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These are scans of some of the 1980s MSI Annual Reports. The decade would end with MSI in the new Arden Hills building.
The annual report has a lot of watercolor-styled pictures throughout. Apparently these are related to television ads MSI was running. This was before my time in Minnesota and I don't recall these at all. The Life company went over $2 billion of life insurance in force. If I read the annual right, MSI had 900 employees and 550 agents at this point.
The narrative on this and succeeding pages provides a brief account of the immediate past: it was a year of extensive changes in products and improvements in service to our policyowners. The illustrations visually portray our people helping people philosophy as interpreted through a few of our television commercials. The logos identify some of our valued member cooperatives and cooperative organizations that we serve or with whom we are affiliated.
Life and health insurance were troublesome. In part, this was due to the shift in preference to term life by the insurance-buying public. In health, they only expected to break even in 1981. This was the year that the drive-in sales and claims facility was built (now the Anchor Bank on the SW corner of County E and Pine Tree Drive). That wasn't all:
Drive-up claims services have also been established for our policyowners in Duluth, Minnesota and Milwaukee, Wisconsin. To expedite claim processing, we instituted telephone loss reporting in Minneapolis and St. Paul.
Technology marched forward:
Word processing units installed in the Life, Marketing Services and Commercial Policy Issue departments produced up to 90 percent savings in some areas.
MSI was really proud of its cooperative governance. Mutual Service Cooperative had 615 members at the end of 1980. Each co-op had one vote in electing the 11-member Board of Directors. Individual policyholders would sign a proxy that gave their vote to the Board, who oversaw the MSI insurance companies. Those companies, meanwhile, were aiming to get licensed in 48 states; they were in 38 and DC at year-end.
In other news, MSI developed non-smoker Life policies late in 1980. Weird to consider now, but you could smoke in the offices in those days.
A plain embossed front cover on this one, which is why it scanned so poorly. Perhaps it was a reflection of the tough year:
Even the most confirmed optimist would be forced to recognize 1982 as a difficult year one that was a contiuance of operating problems for the insurance industry as well as all business. Red ink ran rampant.
It was very bad for the insurance industry.
Property/Casualty insurance losses in 1982 rank with the worst years in history. Rising medical and repair costs, toghether with an increase in self-inflicted property claims, result in heavy underwriting losses for the entire insurance industry. The losses were not completely offset by investment income ‑ due in part to declining interest rates.
Roman Eller retired at the end of 1982 after 12 years as President and CEO of MSI and Gordon Lindquist, a 27-year MSI veteran, took over as President. Both men had letters in the annual report. MSI was also running tv ads, again, before I was in Minnesota and so ones I don't remember.
The company's Five-Year Strategic Marketing Plan say the first year of its implementation in 1982. Part of this effort was a television commercial campaign aimed at increasing public awareness of MSI and its service-minded agents. The commercials depicted unusual, but real-life, stories in wich agents happened to be at the scene of their clients' accidents and began processing claims immediately. The commercials end with: "Having an accident in front of your insurance agent is unusual, but the service isn't."
The frontiers of data processing continue to move forward & MSI prepares for PMS:
In the Life Company, the new Claims Administration and Payments System (CAPS) brought essential information to the fingertips of claims personnel. The Policy Management System (PMS) was initiated in 1982 for 1983 installation.
And new products were introduced:
They included million-dollar individual major medical coverage and a new homeowner's endorsement that addresses the needs of those with homes valued at over $75,000.
Elsewhere in the annual are stories about individual agents and employees, a story about MSI supporting cable tv installation in Trempeleau County, Wisconsin, and an interview with Jerome Sychowski, Vice President of Data Processing. He still sees MSI's efforts as giving a competitive advantage rather than just being a necessary ante to stay in the game. Towards the back is a listing of lines of business, including Major Medical and Group Health insurance.
Another brutal year in the industry and for MSI. Mutual Service Casualty's surplus would drop from $48.8M to $44.8M. The President's letter notes that the 1982/3 loss to the industry is expected to be $21 Billion, more than the total for the preceding 25 years.
In this environment, Mutual Service Casualty experienced proportionately severe losses. We anticipated that 1983 would be a difficult year and forecasted break-even at best. The continued adverse operating climate was worse than we expected; we were particularly hard hit by weather, especially severe summer storms.
There was some good news:
As opposed to the industry, our group health lines all produced a gain or the second consecutive year.
But the most significant achievement of all? A plan!
A strategic corporate plan was developed supporting long term financial goals. This plan approved by the Board in November, places emphasis on excellent service, sustained planned growth, and the maintenance of financial strength and stability. Creation of the strategic plan, in that it maps the future direction of MSI, was 1983's most significant accomplishment.
