Transamerica-An AEGON Company
Transamerica-An AEGON Company
Wholly Owned Subsidiary of AEGON N.V.
Total Assets: $13 billion (1999)
NAIC: 524113 Direct Life Insurance Carriers; 52413 Reinsurance Carriers; 53249 Other Commercial and Industrial Machinery and Equipment Rental and Leasing
Transamerica—An AEGON Company, purchased by AEGON N.V. in July 1999, operates as the third largest U.S. life insurer along with AEGON USA. The firm is involved in life insurance, financial services, and real estate services. Its commercial products and services include life insurance and employee benefits, structured settlements, commercial lending, leasing, real estate information, reinsurance, and institutional investment products. Transamerica’s personal financial products and services include investment products, mutual funds, life insurance, long-term care insurance, annuities, variable products, and retirement services. After the merger, its operations were integrated with AEGON USA, part of the AEGON Insurance Group—one of the top ten life insurance and financial services organizations in the world.
Early History: 1900s to 1930
When Peter Amadeo Giannini, the son of Italian immigrants, began dreaming of his career in turn-of-the-century San Francisco, he had not set his heart on building a banking empire. Instead, at the age of 12 he was sneaking out of his home at night to work in his stepfather’s produce business and, by the age of 19, was a full partner. His early success at this business allowed him to retire at the age of 31 with a modest, but comfortable, fortune. His foray into the banking world did not begin until several years later when he received a legacy from his father-in-law, Joseph Cuneo, who had made Giannini a director of his Columbus Savings and Loan Society, a building and loan association in San Francisco. Giannini’s career in banking lasted more than 40 years, and during this time he established the Transamerica Corporation.
After Giannini was appointed a director of Columbus Savings and Loan he became immersed in a number of disagreements with other directors of the bank over policy issues. He consequently left the Savings and Loan Society and established his own banking business, which was located directly across the street from Columbus Savings and Loan. Giannini organized the Bank of Italy with $150,000 in capital contributed by his stepfather and ten friends. He envisioned the bank as an institution for the “little fellow,” and the bank subsequently made loans to merchants, farmers, and laborers who were mostly of Italian descent.
Ironically, the San Francisco fire and earthquake of 1906 established Giannini’s reputation in the banking world. As he stood amid the rubble of his bank on the morning of the earthquake, he was able to salvage more than $2 million in gold and securities. To avoid the looters who were running through the city, he hid his bank’s resources under piles of vegetables in a horse-drawn cart borrowed from his former produce business. Giannini immediately alerted his depositors that their savings were safe and began making loans to businessmen who had lost their savings and their companies.
Giannini’s success as a banker is also clearly evidenced by his anticipation of the 1907 stock market crash, and his accumulation of gold before the crash. When the crash came Giannini was able to pay his depositors in cash while other banks were using certificates for cash. From this experience, Giannini realized that only larger banks would ensure security and, therefore, he began purchasing small banks and converting them into branches of the Bank of Italy. With these acquisitions Giannini established the first branch banking policy in California.
The Bank of Italy grew so rapidly that by 1919 Giannini was able to form Bancitaly Corporation to organize the expansion. In 1928, Bancitaly Corporation was followed by Transamerica Corporation, which was formed as a holding company for all of Giannini’s banking, insurance, and industrial concerns.
Giannini’s expansion into other areas of the financial services had established him as a leader in the financial services field. By 1929, he had moved into the New York banking scene and purchased the solidly established Bank of America. The following year after this important acquisition, all of Giannini’s banks were consolidated into Bank of America National Trust and Savings Association. Transamerica played the role of parent company throughout this period.
Problems in the 1930s–40s
In 1931, just a year after the consolidation of his banks under Bank of America, Giannini retired and left the top post to Elisha Walker, a Wall Street investment banker. Walker did his best to break up this “empire” created by Giannini. Not surprisingly, Giannini forced Walker out in what was called a “furious proxy battle” at the 1932 annual meeting.
During the previous few decades Giannini’s operations had been closely observed by both Wall Street and regulatory branches of the U.S. government; Giannini’s success had found critics within both these institutions. Throughout the 1930s, Transamerica experienced problems with regulatory procedures and changes enacted by the government. In 1937, Transamerica sold 58 percent of its stock in Bank of America, although it still controlled the board of directors. At the time of his death in 1949, Giannini was embroiled in a fight with the Federal Reserve Board as to whether or not Transamerica had violated the Clayton Anti-Trust Act in creating a “credit monopoly” by placing directors on the boards of banks in the huge chain owned by Bank of America. It was the Reserve Board’s belief that Transamerica still controlled the bank even after the 1937 split.
