Massachusetts Mutual Life Insurance Company

Origins

Massachusetts Mutual Life Insurance Company (MassMutual) began operation on May 15, 1851 in Springfield, Massachusetts, by George W. Rice, who subscribed for a guarantee capital of $100,000. As an insurance agent who sold policies for Connecticut Mutual Life Insurance Company in Hartford, Connecticut, Rice wanted to open a company of his own in neighboring Massachusetts. Similar to Connecticut Mutual, this new enterprise grew into a mutual company.

The popularity of mutual companies in the insurance industry had grown significantly between 1843 and MassMutual’s creation. Approximately a dozen competing mutual companies, including Mutual Life Insurance Company of New York (1842), Mutual Life Insurance Company of New Jersey (1845), and Connecticut Mutual Life Insurance (1846), experienced promising success, because minimal amounts of working capital were required for operation.

However, MassMutual’s path followed a different course when an 1851 Massachusetts state law required all insurance companies to take an initial stock subscription of $100,000. Rice met that requirement by recruiting 31 investors to purchase stock in his company to meet the mandatory subscription. After the company began operations and built sufficient reserves to meet regulatory requirements, the 31 stockholders were paid back in 1867, the stock was retired, and MassMutual functioned as a mutual company.

MassMutual’s first president was Caleb Rice, appointed in 1851. A cousin of founder George W. Rice, Caleb Rice served as president of MassMutual for 22 years, making him the longest-serving president in the company's history. As a former lawyer and Sheriff of Hampden County, Massachusetts, Rice served on the Massachusetts House of Representatives for five years and was later elected as the first mayor of Springfield, Massachusetts from 1852-1853.

MassMutual began to sell policies to homeowners and workers throughout New England. As westward expansion grew, fueled by excitement from the California Gold Rush (1848-1855) and railroad development, MassMutual agents began to sell high-premium insurance policies to railway and steamship workers, gold-rush adventurers, and people relocating south of the Mason-Dixon line. For the next several decades, MassMutual's expansion continued to mirror that of the United States. By the time MassMutual was established, 9,000 miles (14,000 km) of functioning railroad lines had been built, giving MassMutual the opportunity to establish agencies in New York City, Cleveland, Chicago, and Detroit by 1855. MassMutual reached the West Coast in 1868 and established an office in San Francisco before the Transcontinental Railroad was completed in 1869.

Across the industry, sales of life insurance policies began to substantially increase by the late 1850s. Sales reached $200 million by 1862, then tripled to just under $600 million by the end of the Civil War. Westward expansion and increased marketing efforts of the insurance industry were largely responsible for this growth.

Another effort that contributed to the increased selling of life insurance policies was the passing of a non-forfeiture law by the Massachusetts legislature in 1861. The law forbade companies from cancelling policies, even if premium payments were not received from policyholders, and stated that policies would be converted to term-life policies and companies were to pay any death claims that occurred during this term period. As the industry continued to grow, so did MassMutual, and by 1873 – just over 20 years since their first $1,000 policy was issued on August 2, 1851– the company held $4,501,909 in assets.

Caleb Rice’s presidency of MassMutual came to an end in 1873 when he was succeeded by E.W. Bond, who held the position for 13 years. Bond was replaced in 1886 by Colonel Martin Van Buren Edgerly, who started his career with MassMutual in 1859. He was the first major example of MassMutual’s tendency to look from within to promote and enforce inward leadership.

Regulated Growth: The Late 1800s to Early 1900s

Edgerly oversaw MassMutual’s growth for nearly a decade. John Hall replaced Mr. Edgerly in March 1895 and helped MassMutual’s assets exceed $50,000,000. In 1901, MassMutual began to offer policies whose proceeds would be paid over a fixed period or for life, compared to policies that were only payable in lump sums at death or maturity. Before Mr. Hall’s death on September 3, 1908, he guided MassMutual through the late 19th century - particularly through numerous business scandals of the early 20th century.

The 1906 Armstrong Committee investigation in 1905 uncovered the questionable financial practices of several New York life insurance companies. While MassMutual was not a specific target, the investigation required insurance companies to distribute dividends annually, to restrict the size of agents' commissions, and to regulate the nature of their investments. Policies were also required to state the provision upon creation.

As the Armstrong Investigation settled, all MassMutual policies issued after October 1, 1907 earned value according to the American Experience Table of Morality and 3% interest. MassMutual also began to offer new services and policies to attract customers. In 1914, the company instituted a premium waiver in the event of disability, and designed policies with clauses that provided income in the event of disability in 1918.

Despite the adverse effects of the influenza epidemic in 1918, MassMutual maintained steady growth. The company employed 400 home office employees as the amount of insurance in force passed $1 billion in 1924.

However, MassMutual began to feel the direct effects of the stock market crash in 1929. As the economy plunged 22% in a matter of days and 30% of the country’s workforce was faced with unemployment, death claims and policy lapses drastically increased due to an unusual number of suicides and general economic hardship. MassMutual became a last resort for people needing financial help as The Great Depression took over the United States - and the world - from 1929-1932. While the Great Depression was an economic downfall for the country, MassMutual was able to develop new products and services. MassMutual introduced its first family-income policy in 1930. Eight years later, the firm issued its first pension trust policy in 1938.

Postwar Years

As the Great Depression faded from the United States in 1939, the start of World War II spurred the country’s industrial and economic progression, workforce and insurance demands. Former actuary Alexander MacLean began his MassMutual presidency in 1945.

Once the United States became heavily involved with World War II and unemployment significantly decreased, MacLean oversaw the development of insurance products and services for workers. The war placed high production demands on the country’s industrial workforce. As jobs were quickly created and unions strengthened, MassMutual entered the group marketplace in 1946, offering policies and managing pensions. The first group product was a pension and insurance policy for Brown-Forman Distillers – the Kentucky-based company that produced Jack Daniel's whiskey.

MassMutual maintained internal development as the postwar economy boomed by decentralizing operations through field agents. The company’s home office staff, consisting of 1,350 employees, served a client base of more than 700,000 customers. MassMutual’s general and district agencies contributed towards the company’s growth – assets totaled $1.4 billion, with $3 billion of insurance in force by 1951. In addition, MassMutual instituted a training program for field agents and encouraged its workers to complete the American College Chartered Life Underwriter designation. Total life insurance in force doubled from $2.7 billion to $5.4 billion between 1948 and 1957.

James R. Martin was named president in 1968. Martin led MassMutual to invest in various projects, including $75 million invested in a Springfield, Mass. office to support efforts for rejuvenating urban development in Springfield.

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.

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 34 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. In 2001 assets under management reached $234 billion.

MassMutual leads peers in several product lines: individual life insurance, individual disability insurance (DI), annuities, long-term care insurance, retirement plans, and asset management through the ownership of OppenheimerFunds and other asset managers. Scale is one element of MassMutual’s efficient operations, with total assets under management (AUM) experiencing double-digit growth annually since 2003 and reaching $505 billion as of year-end 2007. As of 2008 MassMutual has 4,300 employees in Springfield and 1,900 in Enfield, CT.

Involvement in the Madoff investment scandal

MassMutual owns Tremont Capital Management, a feeder fund that fed investors' money to Bernard Madoff's Ponzi scheme and ultimately lost $3.3 billion in the resulting scandal. Irving Picard, the receiver who is recovering money from the Ponzi scheme, extracted a settlement from Tremont worth over one billion dollars.