September 28, 1999
New York, NY

The Future of Consumer Financial Services
Robert M. Devlin, Chairman, President & CEO,
American General

American General Corp., the largest publicly traded life insurance company in the United States, says it's looking forward to competing with the wave of mutual insurance companies that are about to become stock companies.

"We do like competition with ROEs (returns on equity) below 10%," Robert M. Devlin, American General's chairman, president & chief executive officer, told analysts and investors Tuesday. "They have a major overhaul to do with their businesses."

Devlin spoke at the life insurance session of the CIBC World Markets conference, co-hosted by A.M. Best Co.

Devlin, whose company reports return-on-equity rates higher than 15%, said the immediate effect is that mutual insurers will have to reprice their insurance products. Currently, mutual insurers provide the stiffest price competition, which Devlin believes will ease as giants such as Prudential Insurance Company of America, Metropolitan Life Insurance Co. and John Hancock Mutual Life Insurance Co. demutualize and become publicly traded insurers.

Competition is changing, and not just from within the life insurance industry, Devlin said. For instance, the Merrill Lynch brokerage and investment network now sells more life insurance than all but 22 of the largest insurers. In the 1970s, two-thirds of life insurance was sold by mutual insurers, most of whom distributed their product through career or captive agents.

By the mid-1980s, two-thirds of the life business was controlled by stock-owned insurers, who sold much of their product through independent agents and non-insurance channels such as banks and other financial service providers.

Devlin outlined some ambitious goals for Houston-based American General, such as continuing the 15% return on equity and becoming the only insurer to capture more than 10% of the individual life market, as measured by premiums. At one time, Prudential exceeded that share, but Northwestern Mutual Life Insurance Co. now holds the largest share of the individual life market, with more than 7%, Devlin said.

As of 1995, American General units collectively owned 3.2% of the individual life insurance market, a share that rose to 6.5% by 1998, he said.

American General continues to expand its ranks of representatives, with more than 35,000 sellers in various units. Collectively, they sold more than 800,000 life policies in 1998, Devlin said. The company has also built a centralized underwriting center in Milwaukee, saving $20 million in overall underwriting expenses.

Based on internal growth and seven acquisitions, American General now has more than $110 billion in assets and $1 billion in after-tax operating profits. It currently has a $17 billion market capitalization--"at least we were the last time we looked," Devlin joked to an audience of Wall Streeters.

Devlin predicted continued, relentless consolidation in the U.S. life insurance industry. For instance, the top 10 companies now account for 25% of the business, the top 25 account for 46% and the top 50 for more than 90%. The top 100 companies at one time controlled 90%, but that figure has been sliced in half. American General owns six of the top 50 life insurance companies.