Focus on Occidental Life Following the Bank Holding Company Act of 1956
The split between Bank of America and Transamerica was present throughout World War II until 1956, when Congress passed the Bank Holding Company Act, which did not allow bank holding companies the right to involve themselves in industrial activities. By this time, Transamerica was a holding company for several industrial concerns as well as the successful Occidental Life Insurance Company. As a result of the passage of this Act, Transamerica sold its banks, forming Western Bancorporation, and was left with Occidental Life and other smaller concerns under its direction.
While the litigation continued over Bank of America, Transamerica was resourcefully building up its life insurance business through Occidental Life. By the early 1960s, Occidental Life had assets of $751 million. The success of Occidental Life was, in large part, due to its ability to make the most of a sale. In the postwar 1930s, Occidental was selling term life insurance to California families. Since term life insurance carried lower premiums than full life insurance, other insurance companies dismissed this type of sale as a trivial pursuit, but Occidental banked on high-volume sales that would eventually be converted into full life insurance as the policyholder’s income increased, thus making up for the initially low profit. This method worked. Occidental’s insurance sales increased from $1 billion in 1945 to $6 billion in 1955 to $16 billion in 1965.
Because of the success of Occidental Life it is not surprising that in 1959 President Horace W. Brower was interested in expanding the company’s financial services and moving toward “modern merchandising techniques.” When Brower rose to the chairman’s seat, he looked outside the company to find a “hard-nose financial man” who could successfully run the company as president. The man Transamerica found was John R. Beckett, a 42-year-old investment banker and vice-president of Blyth and Company’s San Francisco office. Beckett was considered to be extremely conversant with the world of finance and negotiations, an important quality since Brower was ready to begin a major acquisition program for Transamerica Corporation.
The plan at Transamerica during this time was to create a financial institution where people could do all their business, something of a “department store of finances.” It was Beckett’s belief that people wanted “convenience and service,” and he was willing to provide such banking. Beckett’s concern centered on the fact the financial service industry changed quickly, and he was determined to stay ahead of his competitors.
Occidental Life was used as a base for changing Transamerica into a holding company not only for insurance but also for other companies within the service field. Beckett was interested in companies that would “work in harmony with one another in the market place.” The first major acquisition after Beckett became president was Pacific Finance Corporation in 1961, and additional acquisitions focused on land, title insurance, and mortgage banking companies. New credit card, leasing, and life insurance operations also were started during the 1960s. By 1969, Transamerica was considered a large service conglomerate. To his credit, Beckett changed the dependency on Occidental from 75 percent of the company’s profits to slightly more than 50 percent by 1966.
Transamerica Corporation strives to meet the needs of today’s businesses through its commercial products and services division—from commercial lending, group life insurance, leasing and structured settlements, to real estate. The firm also is dedicated to helping families secure their financial future—from life insurance to investments.
Growth Through Acquisition: Late 1960s
Beckett saw the transformation of Transamerica not only as a chance for consumers to do business with a “friendly” full-service bank, but also as a way to impress upon customers the importance of using these services over and over again. Beckett compared Transamerica to General Electric: “We hope it will be like the family that buys a refrigerator from G.E. If they like the product and the price, and they get good service, they’ll go back to G.E. when they need a new stove. … That’s exactly what we’re trying to do in financial services.”
Beckett’s attempts to enlarge Transamerica resulted in the company being labeled a conglomerate, but Beckett strongly disagreed with this image. Beckett saw managers of conglomerates as “opportunists, people who make acquisitions strictly on an ad hoc basis. They move too quickly, pay too much, use funny accounting, and don’t look for long-range values. Eventually their bubbles will burst.” In contrast, Beckett believed that he was acquiring companies slowly and in concert with a plan to provide a full-line financial services company.
According to Beckett’s plan, financial services also included leisure time services for consumers, such as movies and travel. In 1967, Transamerica acquired United Artists and in 1968, Trans International Airlines and Budget Rent-a-Car. United Artists would prove to be the acquisition of the 1960s that resulted in financial difficulties for Transamerica.