There's a big discussion of the sales regions. Reorganizing sales regions is pretty much a routine thing, done every five years or so, right? However, one thing I wonder about is the photo on pages 4/5, a big yellow hot air balloon with the MSI logo. Whatever happened to that?
A hot air balloon bearing the distinctive MSI logo was part of the 1983 Minnesota State Fair festivities. The balloon crew visited briefly on the 55-acre campus surrounding the MSI home office in Arden Hills.
On the IT front, the ILA-3 (Insurance Logistics Automated) system was introduced for the Life area. There was other big news in this area:
The Data Processing Department received a new name during 1983 - Information Systems and Services...The new name also signifies the department's transition from being a "batch" overnight provider of information to offering direct, on-line access to and entry of information.
"On-line access" had a different meaning then than it does now. Still, the first whiff of the personal computer revolution is in the air, with a photo of an agent sitting at an original IBM Personal Computer [tiny green on black monitor, 64K of memory, two floppy disk drives, no mouse, about $5,000 in 1983 dollars which is equivalent to $11,500 or so now. That's more than the most expensive 2014 Mac Pro 12-core Xeon configuration, which runs at 7.5 teraflops; the 1983 Cray XP supercomputer, as used in nuclear weapons design, ran at a theoretical 800 megaflops, or over 9,000 times slower than the current top Mac. Computers have come a long way.]
An agent microcomputer [that's what they called PCs in those days] pilot project was inaugurated in October. The six-month trial will evaluate the usefulness and cost-effectiveness of using IBM microcomputers in agent offices. The personal computers will be used for direct mail, word processing and maintenance of client files.
More hints of recognizable modernity:
The policy on smoking, announced during 1983, states that as of Jan. 1, 1985, MSI will become a smoke-free work environment. At that time, smoking in the home office will be allowed only in a smoking section of the cafeteria.
Funny that they said Jan. 1 rather than January 1. I thought needless abbreviation of dates was a COUNTRY thing since they did it in almost all correspondence, but here's MSI doing the same thing years earlier. In other news, this is interesting, maybe I'll go find it one day:
The 1983 corporate gifts program included the donation of "The Family" sculpture to the College of St. Thomas, St. Paul, in September. The 3,200 pound copper sculpture was created by renowned sculptress Evelyn Raymond in 1959 for the front of the former MSI home office on St. Paul's University Avenue. When the office moved to suburban Arden Hills in 1979, the sculpture was not architecturally compatible with the new building, and was placed on a hill on the MSI grounds.
That 3,200 pounds of copper would be worth some nice pocket change down at the scrapyard!
Those are some very 80s hairstyles on the front cover! Finally, a good year for MSI. Remember how surplus was down to $44.8 million at the end of 1983? It was down to $33.6 million at the end of 1985 after losing $7.1M that year. Maybe the smoking ban got everyone nervous. In 1986, though, the company had a great year and added $10M to surplus, back up to $43.6M. Part of the growth in the Life company was due to the individual and group health plans that would later bite MSI in the ass.
Group Operations was divided into two business units, combining sales and underwriting functions, with each unit assuming accountability for profitability and growth. The new units are Group Corporate Accounts which serves cooperatives and Third Party Administrators (TPAs) with small-business customers, and Group Brokerage, which focuses on the small- to medium-employer market written through group brokers.
Apparently this was working.
Fourth quarter sales were particularly strong largely due to key brokers and administrators providing business in Louisiana, Texas, Missouri and Utah. Earnings of $1.7 million compared favorably with the two previous years.
There's a feature on Rick and Debbie Clements.
He's the MSI agent; she's the office manager.
They would still be with MSI at the time of the COUNTRY takeover, though they'd leave shortly after that. Robert Gaecke also shows up in the annual, notable to me as he was my boss for a while. Here he's listed as Vice President - Individual Operations. Personally, this is the year I bought my first new car, a 1986 Saab 900. I was still driving this when I started at MSI in 1996, but it was totalled in April 1997. My car incorporated several changes noted in the annual:
In the last five years, cars have been extensively redesigned, requiring adjusters to update their knowledge: new equipment to repair, front-wheel drives, unibody structure influenced by European styling.
There's a big feature in this issue about Bob Willmarth, still with MSI and then COUNTRY at the time of the COUNTRY takeover. That's him on the cover. Uh-oh, those great sales in the health arena?
In 1988, we had strong earnings in our casualty companies, but not sufficient to offset the substantial group health losses in Mutual Service Life. The primary source of these losses was in the Third Party Administrator (TPA) market where we experienced dramatic growth during the past two years. Our growth came at an inopportune time. Our claims experience had been god when the most recent inflationary spiral of health care costs began, which were far greater than we had anticipated in our pricing.
