I am sitting across a coffee table from a man who may be the world’s greatest life insurance salesman, a man who in just one year sold policies worth $8.75 billion.
A man who left his own firm to become a top exec at a company managing assets worth enough to give every man, woman and child in America a $500 bill and still have several billion dollars left over.
A man to whom I have just confessed that my personal life insurance consists of a no-frills, low-cost (and low-commission) term policy, one allowing me to take the money I save on premiums and invest it by myself.
The eyes of James M. Benson, senior executive vice president of the Equitable Life Assurance Society of the United States, light up at this news. He leans forward, speaking in the earnest tones of a preacher offering a sinner the chance to mend his evil ways.
Only this time, virtue is personified by the Equitable’s new variable-life products. I catch a few phrases.
“Well-managed . . . pretax instead of post-tax . . . a distinctly tax-advantaged basis,” Benson intones.
One part of my brain shouts caveats, but the part governing the most primitive instincts known to man can’t wait to stiff Uncle Sam. Where did I put that local agent’s card, anyway?
Of course, Benson hasn’t traveled all the way from New York just to sell me a policy. Still, new sales are very much on the mind of the officials of one of the nation’s oldest, largest and most-respected insurers.
Just a few short years ago, the Equitable was teetering on the brink of financial ruin, another victim of ’80s-style excess. Some nervous customers defected to competitors.
Then, thanks to Benson’s boss, Richard Jenrette, chairman and chief executive of the parent Equitable Cos., the insurer staged a remarkable financial turnaround.
To celebrate-and to showcase new insurance products for both agents and customers-the company has launched a “road show” worthy of a rock band. Chicago was city No. 14 on a tour of 50 cities in the continental U.S. and Puerto Rico, plus stops to take care of business in France and Spain.
“Sometimes,” says Jenrette, “the public perception (of a company) lags the reality.”
Perception is important in any business, of course, but particularly so when you’re asking people to give you their hard-earned money today in return for a promise to pay back a much larger amount many years later.
An excessive number of promises is what got the Equitable in trouble in the first place. In the high-inflation years of the 1970s, the company aggresively marketed guaranteed investment contracts that promised investors a high rate of return.
In the low-inflation environment of the late 1980s, however, billions of dollars of outstanding GICs (pronounced “gicks”), combined with a host of internal problems, threatened to pull down the entire company. To pay off the GICs, the Equitable had invested heavily in commercial real estate and in risky, high-yield junk bonds. When those two sectors collapsed, the Equitable’s operating cash flow abruptly changed from a positive $405 million in 1989 to a negative $1.4 billion in 1990.
Meanwhile, net income of $193 million in 1989 turned into a loss of $123 million in 1990, and the insurer’s A-plus rating from A.M. Best Co., the second-highest rank, slid two notches, to A-minus.
In this atmosphere of deepening gloom, Richard Hampton Jenrette was promoted to the chairmanship of the parent Equitable Cos. The soft-spoken son of a North Carolina insurance salesman had attended Harvard Business School on the GI Bill after serving in Army counter-intelligence during the Korean War. He astonished the inbred world of Wall Street high finance upon graduation by successfully launching the investment banking firm of Donaldson, Lufkin & Jenrette with two friends, later taking the firm public.
Jenrette joined Equitable Life as vice chairman when Equitable bought Donaldson, Lufkin in 1985. Other Equitable investment businesses include Equitable Real Estate Management-the world’s largest manager of real estate-and Alliance Capital Management.
Altogether, Equitable Cos. owns or manages $170 billion in assets-including Chicago’s NBC Tower-and serves 4.1 million life policyholders, including 613,000 in Illinois.
Jenrette moved boldly. First, AXA Group, an old-line French insurer, was persuaded in July 1991 to invest $1 billion in the Equitable in return for a 49 percent share-in effect, control.
Jenrette, a lover of good wines and a man whose personal hobby is restoring old homes, avers today that AXA Chairman Claude Bebear has become “perhaps my closest friend. He’s a brilliant guy and a great person.
Next, Equitable, which was formed as a policyholder-owned mutual insurance company in 1859, changed into a publicly owned company. Its initial public offering in July 1992 brought in $450 million in what was billed as the largest “demutualization” in history.
Then, in April, Equitable floated an $800 million offering of preferred stock.
The company has a ways to go to reach full financial health, says Larry Mayewski, a senior vice president of A.M. Best, but he praises Jenrette and Equitable Cos. President Joseph Melone, brought over by Jenrette from The Prudential, for a “superb” rebuilding job.
“Credibility of management is a key,” Mayewski adds.
So is firing up the enthusiasm of agents. The Equitable has always served a well-heeled clientele-its average new individual life policy is $206,000, more than twice the industry average-and its 90 large, company-owned agencies lead the industry in agents certified to perform complicated financial planning tasks.
The Equitable road tour with Benson, 46, and either the 64-year-old Jenrette or the 61-year-old Melone, features an intimate breakfast for top agents with the top execs; a combination rally and briefing for agents and employees; then lunch for local agents and favored clients.
Forget the stereotypes about insurance salesmen. Here at the Hyatt Regency O’Hare are the kind of agent-client pairings you thought existed only in television commercials.
“Why are you here?” I ask Charles Newland, a young Northbrook attorney standing next to Equitable agent Susan Gollinger of the Silverberg Agency, located in the same northern suburb.
“Susan’s a good friend of mine,” says Newland, who both refers his clients to Gollinger and is a client himself.
Or there is Eugene Jodlowski, president of a Chicago paper recycling company, musing fondly about the 20 years of business he has done with agent Terry Sachman, sitting next to him.
In his talk, Jenrette sticks close to the financial details. When it’s time to sell the “products of the ’90s,” as variable life has been called, it’s the turn of Benson, a native of northwest suburban McHenry whose dad worked as a shop foreman for Outboard Marine Corp.
The principle of variable life is simple: Instead of getting a fixed-value policy, the policyholder lets part of his premium be invested in a variety of ways, such as in stocks. That option looked particularly attractive last Thursday, as Equitable distributed a photocopy of an article in that morning’s Wall Street Journal noting that Equitable stock rose 19 percent as “second-quarter profit surprises analysts.”
Omitted from the presentation is another way that variable life is attractive-for insurers. “The policyholder is assuming the investment risk … plus, there’s a much more stable stream of earnings” to the insurer from investment fees, Salomon Brothers analyst Marge Alexandre explained in a later interview. (Perhaps in deference to the Equitable’s French owners, Jenrette pronounces her name as a Gallic “Alexan-druh.”)
Because the policyholder is assuming the risk, regulators also require insurers to keep less capital in reserve, another plus.
Equitable also has failed to distribute an even larger article in that day’s Journal that focuses directly on variable life. The product, while offering a number of tax and other advantages, “is the most expensive form of life insurance you can buy. . . . Total annual costs may exceed four percent of your investment, in some policies,” says the Journal.
Moreover, “If your investment bombs, you not only will lose money, but you may have to add money to the policy to keep it in force.” That’s because the investment returns aren’t providing enough cash to pay for the death-benefit part of the policy.
Fortunately for those digesting a frugal lunch of chicken salad and shrimp salad-plus a croissant, gazpacho and fruit-none of these quibbles come to light immediately. It’s an afternoon for inspiration, not investigation.
Typical of the general mood is Gwen Duncan, a stylishly dressed African-American businesswoman who rushes to get her photo taken with her agent and with Jenrette.
“It’s too bad our president can’t give a talk like that,” she says.
