Incorporated: 1890 as Sun Life Insurance Company
Total Assets: $13.39 billion
Stock Exchanges: New York
SICs: 6311 Life Insurance; 6282 Investment Advice; 6719
Holding Companies, Not Elsewhere Classified
SunAmerica Inc., among the nation’s largest life insurers, is also a financial services company, offering retirement planning and savings products as well as retirement annuities. SunAmerica began as a subsidiary of a house building company that sought to diversify its activities and cushion the impact of cyclical financial trends on its business. Over time, SunAmerica evolved from a general life insurance provider to a specialist in retirement planning. In the late 1980s, the company was separated from the home building business, and it grew rapidly as a purely financial business.
The earliest incarnation of SunAmerica was the Sun Life Insurance Company of America, which was founded in 1890 in Baltimore. This company started on the path that led to the formation of SunAmerica on November 19, 1971, when it was purchased by the Kaufman and Broad Building Company. Kaufman and Broad had been started in 1957 by Eli Broad, who joined with Detroit-area builder Donald Kaufman to form a housing construction firm. Kaufman and Broad prospered during the 1960s boom years in the housing market, and by the end of the decade, the company was looking for ways to diversify its operations and protect itself from downswings in the volatile housing market. In addition to its life insurance operations, Kaufman and Broad also operated its own financial services company, which provided funds for mortgages for buyers of Kaufman and Broad homes.
In 1973, two years after Kaufman and Broad purchased Sun Life, Eli Broad left the company. He returned, however, in 1975, after the crash of the housing market in the previous year threatened the survival of the company. In August of that year, as Kaufman and Broad’s building operations struggled to regain profitability, Sun Life pulled out from a $38 million bid to buy the Colonial Life Insurance Company from the Chubb Corporation. Sun abandoned its offer to take over Colonial, which specialized in policies for low-income families, after the company’s six-month profit dropped from $1.8 million to $277,000, indicating that the business was in a severe slump.
Despite this setback, however, Kaufman and Broad persevered in its attempt to diversify more fully into the financial services industry in the late 1970s. In February 1978, the company purchased 79 percent of the Coastal States Corporation, which owned the Coastal States Life Insurance Company, based in Atlanta, for $17.9 million. Three months later, Kaufman and Broad completed its acquisition of the company, bringing the price to $23 million.
Kaufman and Broad saw its life insurance operations as a synergistic partner to its building business, which was highly susceptible to the vicissitudes of the financial markets. “Life insurance is the perfect complement to our housing operations,” Broad told Business Week the following year, adding that “When interest rates are high, the life insurance operations can [invest premiums collected] in higher yields for long periods.”
In addition to its purchase of Coastal States, Kaufman and Broad actively sought other life insurance properties. The company planned to double the values of the policies it had written from 1979 to 1983, hoping to attain a level of $7 billion. To reach that goal, Kaufman and Broad intended to concentrate their insurance efforts on the southeastern United States, where the population was growing rapidly. In addition, the company planned to market products for newly emerging demographic sectors of the population, such as working women.
In May 1980, Kaufman and Broad was once again frustrated in its attempts to expand insurance holdings through acquisitions, when it made a hostile bid to take over the Standard Life Insurance Company of Indiana. Although Kaufman and Broad already owned 4.1 percent of Standard’s stock and had a commitment to purchase an additional 7.8 percent, the company was beaten out by the INA Corporation, a financial services conglomerate based in Philadelphia, which bid $5 more for Standard’s stock.
In June 1980, however, Kaufman and Broad tried again, paying $16 million for a one-quarter interest in the Biscayne Federal Savings and Loan Association, based in Miami. This move partially satisfied the company’s goal of diversifying into the thrift industry. Unfortunately, however, the moment that Kaufman and Broad chose to enter this field couldn’t have been less auspicious, as the thrift collapsed in 1982. “Our timing was impeccably bad,” Broad told Forbes, and Kaufman and Broad was forced to write off its $18 million investment in the savings and loan after its portfolio of mortgage loans went bad.
Despite this setback, the contribution made by financial services to Kaufman and Broad’s bottom line continued to grow throughout the early 1980s. In 1983, Sun Life inaugurated an annuity marketing division, as the company began to shift its emphasis toward retirement savings plans. “We don’t want hot annuity money that can get in and go out as rates go up or down,” Broad told Forbes, explaining the company’s new direction. Rather, he asserted, “We want it to be serious retirement money that is going to persist.” In this way, the company hoped that the stability of this business would offset the vicious cycles that beset its housing operations.
