Thursday, June 21, 2007

Succession Planning at Life Insurance Cos

The Globe and Mail, Tara Perkins & Andrew Willis, 21 June 2007

The three tall ships in Canadian insurance, a trio of formidable North American players, are all captained by CEOs cruising through their early 60s. Succession is very much in the air at Great-West Lifeco Inc., Manulife Financial Corp. and Sun Life Financial Inc.

But observers are calling for one or more major takeovers to play out before the hand-offs take place.

Dominic D'Alessandro took the reins at Manulife a dozen years ago and is now 60 years old. Donald Stewart, who has been at the helm of Sun Life since 1998, also turns 61 next year. And, at age 63, Raymond McFeetors is coming up on his 15-year anniversary as chief executive officer of Great-West Life.

Their legacies are assured. Investors have benefited handsomely since these CEOs stepped on the bridge, ahead of demutualization of the Canadian insurance industry in the late 1990s. Manulife and Sun Life successfully navigated going public, and the stormy takeovers that followed.

Mr. McFeetors and Mr. Stewart proved apt domestic consolidators, while Mr. D'Alessandro wins universal respect for vaulting Manulife into the top ranks of U.S. insurers with its $15-billion purchase of John Hancock in 2004.

Mr. Stewart stumbled on the acquisition trail in the U.S. by paying $2.6-billion for Keyport Life Insurance back in 2001, as the U.S. annuity business did not produce strong profits. The $7-billion purchase of domestic rival Clarica in 2002 provided better results.

As for Mr. McFeetors, who has homes in both Winnipeg and London, Ont., the final verdict on his recent $4.6-billion gamble for troubled mutual fund manager Putnam Investments Trust is not yet out, but the white knight purchases of Canada Life and London Life were winners.

Before the next batch of CEOs takes the bridge, at least one of this current lot will likely take one more shot at burnishing his legacy with a major acquisition. In the anything-but-sleepy insurance world, the coming year marks the last act.

Although Manulife has been touting its ability to grow organically - believing its current platform can deliver 15-per-cent growth to its earnings per share in the medium term - "a deal would still be nice," UBS Investment Research analyst Jason Bilodeau said in a note to clients last week.

The ideal purchase would be another large transaction in the U.S., similar to the company's acquisition of John Hancock Financial, Mr. Bilodeau said.

Over at Sun Life, Mr. Stewart said last month that the company is always on the hunt for acquisition opportunities, and many of the deals are outside of Canada. Mr. Stewart has been lobbying against the federal government's budget proposal which would kill a tax break for companies that make foreign investments. It was Sun Life's operations in California that landed Mr. Stewart on stage at an event for The Economic Club of Toronto, where he introduced California Governor Arnold Schwarzenegger.

Succession planning at many major companies is a lengthy process of grooming. Not so in insurance, Moody's Investors Service Inc. said in a special report on Tuesday.

"The insurance sector stands apart from most other financial service sectors in the manner in which insurers' boards have traditionally selected new CEOs," it said. "Large insurers have been much more willing than other financial service firms to recruit CEOs from outside the company."

A notable number of large insurers in North America hire top talent from outside, either directly as CEO, or by bringing them in to another senior position for a term before promoting them.

And, even among those who rose through the ranks of their respective insurance companies, a large number had experience in other sectors or fields first.

"This distinctive approach is visible in both U.S. and Canadian insurers," Moody's said.

Mr. D'Alessandro is a case in point. He went to Manulife after a history at the banks, having worked at the Royal Bank of Canada and then going on to become CEO of the Laurentian Bank of Canada.

Moody's said "there are signs, however, that the distinct bias to bringing in outsiders as CEOs is starting to change. Insurance company boards are beginning to recognize the inherent difficulties in such recruiting. Outside CEOs can find it difficult to get accustomed to the company's culture or to develop rapport with key executives and employees. Moreover, the expectations placed on outsider CEOs, particularly from equity investors, can be overwhelming. Finally, outside recruiting can demoralize existing senior management because it signals failed succession-planning to them."

Boards of directors appear to be more focused on succession now, Moody's said. They are now routinely meeting executives several ranks below the CEO. And they're pushing for a more systematic hand-off of responsibilities to those executives who are in the running for the top job.

"It is still too early to tell if this enhanced focus on succession planning will enable more insurers to select CEOs from within their own ranks," the report concluded.
The Next Skippers

The three largest Canadian insurers may look to Americans as their next CEOs. Here are contenders to the thrones:

Great-West Lifeco

Here's an insurer that could look outside for a new CEO, as the ranks of parent Power Corp. and its subsidiaries are filled with management talent. Leading internal candidates would be Denis Devos, who runs the Canadian operations and is an actuary with 30 years experience at the firm. Consideration would also likely be given to two business heads running U.S. operations: Richard Rivers and Douglas Wooden, along with the CFO for the American division, Mitchell Graye.

Manulife Financial

John DesPrez, a Boston-based executive who was given responsibility for all North American business this month, will likely get the nod. Internal rivals include Don Guloien, the chief investment officer who also started running the Asian unit this month, and J-P. Bisnaire, head of business development and the insurer's general counsel. Manulife's board went outside for its last CEO, plucking Mr. D'Alessandro from a bank.

Sun Life Financial

The heir apparent, president Jim Prieur, resigned to become chief executive officer of Conseco Inc., a rival U.S. insurer. Succession is now something of a mystery. Insiders say the board is keeping an eye on Kevin Dougherty, who runs the Canadian operations, and Robert Salipante, who heads up the U.S. division and joined in 2003 after holding the top job in ING's U.S. operations. Other contenders are Thomas Bogart, the company's general counsel, Dean Connor, who's an executive vice-president, and Rick McKenney, the chief financial officer.