United Artists, created in 1919 by such movie stars and directors as Douglas Fairbanks, Sr., Mary Pickford, Charlie Chaplin, and D.W. Griffith, looked like a profitable acquisition in 1968, but in 1970, two years after Beckett became chairman, Transamerica’s earnings dropped by half because of an $18 million loss due to several unsuccessful films. Beckett, although caught by surprise by the large loss at United Artists, eventually saw the film company turn into a very profitable business by the late 1970s with successful films such as Rocky, Coming Home, and One Flew over the Cuckoo’s Nest.
Along with these successes, however, there was also unrest within United Artists; the management who had initially sold the film company to Transamerica was now interested in buying it back. Beckett fought back, telling Fortune magazine that if “the people at United Artists don’t like it, they can quit and go off on their own.” That is exactly what they did.
Beckett claimed that he would never sell United Artists, but in 1981 it was sold for $380 million under the direction of President James R. Harvey, who took over in January 1981 when Beckett became chairman. Harvey was an executive vice-president under Beckett and had been with the company since 1965. Harvey’s goal for Transamerica was to concentrate primarily on financial services and insurance. Over the next several years, Harvey would pursue this goal by making an enormous number of acquisitions ($1.7 billion worth) while at the same time divesting Transamerica of a host of operations that fell outside the newly defined operational area ($1.5 billion worth).
Trans International Airlines and Budget Rent-a-Car were both sold in 1986, and Transamerica Title was sold in 1990. By 1991, Harvey was chairman of Transamerica, and Frank C. Herringer had taken over as president and CEO. Herringer continued Harvey’s program to remake Transamerica with the 1993 divestiture of the firm’s property and casualty insurance operations. Initially, the company attempted to find a private buyer for the unit, which was in a segment of the insurance industry that had been performing poorly, but there were no takers. So the firm spun off the operation early in 1993 through an initial public offering. Transamerica retained a 26 percent stake in the new company, known as TIG Holdings Inc., which it then sold through a second public offering later in the year, marking its complete exit from the business. Transamerica used the money generated by the offering—about $1 billion—to pay down its debt and invest in its remaining operations.
The company suffered a setback in the financial services area in 1994 when it decided to sell its mutual funds business, Transamerica Fund Management Company. The operation was not as effective as some other mutual funds companies in that it was unable to develop methods to sell the funds other than through Transamerica’s own insurance agents. The buyer of Transamerica’s mutual funds business, John Hancock Mutual Life Insurance Co., in fact sold two-thirds of its funds through channels other than its own agents. The unit sold for $100 million.
More than offsetting this development, however, was Transamerica’s 1995 purchase of a $1 billion portfolio of home equity loans from the ITT Corporation. Transamerica’s leasing operations also received a major boost in 1994 with the acquisition of a British counterpart, Tiphook PLC, for more than $1 billion in cash. The acquisition strengthened Transamerica’s position in the international transportation equipment leasing market, as well as making it number two in the industry worldwide. Overall, the company’s success in its latest transformation was evident in the record gross revenues of $5.35 billion and record net income of $427.2 million in 1994.
- A.P. Giannini establishes the Transamerica Corporation, as a holding company for his businesses.
- The company acquires the Bank of America.
- Congress passes the Bank Holding Company Act; Transamerica sells its banks, forming Western Ban-corporation, and is left with Occidental Life and other smaller concerns under its direction.
- John R. Beckett is named president.
- Insurance sales increase to $16 billion.
- The company acquires United Artists.
- The company purchases Trans International Airlines and Budget Rent-a-Car.
- James R. Harvey is elected president and begins divesting operations not related to financial services and insurance.
- Trans International Airlines and Budget Rent-a-Car are sold.
- By now, Frank C. Herringer has taken over as president and CEO.
- The company exits the property and casualty insurance market.
- The company sells Transamerica Fund Management Company.
- The company acquires a $1 billion portfolio of home equity loans from the ITT Corporation.
- The company sells its consumer finance business for more than $1.1 billion.
- AEGON N.V. acquires Transamerica for $10.8 billion.
Transamerica continued to restructure its operations into the mid-1990s. The firm moved its real estate tax service division, which had seen a decrease in 1995 earnings due to a reduction in home mortgage refinancing, to Dallas, Texas, in an effort to cut costs. By now, its financial and insurance divisions also were operating out of Los Angeles, California, and Chicago, Illinois, leaving only its realty operations and corporate headquarters in the famed Transamerica Pyramid building in San Francisco.