In addition, Kaufman and Broad hoped to tap into the same demographic segment of the population with which it had first grown to prominence. After building houses for the generation of “baby boomers” throughout the 1960s and 1970s, the company now hoped to help them prepare for retirement by offering tax-deferred savings products. As a vast portion of the American populace approached old age, demand for these retirement investment instruments was expected to increase markedly. “We served them [the baby boomers] with their first home,” Broad told Business Week, “and now, 30 years later, we’re helping them plan for retirement.”
To create a financial services company specializing in retirement planning, Kaufman and Broad instituted a practice of “cherry-picking,” that is, choosing the parts of other bankrupt financial institutions that had money-making potential. Using this philosophy, the company made a series of acquisitions from other struggling companies, often acquiring assets at bargain-basement prices.
In 1985, Kaufman and Broad made its first major advance into the annuity business, when it paid $16 million for $550 million worth of annuities owned by Capital Life Insurance Company, a struggling Denver firm. Although Kaufman and Broad had the right to purchase all of Capital’s business, the company was careful to take on only the aspects of its portfolio that it regarded as sound. By fiscal 1985, life insurance revenues accounted for 54 percent of the company’s overall sales, beating out Kaufman and Broad’s housing revenues for the first time.
In January 1986, Kaufman and Broad agreed to purchase the bankrupt Anchor National Life Insurance Company of Phoenix, with assets of $1.6 billion. With this move, Kaufman and Broad entered the variable annuity market for the first time. In addition, the company purchased Anchor National Financial Services, Inc., an affiliated broker-dealer. Kaufman and Broad paid the Washington National Corporation $75 million for the properties. Anchor promised to add $180 million a year to its parent’s life insurance revenues.
Kaufman and Broad also sought to enhance its insurance portfolio by purchasing the insurance policies issued by a failed insurer, Baldwin-United. This company had invested the premiums paid by its retirement annuities customers in other businesses it owned, and had, as a result, been shut down by insurance regulators in Indiana and Arkansas, where the company operated. Although other members of the insurance industry, led by the Metropolitan Life Insurance Company, had put together a plan to purchase the annuities and rescue the victimized customers of Baldwin, Kaufman and Broad’s Sun Life Group of America stepped in with a bid at the last minute, in an effort to win the remains of the defunct company and thereby double the size of its insurance business at half the cost of developing the business from scratch.
This bid was rejected by the courts in Indiana in April 1986, but the company persisted in its bid for $3.2 billion worth of business based in Arkansas, forming an Arkansas subsidiary to handle the matter in an effort to curry favor with Arkansas insurance regulators. Kaufman and Broad hoped not only to win new business for their insurance subsidiary, but to further insulate their company from the volatile interest rate cycle that plagued its housing operations, by now limited to California and France. Annuity premiums were particularly valuable in this respect, since they were invested in government securities and high-quality utility and corporate bonds. Unfortunately Kaufman and Broad failed in its attempt to win the Arkansas Baldwin business.
In 1987, however, Kaufman and Broad succeeded in enhancing its insurance business when it bought the First SunAmerican Life Insurance Company, based in New York. Following this purchase, the company began to streamline its life insurance activities, withdrawing from all mortality-based life insurance activities over the course of an 18-month period, in order to get into the faster-growing single premium annuity business. As part of this program, Kaufman and Broad sold its interest in the Coastal States Life Insurance Company, and the annual premium universal life insurance business of its Anchor subsidiary in 1987. Instead, Kaufman and Broad bought the Harris Annuity company, Harris Financial, Inc., and the Financial Network Marketing Company. At the end of the year, Kaufman and Broad’s financial services companies once again accounted for more than half of the company’s revenues.
In 1988, Kaufman and Broad continued to restructure its financial holdings. The company sold its interest in the Universal Guaranty Life Insurance Company, Anchor’s term life insurance subsidiary, and Sun Life’s Career Division for $111 million. Because of the costs of these adjustments, however, Kaufman and Broad’s life insurance operations lost money over the course of 1988.
At the end of that year, distressed about the low value of his company in the stock market, Eli Broad came out of retirement for the second time to take control of the company that bore his name. On December 5, 1988, Kaufman and Broad unveiled a new plan to make the most of the company’s assets. The company announced that it would sell off its housing operations and rename the remaining financial properties—which would remain in the hands of Eli Broad—Broad, Inc. In this way, the company would present to the stock market two single-activity companies, rather than one company that had operations in two very diverse areas. In addition, Kaufman and Broad hoped to move its new financial services company into mutual funds, consumer finance, and the savings and loan industry, despite its last disastrous brush with thrifts. All in all, the company hoped to double its level of assets in the next five years and thereby revive its sagging fortunes.
