. Both the war and the epidemic, however, whetted the public’s appetite for life insurance, and sales boomed after the war. By 1925 insurance in force grew to $844 million.
In order to help postwar sales grow, Bankers Life Company stepped up its advertising in the expanding market for insurance; it was a pioneer in the use of direct mail. Another means of promoting the company was the Des Moines radio station WHO, which Bankers Life Company acquired in 1925. The company became identified with the station, which featured several Bankers Life employees as performers and had a clear-channel signal that carried it throughout the Midwest. WHO became a National Broadcasting Company affiliate in 1927, but the next year lost its clear-channel status and had to share the frequency with station WOC of Davenport, Iowa. Both stations protested to the Federal Radio Commission, to no avail, and WHO was sold to WOC in 1930.
Gerard Nollen had become president of Bankers Life Company after Kuhns’s death in 1926. In the first year of his presidency, the company launched yet another campaign to persuade holders of the old assessment certificates to convert to level premium policies. The drive ended with about 40,000 of the certificates still in force, and in 1927 Bankers Life Company had to drastically raise quarterly assessments for the certificate holders, as the emergency reserve fund that had been used to supplement them was depleted. This increase led to a class-action lawsuit by the certificate holders, in which they argued that the company should not have raised the assessments because it had sufficient reserve funds from the regular insurance policyholders, if not from the certificate holders. A district court in Iowa ruled in favor of Bankers Life Company, a decision later upheld by the Iowa Supreme Court and the U.S. Supreme Court.
Overall, the late 1920s were good years for Bankers Life Company; direct-mail advertising and a productive sales force helped insurance in force rise to $925 million in 1929, the company’s 50th anniversary. The October 1929 stock market crash and the ensuing Great Depression, however, kept the company from reaching the billion-dollar mark, although insurance in force rose modestly, to $941 million, in 1930. For the next few years many people were unable to pay their premiums and let their policies lapse; still others borrowed against their policies. In 1934 Bankers Life Company had more money going out in loans than coming in through premium payments. Insurance in force dipped to $723 million.
During the Depression Bankers Life Company and other insurance companies strictly limited the amount of insurance a person could buy because lucrative policies were considered a temptation to suicide or murder. Bankers Life Company also tightened the provisions of its policies’ disability riders and reduced payments made under these riders because many policyholders were claiming disability. To help boost sales during the Depression, the company introduced a new and popular policy called the Family Protection Plan, which paid larger benefits in the early years, when more protection for dependent children was required; hired its first educational training director to improve training for sales representatives; and increased the quantity and quality of its advertising.
In 1938, with the worst of the Depression over—insurance in force was up to $752 million and premium income showed its first increase since 1930—Bankers Life Company broke ground for a home-office building. The company had rented space before, and its own building was completed in 1940.
In 1941 Bankers Life Company entered the group insurance field when its board authorized the company to issue life, health, accident, annuity, and hospital insurance on a group basis. Group insurance was dominated by a few large companies—Metropolitan, Equitable of New York, Travelers, Aetna, and Prudential. Bankers Life focused its first group insurance marketing efforts on small midwestern companies that did not attract the industry leaders’ attention.
The United States’s entry into World War II was a boon to the group insurance business. Wartime economic restrictions limited wage increases, so unions demanded—and companies provided—improved benefits.
While this development helped the group insurance industry in general, Bankers Life Company in particular made a name for itself by creating group permanent life insurance. Before this, group life insurance terminated when a worker’s employment did; at that time, the worker could convert the group policy to an individual one at his own initiative and expense under most state laws. Bankers Life Company developed group life that could be offered on a permanent basis, after an inquiry from Sperry Rand Corporation. Sperry Rand did not end up buying the insurance, but the retailer Marshall Field & Company did, early in 1943. Other clients followed, including Outboard Marine Corporation, Carrier Air Conditioning Corporation, and the Chicago Tribune.
Group permanent life insurance fell out of favor in the inflationary postwar economy, but it had established Bankers Life as a force in group insurance. Another factor that built the company’s group business was its decision to offer group coverage to small companies through employer’s associations.
During the booming postwar years, Bankers Life Company entered new fields and offered new products. It began selling individual accident and health insurance in 1952. In 1957 it began offering holders of ordinary life insurance policies the option to buy extra coverage for a small extra premium without taking a medical examination—an innovation that soon caught on with other insurance companies. In 1962 it started marketing a life insurance policy that, like other mutual insurers’ policies, paid dividends, but that had the lower premium rates offered by stock companies, which did not pay dividends to policyholders. Presiding over these changes were several company veterans: Edmund McConney, who had succeeded Nollen in 1946, with Nollen moving up to the newly created position of chairman of the board; Dennis Warters, who became president in 1956; and Earl Bucknell, elected president in 1961.