Say it aint so! At least MSI was doing something about it.
We have withdrawn from the TPA market with minimal carry-over in to 1989.
I guess that aspect of 1983's strategic plan wasn't working out. The Life Company's Unassigned Surplus fell nearly in half from the end of 1987, from $28.5 million to $15.7 million. The only reason it was that good is it included the surplus note; they'd actually lost $20.4 million (after the $8 million tax benefit). MSI also got more reinsurance, limited growth in individual and group health lines for 1989, infused capital (a $10 million surplus note) into the Life company from the casualty company and strengthened reserves. Mutual Service's surplus took another big jump; it had gone to $53.2 million in 1987 and then $61.2 million in 1988. Notably, these annuals are quick to note good news:
The casualty companies had another excellent year. Our Best's industry rating was raised to the "A" category, bringing all our companies to that level. This is particularly encouraging after the severe losses experienced by the industry and MSI during the mid-80s.
To be fair, I don't have every annual. Maybe they'd noted the drop in rating in the missing ones. Although the TPA health sales had proved unprofitable, MSI was still selling through other channels:
Additionally, although we have exited the TPA market, we will continue to provide group life and health programs what we manage and administer ourselves to the cooperative and small business markets.
In later years, I would run reports on this next feature, an easy way for agents to get a discount for their customers. Amazing numbers of autos were coded this way:
A new pleasure short class was introduced for those who drive less than 6,000 miles and do not use their cars to drive to and from work. This resulted in substantial savings for our customers.
I'll say it did. In other news, a new state-of-the-art telephone system was installed designed to facilitate excellent service. I think these are the phones we had until 2012, a year before the announcement of the disposal of the Central Region building. Wrapping up the President's message:
1988 was not the year we hoped it would be. The significant loss in the group health line was a major setback for us.
The annual also has more of the people who'd be around for my time at MSI and/or MSI's demise: Bob Gaecke is now VP, Life Administration. Chuck Quandt, Randy Stoneking, Steve Rohde are all there, as is J. Randal Powers, who left right before I arrived so that I had the sense, when I joined the company, of having walked into a room right after a couple had got done having an argument.
Well, you give the Company a near-death experience in that TPA Health program and you might find yourself being retired. Gordon Lindquist retired as President and CEO of MSI and James F. Van Houten took over on October 16, 1989. He was rightly proud of the rebuilding of surplus across the companies, although most of it must have already been taking place when he arrived. Van Houten would be around until early 2002, by which time Mutual Service Casualty's surplus was negative and its fate was sealed.
One reason we have been able to improve our results so rapidly is that last year's losses were from business written outside our traditional markets. Therefore, our aggressive action to correct these unprofitable segments had only minor impact on our primary customers.
At the end of 1989 the Mutual Service Casualty unassigned surplus was up to $69.3 million, a very creditable effort considering it was $33.5M at the end of 1985. The report blathers on about tightened underwriting, rate actions, blah blah blah but a lot of it is investment returns. In 1988, the $8.9M increase in surplus (in Mutual Service Casualty) was comprised of a loss of $7.3M on insurance operations offset by Investment Income of $14.1M, Gain on Sale of Investments of $1.2M and a Change in Unrealized Appreciation of Investments of $2.3M. 1989? The underwriting loss narrowed to $3.4M offset by Investment Income of $15.2M, Realized Gains on sale of $1.1M and Change in Unrealized Appreciation of $1.2M. This wasn't just MSI; the whole industry was running like this, bad combined ratios covered over with investment income and gains. Van Houten mentions this:
On an individual company basis, Mutual Service Casualty had an especially successful year, adding $13.0 million to operating surplus, and ending the year with $69.4 million of policyowner surplus, the most ever.
Well, sort of, it's nice spin. That $13.0 million is Operating Surplus, before Changes in Conditional Reserves, which dropped it by $6.1 million. The Policyowners Surplus only went up $6.8M, not $13.0M. The balance sheet shows this directly; the 1988 Policyowners Surplus is $62.5M, the 1989 is $69.4M. That's the number that matters.
Elsewhere in the report there are features on Pension, Cooperative markets, an individual agent (Pat Brown). There's a mention of the Company's 700 employees; that's interesting, it had been 900 when the building was built 10 years earlier. The cooperative angle is mentioned also in terms of the MSI Foundation, which gave $100,000 to various cooperative efforts and supported the TurtleKid Triathlon. Sunkist is featured; we're insuring them.
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