New York Life Insurance Company Business Information, Profile, and History
History of New York Life Insurance Company
New York Life Insurance Company is one of the five largest mutual insurance companies in the United States. It has provided its policyholders with financial security and investment opportunities since 1841. As a mutual company, New York Life is owned solely by its policyholders, to whom it pays annual dividends and provides long-term coverage on a wide range of insurance products. The company prospered during its first 100 years of operations, as the growth of the nation's population and economy created an expanding market for life insurance. Since World War II New York Life has maintained its competitive edge by diversifying into group insurance, health care, annuities, and mutual funds. Its policies represent over $300 billion in insurance coverage.
Life insurance was an infant industry when New York Life's predecessor, Nautilus Insurance Company, began operations in the 1840s. Marine and fire insurance were important, but people hesitated to assign a cash value to human life, and often associated life insurance with gambling.
As the economy became more industrial and the population more mobile, society recognized the need to secure a family's welfare against the loss of a breadwinner. In 1840 New York State passed a law allowing a married woman to insure her husband's life with immunity from having the benefits seized by his creditors. Such legislation recognized the use of life insurance in a developing industrial economy and widened its potential market beyond wealthy speculators.
New York Life has its origins in a charter granted by the New York state legislature to Nautilus Insurance Company in 1841, for the sale of fire and marine insurance. The company began issuing policies in April 1845 and soon decided to jettison its fire and marine business in order to concentrate on life insurance. By 1849 the company was so securely established in this new business that it petitioned the state legislature and had its name changed to New-York Life Insurance Company. In 1917 or 1918 the company dropped the hyphen in its name. The company's early operations coincided with the development of U.S. life insurance. Policies issued by the company were usually limited to short periods of time and placed a variety of restrictions on their owners. Policyholders in the 1840s could not travel south of Virginia and Kentucky during the summer because the company considered the southern climate a health risk. Southerners applying for policies faced higher premiums and restrictions on their travel as well. Before 1850 the company considered overland travel to California too dangerous for policyholders to undertake without paying an extra premium. Epidemic diseases were of great concern to the company in its early years. Outbreaks of cholera and yellow fever often threatened the company's security, and temporarily forced it to restrict new business to Manhattan and Brooklyn in 1849.
Despite such natural threats, the company grew quickly and established an adequate reserve for paying out dividends and benefits to policyholders. This success was largely due to the company's most innovative contribution to the young industry, the use of agents to sell policies. Previously, insurance sales had centered on a home office that served local merchants and elites wealthy enough to protect their property and lives. New-York Life's use of agents to seek out new business greatly expanded the market, and the company soon established agencies in New England, the southern states, and as far west as California.
The Civil War presented the company with its first major crisis, since it had developed a sizable southern business. President Abraham Lincoln's prohibition of commerce with the Confederate states during the war cut off communication between the home office and its southern policyholders, creating a host of problems, including lapsed payments and unpaid claims. The company compensated for these losses, however, by issuing policies to soldiers and civilians involved in combat. One of the few companies to take on such war risks, New-York Life managed continued growth despite its southern losses. In fact, the company sold over half of the 6,500 new life insurance policies issued in New York City in 1862.
After the war, New-York Life expanded quickly with the nation's booming economy. The company recovered its southern business by paying benefits on death claims left unsettled during the war and by allowing former customers to renew their lapsed policies. As the nation pushed westward, so too did the company, establishing agencies in Utah, Montana, and Nevada in 1869 and in San Francisco in 1870. New-York Life also became an international name during this era, opening offices in Canada in 1868, Great Britain in 1870, Paris in 1884, Berlin 1885, Vienna in 1887, Amsterdam in 1891, and Budapest in 1894.
Intense competition marked the insurance industry in the last two decades of the 19th century, and it was during this time that the company emerged as one of the largest mutual insurance companies in the nation. Competition was fueled in part by the introduction of tontine policies, a type of life insurance in which a number of policyholders would forego their annual dividends and award the money to the last survivor of the group. The winner enjoyed a considerable payoff for his or her longevity. New-York Life began selling tontine policies in 1871, and by 1900 its growth in sales made it one of the nation's three biggest mutual insurance companies, along with Mutual Life Insurance Company and Equitable Life Assurance Society.
Reorganization of the company's agency system also promoted its growth. In 1892 President John A. McCall implemented the branch office system, the structure by which the company now operates. The home office opened branch offices throughout the United States to act as liaisons between the company's New York operations and its agents in the field. Improved communications allowed for more effective administration of the agency force through sales incentives and professional training.
The boom of the 1880s and the 1890s did not go unchecked. New-York Life entered the 20th century at odds with progressive reformers, who accused the rapidly growing insurance companies of mismanagement and malfeasance. In 1905 the New York state legislature convened an investigative committee under the leadership of William W. Armstrong to examine the state's insurance companies and make recommendations for regulatory reform. With the legal assistance of future U.S. Supreme Court Chief Justice Charles Evans Hughes, The Armstrong Committee heard testimony from the industry's most powerful executives, including John A. McCall.