In 1968, as Bucknell was moving up to chairman and chief executive officer and Harold G. Allen was succeeding him as president, Bankers Life Company went into the mutual fund business. It formed Bankers Life Equity Services Corporation—now Princor Financial Services Corporation—as a broker-dealer to market the funds, and Bankers Life Equity Management Company—now Principal Management—as investment adviser to the funds. In 1990 the 11 funds totalled $751 million. Also in 1968, Bankers Life Company adopted the corporate identity “The Bankers Life” in an effort to distinguish itself and its affiliates from other companies using “bankers” in their titles.
Further diversifying, Bankers Life Company formed the BLC Insurance Company—now known as Principal Casualty Insurance Company—to offer automobile and homeowners insurance policies. Unlike others in the field, the company offered these policies not directly to individuals, but through employers, such as the city of Des Moines, Iowa.
In 1977 Bankers Life Company went to market with an adjustable life insurance policy, in which holders could adjust premium costs and coverages. In 1981 it formed BLC National Insurance Company—now Principal National Life Insurance Company—which offers individual annuities and universal life insurance policies, with flexible premiums and benefits.
Throughout the 1970s and 1980s a flurry of government regulations made employee benefits—and, as a result, the insurance business—far more complex. Among the most important new regulations was the Employee Retirement Income Security Act of 1974, which set standards for funding and investment of pension plans.
Enhancing the expertise of its group pension department, Bankers Life Company increased its share of the pensioninvestment market during the 1970s. Principal Financial Group and a subsidiary, Invista Capital Management—which was formed in 1985 as Value Investors—manage more than $18 billion for pension funds and other tax exempt fund sponsors.
Bankers Life Company also reflected the growing internationalization of business in the 1980s, becoming the U.S. affiliate of the Group Insurance International Network, formed in 1984. Through such international networks, multinational employers are able to obtain employee benefits coverage for two or more of its foreign-based subsidiaries through one master contract. The insurer is also affiliated with another network, Insurope.
In 1985 The Bankers Life group adopted the name The Principal Financial Group as the trademark identity for all its companies because the name The Bankers Life no longer suited the company; its clientele had grown far beyond the bankers and bank employees it originally was intended to serve. In 1986 The Principal Financial Group’s largest member company, Bankers Life Company, changed its name to Principal Mutual Life Insurance Company when its policyowners voted to do so.
The company’s diversification continued into the late 1980s. In 1986, it acquired Eppler, Guerin & Turner, the largest independent stock brokerage firm in the Southwest, along with Delaware Charter Guarantee & Trust Company, which administers individual and group retirement plans for stockbrokerage-firm clients and mutual fund distributors. In 1987 it formed Principal Health Care, which operates health-maintenance organizations and preferred-provider organizations—two types of health-care plans that gained popularity in the 1980s.
Also in 1987, Principal Mutual Life Insurance Company opened an office in Washington, D.C., and hired Stuart J. Brahs, a veteran employee-benefits-industry representative, as its vice president of federal government relations, feeling that with increased regulation of employee benefits, the industry needed a louder voice in Washington.
In 1987 G. David Hurd was named president of Principal Mutual Life Insurance; he had been with the company since 1954, and his appointment continued the practice of promoting from within. He succeeded John R. Taylor, who in 1989 also turned the titles of chairman and chief executive officer over to Hurd. Taylor had been company president since 1984, succeeding Robert N. Houser, who has assumed the post from Allen in 1973. At the end of 1989 the company reported $100 billion worth of insurance in force and $26 billion in assets.
Principal National Life Insurance Company; Principal Financial Services Corporation; Invista Capital Management, Inc.; Delaware Charter Guarantee & Trust Company; Principal Residential Advisors, Inc.; Principal Portfolio Services, Inc.; Principal Marketing Services, Inc.; Principal Casualty Insurance Company; Principal Health Care, Inc.; The Principal/Eppler, Guerin & Turner, Inc.; Healthcare Preferred Inc.; HMO IOWA, Inc.; Principal International, Inc.
Wall, Joseph Frazier, Policies and People, The First Hundred Years of The Bankers Life, Des Moines, Iowa, Englewood Cliffs, New Jersey, Prentice-Hall, 1979.