Massachusetts Mutual Life Insurance Company Business Information, Profile, and History
Springfield, Massachusetts 01111-0001
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History of Massachusetts Mutual Life Insurance Company
Massachusetts Mutual Life Insurance Company (MassMutual) has changed slowly over a long period of time, and by doing so has undergone a complete metamorphosis: from personal insurer to financial giant with $234 billion in assets. MassMutual serves over ten million clients and provides them with mutual funds, money management, trust services, retirement planning products, life insurance, annuities, disability income insurance, and long-term care insurance. The MassMutual Financial Group--the marketing designation under which Massachusetts Mutual and its subsidiaries operate--has over 1,200 offices in the United States, Hong Kong, Japan, Taiwan, China, Macao, Argentina, Chile, Bermuda, and Luxembourg.
MassMutual began operating in 1851 in Springfield, Massachusetts, in a room with three chairs, a table, and a city map on the wall. George W. Rice, a young insurance agent who was selling policies for Connecticut Mutual Life in Hartford, Connecticut, had wanted to open a business in neighboring Massachusetts. Like Connecticut Mutual, the new agency was a mutual company--a company owned by its policyholders.
Rice's Massachusetts Mutual was one of about a dozen mutual companies that had sprung into existence between 1843 and 1851. Mutual companies became attractive vehicles in the nascent insurance industry because they required little working capital, but a Massachusetts state law required an initial stock subscription of $100,000 for insurance companies, so Rice encouraged 31 investors to purchase stock in the new venture. In 1867, MassMutual retired the stock and became the mutual company it was intended to be.
Caleb Rice, a relative of George W. Rice, was the company's first president. He steered MassMutual's growth for its first 22 years, making him the longest-serving president in the company's history. Rice wore many hats. A former lawyer, state legislator, and county sheriff before coming to MassMutual, Rice was elected the first mayor of Springfield in 1852. MassMutual sold its first policy on August 2, 1851, to Harvey Danks, a MassMutual agent. Soon after, roaming agents like Danks sold policies to New England homeowners and workers. At higher premiums, MassMutual also insured railway and steamship workers, gold-rush adventurers, and people traveling south of the Mason-Dixon Line.
For the next several decades, MassMutual's expansion mirrored that of the United States. In the 1850s, the country was expanding westward. The company followed suit. By 1855, agencies were functioning in New York City, Cleveland, Chicago, and Detroit. In 1868, MassMutual reached the West Coast--before the transcontinental railroad was completed--and established an office in San Francisco.
Between 1850 and 1900, the volume of life insurance in force in the United States rose from $96 million to nearly $7.6 billion. Expansion and aggressive marketing were largely responsible for the growth. The late 19th century was an age of great technological advancement and ushered in a new era for life insurance companies. In 1885, MassMutual bought its first typewriter. Soon after, telephones were installed, which facilitated better communication between agents and the home office.
In 1886, Colonel Martin Van Buren Edgerly was named president. Edgerly had joined MassMutual in 1859 and spent his entire career with the company. He was the first of many career men to take the helm of MassMutual, which tends to look inward for leadership.
Regulated Growth: Late 1800s-Early 1900s
Edgerly oversaw a decade of carefully regulated growth and was replaced in 1895 by John Hall. Hall steered the company through the late 19th century, including the Spanish-American War of 1898--during which the company took minimal losses--and through the numerous business scandals of the early 20th century.
In these years of the robber barons, many insurance companies played fast and loose with laws governing their conduct. To encourage agents to sell more, firms paid excessive commissions. Dishonest executives used the sizable assets of their companies to control other corporations as well as for private purposes. MassMutual, however, kept clean and continued its regulated growth: the home-office staff grew from 16 in 1884 to 100 in 1907. MassMutual also continued, without change, its practice of selling only life insurance policies payable in a lump sum at death or maturity. The company's first innovation came in 1901, when it began offering policies under which proceeds would be paid over a fixed period or for life.
The company was not a target of the 1906 Armstrong Committee investigation, which uncovered many abuses by New York life insurance companies. The commission had been appointed by the New York state legislature, and its findings affected life insurers throughout the United States. Henceforth, companies were required to distribute dividends annually, to restrict the size of agents' commissions, and to regulate the nature of their investments. The investigation constituted a purge of sorts and signified the industry's maturation.
In the wake of the Armstrong investigation, insurance companies offered more services and products to attract customers who had been disenchanted by the exposed corruption. In 1914, MassMutual instituted a premium waiver in the event of disability, and in 1918 the company designed policies with clauses that provided income in the event of disability. Few significant losses were posted during World War I, although the influenza epidemic of 1918 hit the company hard. By 1924, there were 400 home-office employees, and the amount of insurance in force passed $1 billion.