The Armstrong Committee found New-York Life free from many of the abuses common in other companies, but it also recommended curbing the practices that had pushed the industry's expansion since the Civil War. In 1906 New York outlawed the sale of tontine policies, prohibited excessive commission for agents, and limited the amount of new business a company could do each year. The company officers actively lobbied for revision of these laws. Under the vocal leadership of Darwin Kingsley, who had become president in 1907, the company achieved some success in having its new business ceiling increased and agent incentives reinstated later in the decade.
New-York Life prepared early for World War I, selling securities and borrowing in order to increase cash reserves and meet wartime obligations. During the war the company also issued war-risk policies. The war's greatest challenges came in its aftershocks. The worldwide influenza epidemic of 1918 and 1919 hit the United States with unexpected ferocity: death claims resulted in a $10 million loss for the company, almost twice the cost of benefits paid during the war.
During the Russian Revolution of 1917 the company's assets in Moscow were seized. Soon after, New York Life began its withdrawal from Europe, a reaction to unfriendly regulation and a volatile world economy.
The company's assets were not involved in the stock market crash in October 1929 because state regulation and conservative planning had kept New York Life investments out of common stocks and in more secure government bonds and real estate. In 1929 New York Life moved into its current corporate headquarters on Madison Avenue in New York City. The move represented the company's entry into a modern era of closer ties to the nation's economy and diversification into new financial markets. The company weathered the Great Depression and became an important source of capital in the cash-short economy. Its greatest losses during the Depression were in the form of lapsed payments and canceled policies, a trend finally reversed by the booming wartime economy of the 1940s.
Wartime production and the postwar baby boom revived the insurance industry, and New York Life tailored its products and investments to take advantage of these economic and demographic changes. With the development of group insurance in the first half of the 20th century and the passage of the federal Social Security Act in 1935, people began to buy insurance less for its one-time benefit to surviving family members and more for its lifelong investment security. New York Life introduced its first group insurance policies in 1951 and expanded its coverage in group and personal policies to include accidents and sickness as well as death. Two years later it offered the employee protection plan, a combination of individual life and group sickness coverage designed for small businesses. The success of its group plans has sustained New York Life's remarkable growth since World War II. In 1974 it created a pension department and began selling employee protection insurance, another policy plan popular with small businesses. In the 1970s alone, New York Life's group insurance sales increased by 152%.
Recognizing the need for housing in the postwar nation, New York Life began moving its assets out of wartime government securities and into real estate development in the late 1940s. The company established a mortgage-loan program for veterans in 1946 and also invested in residential housing developments in Queens and Manhattan and in Chicago and Princeton, New Jersey, during the 1940s and 1950s. In 1969 it established the Nautilus Realty Corporation to handle its commercial and residential real estate operations, which proved to be of increasing importance as inflation in the 1970s and 1980s made other investments less desirable.
In the 1960s New York Life introduced the family insurance plan, a policy of comprehensive family coverage. When economic recession and inflation caused the lapse rate on new policies to increase in the early 1970s, the company created an insurance conservation office to study ways of better serving--and thus keeping--customers. The introduction of its Series 78 policies in 1978 made conversion between short-term and life policies more flexible for investment purposes and reduced premiums for women, who were buying an increasing percentage of the company's personal policies. Further innovations have included a widening variety of annuities, cost-of-living adjustments in benefits, and the sale of mutual funds. In 1986 the company introduced NYLIFE as a new brand name for its financial products, differentiating this growing business from its traditional life insurance policies.
Inflation and high interest rates in the early 1980s hurt New York Life's new business sales and reduced its reserves, as policyholders borrowed against their policies for cheap credit. The company quickly adapted to these circumstances by taking advantage of deregulation in the financial-services industry. In early 1984 it acquired MacKay-Shields Financial Corporation and two years later the company began marketing its own MainStay mutual funds through this new subsidiary. The company also expanded its annuity business through its subsidiary, New York Life Insurance and Annuity Corporation.
Another major growth area for New York Life during the 1980s was health care. The spiraling cost of medical care in the 1970s and 1980s strengthened the appeal of insurance as a security against long-term illness. In 1987 New York Life purchased controlling interest in Sanus Corporation Health Systems, one of the largest health-care companies in the nation. New York Life's greatest concern in the health-care field is AIDS. In the late 1980s New York Life became one of the most visible promoters of AIDS awareness in New York City as well as a generous supporter of the American Foundation for AIDS Research. The company has opposed antitesting laws introduced in various states, arguing that testing for the AIDS virus is a necessary step in assessing the risks involved in new policies.
Diversifications into real estate development, mutual funds, partnership investments, annuities and pensions, and health care have preserved New York Life's market position, and it entered the 1990s ready to take advantage of expanding demand for these new products.
Principal Subsidiaries: New York Life and Health Insurance Company; New York Life Insurance and Annuity Corporation; NYLIFE Insurance Company of Arizona; New York Life Insurance Company of Canada.
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