OneAmerica sailed through financial crisis but still learned lessons

Ten years ago, as the financial crisis raged, if insurance companies and banks were making headlines, it was almost universally for a bad reason. The crisis felled many storied businesses, from Columbus, Indiana-based Irwin Union Bank to New York-based Lehman Brothers.

In that span, you didn’t hear a peep out of Indianapolis’ largest private company, the insurance and retirement-services provider OneAmerica Financial Partners.

That wasn’t by accident. Annual financials filed with insurance regulators show it was a port in the storm. In fact, according to an analysis by OneAmerica of 32 major life insurers, it was the only one that realized a gain on its investment portfolio from 2008-2010, the years encompassing the financial mayhem.

That gain, measured as a percentage of average invested assets, was 0.23 percent. That compared with an average for the 32 companies of -2.15 percent.

Davison

How did that happen? CEO Scott Davison said the story starts with OneAmerica’s structure as a mutual insurer—meaning it is owned by its policyholders, not stockholders. He said that puts its focus squarely on ensuring it can meet its obligations to customers, who last year received $5.8 billion in benefit payouts.

“One of kind of our founding tenants is liquidity first, capital buffer second, profitability third, and don’t get those backwards. That’s something we teach our younger folks all the time,” he said.

“The companies that didn’t do well had that backwards. They were profit first, liquidity last.”

Davison also credited OneAmerica’s seasoned investment team, which was overseeing a $10 billion portfolio when the crisis began. The chief investment officer at the time was David Sapp, who’d joined the company in 1969. Assembling the bond portfolio, which held up well during that period, was John Mason, who later assumed the top job after Sapp retired. Mason is only the fourth chief investment officer for OneAmerica since World War II.

Investment managers wisely avoided some of the complex financial instruments Wall Street was churning out at the time—from synthetic collateralized debt obligations to CDO-Squared securities—because they didn’t fully understand them and didn’t trust them, said Davison, who was chief financial officer at the time and became CEO in 2014.

Also critical was good, old-fashioned financial analysis. OneAmerica started reducing the risk in its investment portfolio in 2005 after concluding that ratings on certain securities by credit agencies—which determined their pricing—understated their risks.

“We de-risked … not because we were sages that could predict this horrible catastrophe that was the financial crisis, but because we weren’t getting compensated in the investment portfolio for the risks that we were being asked to take,” Davison said.

After Lehman Brothers collapsed on Sept. 15, 2008, OneAmerica’s senior management hunkered down for about six weeks, assessing its liquidity position and accumulating cash to make that position even stronger.

“And then, still within our conservative risk framework, we went on the attack. And we got as aggressive as we have ever been” scooping up investments at dirt-cheap prices, Davison said.

That’s not to suggest OneAmerica sailed through the crisis without a hitch. One internal weakness it discovered was that it took too long to get a handle on liquidity. Company officials found themselves phoning call centers to find out whether money was flowing in or out. Now, executives have that information at their fingertips.

OneAmerica also found that, in a crisis, it must communicate faster with constituencies, from agents to policyholders. It now practices crisis scenarios to ensure communications go out within hours, not at the end of the day or next business day.

OneAmerica isn’t the only company that’s gotten smarter about risk management, which is one reason Davison thinks that, while future crises could occur, the financial system overall has become more resilient.

While observers like to blame the government, banks or others for the meltdown, “in my view it was a lack of a strong risk management culture within all of the governmental and private interests that touched the financial system,” Davison said.

“It was just a lack of understanding of risk and allowing the risks that we’re building to get away from us and convincing ourselves that somehow this was going to magically turn out OK.”•