The stock market crash of 1929 and the ensuing Great Depression hit MassMutual hard. Death claims and policy lapses increased greatly due to an unusual number of suicides and general economic hardship. So pervasive were policy terminations that the company's insurance in force on July 1, 1932 was less than it had been at the beginning of the year. MassMutual, aside from being an insurer, became a last resort for desperate people seeking financial help. The company doled out millions of dollars in low-interest policy and premium loans. In 1932 alone, the company made $26 million in new policy loans, and from 1929 to 1937 the company made $129 million in policy loans and another $63 million in premium loans. The Depression also saw the introduction of new products. In 1930, MassMutual introduced its first family-income policy. Seven years later, the firm issued its first substandard risk product, and in 1938 the first pension trust policy was issued. Under the leadership of President William H. Sargeant and Bertrand Perry, who succeeded Sargeant in 1936, MassMutual stumbled, but emerged from the Depression and World War II virtually unscathed.
Finding Postwar Opportunities
When Alexander MacLean assumed the presidency in 1945, he became the first actuary to take the reins of the company. Consequently, many new products and services were introduced during his tenure. As unions and collective-bargaining units grew in strength, the atmosphere became more conducive to the development of group coverage. In 1946, MassMutual first entered the growing group business, offering group policies and managing group pensions. MassMutual's first group product was a combination pension and insurance policy for Brown-Forman Distillers, the Louisville, Kentucky-based company that produced Jack Daniels whiskey. By 1950, the group department had grown exponentially, employing 200 people in the home office and in the field.
As the postwar economy boomed, MassMutual continued its steady growth. By 1951, assets totaled $1.4 billion and the company had more than $3 billion of insurance in force. The home-office staff numbered 1,350, serving a client base of more than 700,000. There were 87 general agencies and 110 district agencies in 44 states. This decentralization was key to the company's success. The company hired general agents who in turn hired and trained local groups of agents. Successful general agents were often promoted to the Springfield home office. To further develop the strength of field agents, MassMutual instituted a training program for field representatives and encouraged its workers to complete the American College's Chartered Life Underwriter designation. The system worked. Between 1948 and 1957, the total life insurance in force doubled, from $2.7 billion to $5.4 billion.
In the increasingly complex postwar world, investing became a thorny problem. Bonds and mortgages were traditionally the investments of choice, because they were low-risk, high-security outlets, but in the 1950s, when insurance companies began to purchase more lucrative, riskier stocks, MassMutual followed suit. Still, the firm's original purpose--selling whole-life policies--remained constant.
During the late 1960s, James Martin, who was named president in 1968, involved the company in several public-oriented initiatives, investing $75 million in a Springfield office, retail enterprise, and a hotel complex, as well as supporting downtown mortgage-financing pools to rejuvenate urban development in medium-sized cities like Springfield. In 1969, assets topped $4 billion.
Fighting Economic Downturn: 1970s-Early 1980s
MassMutual surged ahead during the economic downturn of the early 1970s, installing new computer technology and liberalizing the work place. In 1974, MassMutual became the first major life insurance company to institute flextime. Soon after came the installation of a new database linking the home office with general agencies, allowing field agents to obtain information on policies more quickly.
During the late 1970s, inflation and the ensuing recession caused interest rates to soar. Individual investors began investing in high-yield money market accounts. Many life insurers, MassMutual included, experienced a rash of policy loans and had to borrow money at expensive rates to cover the loans since the bulk of their assets were tied up in long-term, low-yield securities. In this environment, many insurance companies turned toward the design and sale of new financial products for relief. MassMutual largely resisted the temptation, sticking to life and health insurance and pension-related products.
It became apparent that changes were in order when MassMutual began to lag behind other, more innovative insurance companies. In 1981, when insurance in force grew by an average of 16 percent for the top 50 insurance firms, MassMutual's insurance in force rose only 9.9 percent. William Clark, who had taken over as president in 1980, saw that it was time to shift gears, and in the next seven years MassMutual introduced several new products and changed investment policies. Clark also reorganized the company.
In 1981, MassMutual introduced universal life policies--two years after they first appeared on the insurance scene. The policies offered flexibility in paying premiums and allowed money collected from premiums to go into an account that could be invested in high-yield money market funds. Universal life, along with other new products, proved a big seller.
To discourage policy loans, MassMutual introduced a program through which 750,000 whole life holders accepted a much higher schedule of dividends in return for an adjustable rate of interest on future policy loans. In 1985, a large dividend-scale increase was implemented for life and health policies, and $440 million in dividends were distributed that year.
MassMutual Reorganizes in 1983
The firm was reorganized in 1983 into four divisions: individual products, group life and health, group pensions, and investments. Each was accountable for its own business. At roughly the same time, a new subsidiary was created--MML Investors Services--that served as an outlet selling noninsurance financial products. Its chief product is a line of mutual funds.
During the 1980s, group pensions became increasingly important. In anticipation of this, the unit was upgraded to a division in 1981. By 1984, the group-pension division's assets had reached $5 billion, making MassMutual one of the biggest managers in the country. In 1989, pension sales reached $1.5 billion. The division offered a variety of products, ranging from interest-guarantee contracts to annuity contracts.
