MassMutual's Incoming CEO Will Draw on Experience to Lead Through Crisis

Just two years after Roger W. Crandall joined Massachusetts Mutual Life Insurance Co., there was a financial crisis. Now, as he takes the chief executive officer reins of the 158-year-old mutual company, there is a global financial downturn to lead it through.

Crandall, 44, a company veteran, joined MassMutual in 1988 and has held several leadership posts, including head of corporate bond management, public bond trading and institutional fixed income. Early on, he worked in the real estate investment division, "just in time for the complete and utter collapse of the commercial real estate market" around 1990-1991, he said. There also was the junk bond fiasco to deal with, Crandall, currently president and chief operating officer, reflected.

The company -- the 13th largest U.S. life insurer based on 2008 admitted assets, according to A.M. Best Co. -- posted a net loss of $1 billion last year. MassMutual "ran into the worst financial market crisis since the Great Depression," Crandall said. As equity markets fell, so did the fee income that MassMutual's businesses generate from managing assets, while the company recorded impairments in its investment portfolio, he said.

Over the past year, however, the company revamped its portfolio, adding investment-grade corporate bonds, Crandall said. Year-to-date, it bought about $3.2 billion dollars in these bonds "and we're pleased with the values we're getting," he said. It also reduced its holdings in some Treasuries and in Fannie Mae and Freddie Mac, Crandall said.

On a bright note for the industry, since the first quarter, in addition to a rebound in the stock markets, the capital markets have greatly improved, he said. Commercial paper -- which completely collapsed in the aftermath of the Lehman Brothers bankruptcy last September -- is functioning normally again, Crandall said. Corporate bond markets "are working, giving credit-worthy companies access to capital."

Crandall said he doesn't plan to make any changes to MassMutual's strategy: being a mutual life insurer run for the benefit of its participating policyholders. "They want financial strength, they want great products and service and they want the highest possible dividend we can pay them consistent with remaining financially strong."

In June, Crandall was named MassMutual's next CEO, starting Jan. 1, 2010. He will succeed Stuart H. Reese, who will step down from the top spot and assume the role of nonexecutive chairman of the board.

Last year, MassMutual made several changes in leadership, which took effect Dec. 1, including naming Crandall, then-co-chief operating officer and chief investment officer, as president. Crandall will remain president when he becomes CEO.

His background is mostly in investment and asset management. "That's clearly where I started out," he said, noting he was "never an insurance guy, per se." His father, though, was a group insurance representative for MassMutual for 35 years, and growing up, Crandall heard a lot about insurance. His father would pitch a company on group life "and I would run spreadsheets" for him, showing what premiums would be for different coverages, he reflected.

Regarding his experience in life insurance, Crandall said he became responsible for MassMutual's retirement-income business, which included annuities, in 2007. When managing assets related to insurance policies, "you have to know a lot about the liabilities to manage the assets," he said.

Meanwhile, new U.S. individual life insurance premium for the industry dropped 7% in 2008 and declined 26% in the first quarter, according to Limra International. But MassMutual's sales for participating whole life insurance --- its foundation product -- grew and continues to grow this year, Crandall said. Based on first-quarter data, MassMutual outperformed the industry and through July, premiums are up about 6%, while policy counts are up 20%, he said.

"When people see what participating whole life insurance has been able to do, with its accumulated cash value and embedded guarantees on dividends, they are seeing it's a product that really came through the crisis quite well," Crandall said.

Stock-market linked variable annuities with "living benefit" riders -- specifically, the popular guaranteed minimum income benefit and guaranteed minimum withdrawal benefit -- are another story, however. MassMutual stopped selling most at the end of 2008 and all of them earlier this year because of the costs to hedge against the risks, Crandall said.

Some big writers of variable annuities have been eliminating features or stopped selling them altogether, he said. "Everybody has struggled with the cost to hedge in a much more difficult capital market environment."