While his competitors reel from hits to their balance sheets--and images--Lowndes A. Smith, president of ITT Corp.'s Hartford Life Insurance Cos., is sitting pretty. Thanks to a pristine balance sheet and prescient management, the former chief accounting officer for ITT's insurance units is in the midst of a deal spree that is the envy of his peers.
Smith's latest coup is a doozy: On July 7, after three years of wooing, the American Association of Retired Persons made Hartford Life the 60% owner of a new insurer that will begin marketing annuities exclusively to AARP members in 1995. That's a captive audience of 34 million. And it's a deal that had been sought by every major insurer, as well as by fund giants such as Fidelity Investments.
CLEAN SHEET. The deal is the crowning glory in a string that Smith has engineered. Thus far in 1994, Smith has bought three insurers--two in the variable-annuity market that Hartford Life dominates--and signed a joint venture with Argentine insurer Cenit Seguros to take advantage of the government's privatization of the social security system.
Hartford Life has been able to outmuscle its competitors because it hasn't had to worry about bad real estate assets and junk bonds. Real estate, mortgages, and noninvestment-grade securities account for 2% of Hartford Life's investment portfolio, vs. 20% for the average insurer. Such investments have battered balance sheets at insurers such as Travelers Cos. and Mutual of New York. "Hartford Life never had to spend a lot of time worrying about their balance sheet and credit risk in their portfolio," says Lawrence G. Mayewski, a senior vice-president at insurance rating agency A.M. Best Co. "They could expand while others were occupied."
Growth isn't coming just from acquisitions, however. While industry sales of life insurance are down 4% for the first six months of 1994--the first sustained drop in three years--sales growth at Hartford Life is in the double digits, thanks to its high credit rating and hot pursuit of new distribution channels.
The company also has benefited from Smith's quick response to the changing fortunes of health insurers. With reforms threatening to cap premiums and reduce the need for many health insurers, Smith was the first insurance executive to sell off a health-insurance unit. The sale of the health-insurance portion of Hartford Life's Employee Benefits Div. rid the firm of a capital-intensive unit and freed funds for the firm's growing annuity business. More money came from ITT, which has pumped $500 million into Hartford Life since 1990. The infusion gives the company a competitive edge: While other firms such as Metropolitan Life have had rating downgrades, Hartford Life holds top marks from Standard & Poor's and A.M. Best.
ACQUISITIVE EYE. The soft-spoken Smith has been churning out results since he took over as president of Hartford Life in October, 1989. The $35 billion company has zipped from No.25 in the industry to No.14 in terms of assets. Operating income has mushroomed from $50 million in 1989 to $206 million in 1993, and Salomon Brothers Inc. analyst Jay A. Cohen estimates that it will increase 15%, to $245 million, in 1994 and an additional 12% in 1995. Return on equity has increased from 7.3% in 1989 to 15.8% in 1993. And revenues have swelled from $1.9 billion to $2.9 billion over the past two years. Hartford Life, says Cohen, "is one of the star operations in all of ITT."
Can Hartford Life maintain such torrid growth? A slowdown is not on the agenda. The unit sold $2.7 billion of variable annuities in the first six months of 1994, estimates The VARDS Report, an industry newsletter. That's up 7% from last year--in a flat market. Granted, much of that growth came from acquisitions. Now Smith is lining up more distribution channels, signing annuity marketing agreements with banks such as St. Louis-based Boatmen's Bancshares Inc. "We don't want to see anybody walk down the street and not leave us some money," he says.
Smith isn't likely to stop making deals anytime soon. He admits to having an acquisitive eye, and ITT CEO Rand V. Araskog told analysts on July 20 that the company had recently looked at three life insurers and three annuity sellers but had turned each of them down for varying reasons.
There's only one cloud on the horizon for the workaholic Smith: his golf game. He won't disclose his handicap, but he reveals that he lost seven golf balls on a recent outing. With Hartford Life at full tilt, his game can only get worse.