In 1997, the firm took its divestment operations one step further with the sale of its consumer finance business to Household International for $1.1 billion. Transamerica Financial had posted losses of $45 million in 1996, while the consumer finance industry was hit by a wave of consolidation. The deal was part of Transamerica’s strategy to centralize its consumer lending operations. According to a Mergers & Acquisitions article, the strategy included selling “almost all of its existing businesses and redeploying capital while building a centralized real estate-secured lending business.”
While divesting certain operations, Transamerica continued to look for strategic alliances that would be beneficial. In early 1998, the company acquired the retail finance business of Whirlpool Financial Corporation for $1.3 billion. The firm also recorded solid financial results for the year; its stock was priced below average, however, which made it a prime takeover target.
The AEGON Merger: 1999
Sure enough, in February 1999, Transamerica announced that it was going to be acquired by Dutch insurance company AEGON N.V., who was attracted to the firm’s strong position in the U.S. insurance, reinsurance, and annuities market. The deal included $9.7 billion in stock and cash and the assumption of $1.1 billion in Transamerica debt. “In a rapidly consolidating and globalizing financial services industry, this transaction unites Transamerica and its shareholders with one of the most financially strong and successful companies in the worldwide insurance industry,” stated CEO Herringer in a Business Insurance article.
At the time of the announcement, Transamerica’s life insurance businesses—collectively held under the name Transamerica Life Companies—operated in the United States, Puerto Rico, the Virgin Islands, Guam, Canada, Taiwan, Bermuda, and Hong Kong. Its commercial lending business had lending offices in the United States, Canada, and Europe. The firm’s leasing operations included more than 826,000 units that were leased to 380 depots across the globe. Its real estate services included information businesses as well as Transamerica Real Estate Tax Service, the largest business in the division.
The merger, completed in July 1999, combined the operations of AEGON USA and Transamerica to form the third largest U.S. life insurer. The two, operating among the AEGON Americas Companies division along with Seguros Afore Banamex AEGON, had combined assets of $131.6 billion. The focus of the combined companies was life insurance, annuities, and money management services, leaving much speculation as to whether or not AEGON was going to sell Transamerica’s commercial financing, global container leasing, and real estate tax service businesses.
Under the leadership of AEGON, Transamerica entered the new millennium as an industry leader. Although its parent decided not to sell its other businesses for the time being, the firm’s focus was strongly set upon its insurance and related services. The company’s reinsurance group began expanding in Latin America and Asia, and in 2001, Transamerica set plans in motion to sell insurance in China. As one of North America’s best-known insurance brands, Transamerica was positioned along with AEGON to see continued success in the years to come.
Principal Operating Units
Commercial Financial Services; Intermodal Leasing; Life Insurance; Mutual Funds; Real Estate Tax and Flood Services Reinsurance.
AXA Financial Inc.; Northwestern Mutual; The Prudential Insurance Company of America.
“Aegon-Transamerica to Form Third-Largest U.S. Life Insurer,” Business Insurance, February 22, 1999, p. 1.
Bary, Andrew, “San Francisco Giant: There’s a Lot More to Transamerica Than Its Striking Headquarters,” Barron’s, August 10, 1998.
Carlsen, Clifford, “Transamerica Set to Shed Unprofitable Unit,” Insurance, January 22, 1993, p. 4A.
Dolan, Carrie, “Transamerica Unit Fetches About $1 Billion,” Wall Street Journal, April 20, 1993, p. A3.
Feuerstein, Adam, “Transamerica Exodus Continues,” San Francisco Business Times, February 16, 1996, p. 1.
Gilpin, Kenneth N., “ITT Reported in $1 Billion Loan Sale to Transamerica,” New York Times, April 1, 1995, pp. 35, 37.
Koster, George H., The Transamerica Story: 50 Years of Service and Looking Forward, San Francisco: Transamerica Corporation, 1978.
Leuty, Ron, “CEO Reshapes the Pyramid,” San Francisco Business Times, December 10, 1999, p. 1.
Proctor, Lisa Steen, “Transamerica to Sell Its 420-Branch Consumer Finance Business,” Los Angeles Business Journal, March 17, 1997, p. 12.
“Transamerica Sheds a Finance Unit,” Mergers & Acquisitions, July-August, 1997, p. 9.
—updates: David E. Salamie, Christina M. Stansell