In March 1989, Kaufman and Broad completed its corporate transformation. The home-building property was separated from the financial services company, which retained assets of $7 billion. The new company marketed a variety of financial instruments under the name SunAmerica. Within six months, this move had proved profitable, as Broad, Inc. doubled its stock price and improved its stock rating by six levels.
In mid-1989, Broad was able to increase its mutual fund sales force through the purchase of the bankrupt Southmark company, an organization of 1,300 brokers. In late September, the company moved further in its effort to restructure, selling Sun Life’s General Agency Division for $28 million.
In January 1990, Broad took another important step in its transformation when it bought $2.2 billion in annuities, $1.75 billion in private accounts and a mutual fund, and a broker/dealer with 3,000 representatives from Integrated Resources, Inc., acquiring $4 billion in assets for $95 million. Integrated had originally acquired these properties from the Capital Life Insurance Company of Denver, which Kaufman and Broad had earlier bought part of as well. Because Integrated was on the verge of bankruptcy and did in fact expire in the wake of the sale to Broad, this move initially depressed the price of the company’s stock, but it expanded Broad’s portfolio from $7 billion to $11 billion and enabled the company to add mutual funds, investment counseling, retirement trust services, and a second broker-dealer organization. In this way, Broad was able to better position itself within the fast-growing financial planning market.
In 1991, Broad continued to enhance its operations in the retirement planning field. The company acquired a second group of struggling mutual funds and another distribution arm for these funds from the bankrupt Equitec Financial Group for $680 million, as it moved towards its goal of a dominant place in the single-premium annuity industry. By July 1991, Broad’s assets in insurance and mutual funds had increased to $13 billion.
In 1993, Broad once again changed its name, seeking to unify its corporate and marketing aspects. The company now became SunAmerica, Inc. After a number of successful stock offerings, SunAmerica had amassed $800 million, sufficient funds to pay for further acquisitions. In June 1993, the company announced that it would put these funds to work by buying a one-third stake in the successor to a bankrupt Los Angeles insurer, the Executive Life Insurance Company. This was, in effect, a consolation prize, after SunAmerica lost out in its October 1991, attempt to be awarded the company’s assets by the California insurance regulator. Despite this setback, however, SunAmerica’s assets had increased to $17 billion and its stock price had risen from $3 a share to $28 a share by the middle of 1993.
In July 1993, SunAmerica returned, in a limited fashion, to the business it had left just four years ago, announcing that it would develop, with a partner, 1,200 homesites in Phoenix, Arizona. This real estate venture was designed to complement the company’s other investment instruments.
In addition, SunAmerica embarked on a program to push its number of broker/dealers, or “financial planners,” who sold its various investment products, to 5,000 before the end of 1995. This work force had reached 4,000 by the middle of 1994, as the company became the second largest financial planning vendor, after American Express, with an asset total of $23 billion.
Along with an expansion in its sales force, SunAmerica also planned to introduce new financial products and services and to inaugurate alliances with banks, which could market these instruments. The company also planned to acquire further properties in the mutual fund field to strengthen its offerings in that area. These plans came as SunAmerica completed a four-year period in which the company’s operating income had more than doubled. With a record of strong growth behind it, and an evergrowing market to look forward to, SunAmerica appeared to be well-situated for continued expansion and success in the late 1990s.
SunAmerica Asset Management Corporation; SunAmerica Corporation; Sun Life Insurance Company of America; Anchor National Life Insurance Company; Royal Alliance Associates, Inc.; Resources TrustCompany; First SunAmerica Life Insurance Company; Anchor National Financial Services, Inc.; SunAmerica Securities, Inc.
Barrett, Amy, “Still Dealing After All These Years,” Business Week, March 29, 1993.
Heins, John, “The Virtues of Restraint,” Forbes, June 2, 1986.
Laderman, Jeffrey M., “Two Life Insurers Fight Over Baldwin-United’s Remains,” Business Week, April 28, 1986.
“Sawing Off Markets and Diversifying Faster,” Business Week, October 29, 1978.
Schifrin, Andrew, “Cherry-Picking,” Forbes, July 8, 1991.
Toy, Stewart, “Eli Broad Moves Away From Home,” Business Week, December 19, 1989.