As assets grew, due in part to the growth of pensions, MassMutual devised new strategies for its investment-management group. In 1985, assets stood at $15.7 billion. By 1989, they had risen to $25.1 billion. Traditionally, MassMutual had specialized in long-term investments, but after reorganization the firm diversified its holdings. With more assets behind it, MassMutual became increasingly involved in mortgage lending. In 1985, for example, the investment-management group issued $693 million in commercial mortgage pass-through certificates--the largest commercial loan issue ever. The amount of invested assets under investment management's control grew from $12.4 billion in 1985 to $21.8 billion in 1989. Individual life insurance in force was $81.5 billion in 1989, up from $54.1 billion in 1985, and new sales tripled over the same time period for life and health benefits.
While Massachusetts Mutual's methods and products had changed greatly since 1851, its philosophy--pragmatic and agent oriented--had not. Even though the firm had come to rely on products other than life insurance, it continued to view serving policyholders and employee-benefit clients as its primary reason for being. Despite the huge growth of the group pension and financial products divisions, MassMutual was still seen essentially as an insurance company.
Diversification Brings a New Image: 1990s and Beyond
The insurance company, however, began to take on a different appearance during the 1990s. In 1990, it acquired Oppenheimer Management as part of its strategy to diversify into mutual funds management. Then, in 1993, it created subsidiary Concert Capital Management to oversee $52 million in retirement fund and endowment assets. By this time, the industry had become highly competitive and MassMutual was positioned as the 12th-largest insurance concern in the United States based on total assets.
In a move to solidify its position in the industry, MassMutual agreed to merge with Connecticut Mutual Life Insurance Co. in 1995. The deal was completed the following year and created the fifth-largest mutual life insurance company in the United States. MassMutual continued its diversification efforts in 1996 by creating Antares Leveraged Capital Corporation, a commercial finance unit providing lending services. By this time, assets had surpassed $100 billion.
Even as staunch competition in the insurance and financial sector continued, MassMutual achieved remarkable financial success during the late 1990s and into the new millennium. In 1998, the company posted a record year with net income increasing by 37 percent over the previous year to $359.2 million. The firm's positive results brought pressure to go public; however, company management believed that MassMutual's customers would be better served by maintaining its mutual company status.
Net income and sales continued to rise in 1999. That year, the company announced a new marketing name, MassMutual Financial Group, in an attempt to strengthen its image as a diversified financial services company. Chairman and CEO Robert O'Connell commented on the company's direction in a November 1999 South Florida Business Journal article, claiming that "you have to continue to offer new products and services and find new ways to grow your customer base, or you tend to wither away. The days when a company in our industry or elsewhere (in finance) could keep selling the same products without constant innovation are gone." Indeed, between 1999 and 2001, MassMutual and its domestic insurance subsidiaries launched 40 new products. By 2001, nearly 70 percent of revenues stemmed from these products.
MassMutual's financial success continued in 2000, which proved to be another record-setting year for the company. Total sales increased by 31 percent, revenues by 23 percent, and total assets under management grew from $206.6 billion secured in 1999 to $213.1 billion. That year, the firm stepped up its Asian operations and completed its purchase of CRC Protective Life of Hong Kong, which it renamed MassMutual Asia. MassMutual also took advantage of new laws that allowed insurance companies to enter the banking sector by creating MassMutual Trust Co. FSB, a federally chartered savings bank that offered investment services and estate planning.
In September 2001, the company's OppenheimerFunds subsidiary offices--residing in Two World Trade Center--were destroyed as a result of the terrorists attacks made against the United States. The subsidiary did not lose a single employee and recovered quite well, posting strong results along with its parent company for the year. Believing that diversification played a key role in its success during difficult economic times, MassMutual continued to move on that front. Its strategy for the future was centered around innovation and new product development, global expansion, and customer satisfaction.
Principal Subsidiaries: Antares Capital Corp.; C.M. Life Insurance Company; Cornerstone Real Estate Advisors Inc.; David L. Babson & Company Inc.; MassMutual International Inc.; MML Bay State Life Insurance Company; MML Investors Services Inc.; OppenheimerFunds Inc.; The MassMutual Trust Company, FSB.
Principal Competitors: New York Life Insurance Company; Northwestern Mutual; Prudential Financial Inc.
- Key Dates:
- 1851: George W. Rice establishes MassMutual.
- 1868: The company expands and establishes its first office on the West Coast.
- 1901: The firm begins offering policies under which proceeds will be paid over a fixed period or for life.
- 1930: MassMutual introduces its first family-income policy.
- 1946: The company offers its first group coverage policy to Brown-Forman Distillers.
- 1969: The company's assets exceed $4 billion.
- 1981: The firm offers universal life policies.
- 1983: The company is reorganized into four divisions.
- 1990: The firm diversifies into mutual funds management by acquiring Oppenheimer Management.
- 1995: MassMutual announces its merger with Connecticut Mutual Life Insurance Co.
- 2000: MassMutual Trust Co. F.S.B. is formed to operate as a federal savings bank; CRC Protective Life of Hong Kong is acquired.
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