Thursday, March 26, 2009

(No.20) The amazing Jack Warner

Not long before Pat and I travelled to Tuscaloosa, Alabama this month I had been thinking about the recently published and highly successful memoir, Somewhere Towards The End, by the 91 year old English literary editor Diana Athill [ q.v., the quote from it I included in RickardsRead -- "(No.13) Distilled Wisdom"].  

By coincidence in west central Alabama we met another impressive, indeed amazing 91 year old.

Jonathan "Jack" Westervelt Warner is a WWII veteran of the Burma theatre and until 1995 was the third generation CEO of his family's pulp and paper company in Tuscaloosa, Alabama. He began 51 years ago -- with the acquisition of some Audubon prints --  to develop his passion for art, a process which has led him to become one of the leading collectors of American art and the creator of the Westervelt Warner Museum of American Art which houses his collection of paintings, furniture, sculpture and decorative arts from the late 1700s to the early 1900s. 

While I would love to have the opportunity to meet Diana Athill, I am delighted that we had the good fortune to meet Jack Warner and his wife Susan, thanks to our having been taken by Bill Rabel of the University of Alabama to the Westervelt Museum and introduced to them. To our delight he took us on a personal tour of his collection, a tour unique in our experience of such things. His vigour, passion and erudition about American art generally and his acquisitions in particular, supported by his impressive knowledge of relevant American history, were amazing in the proper sense of that word.

Do not imagine Jack Warner to be some 'frail little old man'. He is the opposite of such a stereotype. He is a man whose stature and vigour cannot fail to make an impression on those who meet him. In addition to his knowledge and sophistication about art and each of the works in his museum, another factor which (for us) made him not only a delightful and gracious host but an entertaining one was the refreshing absence of political correctness in his commentary -- whether he was talking about George Washington (one of his personal heroes) or the private lives of his favourite American painters. 

We began by sitting beside Warner to view a 10 minute PBS-style film ( one he doubtless has sat through many times) introducing him, his collection and his Museum of American Art. After it concluded, in a sort of 'Alice through the looking glass' moment, he rose and began taking us from painting to painting. His knowledge of each work, its artist and relevant history is deep and interesting, far from the sort of dry and arcane musings one hears from some gallery curators leading tours so desiccated as to belong in the desert. The sense one gets of Jack Warner's personal connection to each piece of art in his collection is powerful, almost palpable.

The range of works is wide and impressive both in subject matter as well as quality. From early on in his collecting of American art Jack Warner has had an eye for art he liked but also for art that later has grown immensely in value. He referred from time to time to what he had paid for a work and how much he had lately been offered for it by a would-be purchaser. Paintings evoke from him anecdotes both informative and amusing, from a colourful explanation of the origin of the "Ashcan School" of art to a passing observation (in the process of pointing out a painting he had bought for $250,000 now worth tens of millions) that many so-called "art experts are crazier than hell".

Warner is very fond of paintings of the Hudson River School and does not hesitate to explain why he prefers them (and bought them) rather than 'modern' works by artists like Jackson Pollock. Modern art of this sort he seems to regard mainly as "a lot of crap". 

As a collector and latterly the founder of an art museum Warner arranges his paintings in a very effective and interesting fashion, one that reflects his view that one should "hang paintings together that are compatible". He groups works by subject and has a gallery devoted solely to works involving George Washington. 

I asked him which was his favourite painting in the collection, guessing that it might be Tanis, a striking depiction of a sunlit girl by Daniel Garber. I was wrong. He said his favourite was The Backrush, a severe sort of physical scene by Winslow Homer. Although the focus of his passion and his collection is American art (subject and/or artist) I asked if he had considered acquiring any of the 19th century Quebec scene paintings by Cornelius Krieghoff. He immediately replied that he'd had one in his collection but had sold it for a multiple of what he paid. After all, he said, while he liked Krieghoff the painter was not an American nor a painter of American subjects.

Despite his impressive collection and the great personal wealth it both represents and reflects Warner is a casual and unassuming host but he's not at all detached, often emphasizing both his points and his enthusiasm for the subject by reaching out and touching his listener's arm. While talking to us about a set of Revolutionary War period silver laid out for display on a period table, he reaches over and picks up a couple of large  Paul Revere-owned spoons and hands them to me to emphasize a point he was making. Referring to a painting newly hung in another gallery he turned to a security guard and asked: "Hey Charlie. What's the name of that new war painting we just hung?" Charlie immediately provided the answer upon which Warner turned to us and said "he knows more about this than I do".

Warner's own artistic creativity is on display in the permanently unfinished 8 acre garden surrounding his nearby home on the shores of North River Lake. He designs it and has a crew working on it continuously. In walking through the garden in March we were impressed by the fact that it is as he describes it: an "all season garden". He believes one "can find God in a leaf, a flower and a landscape".

Jack Warner's private art collection has been located since 2003 in its own building (with a boutique hotel nearby) in the North River area of Tuscaloosa. It is a treasure and deserves to be more widely known; it is considered by leading art critics to be one of the greatest private collections of American art in the world and the most noteworthy available for public viewing. 

As we prepared to leave one of his staff told us that our host and guide comes to his museum almost every day when he is at home, "it is his passion".  Any visitor who has the chance to meet and listen to him will encounter an amazing man.

[ Visitor information and a "virtual tour" of the Westerveld Warner Museum of American Art is available at the museum's website:  ]

Alastair Rickard


Wednesday, March 4, 2009

(No.16) AIG: possible insurance disaster

AIG (the American International Group), the corporate umbrella over a plethora of insurance subsidiaries, yesterday announced  a 4th quarter loss of $61.7 billion. The US government has had to step in for a 4th time to infuse billions more dollars to prop up this corporate basket case, a total of $180 billion thus far in support. 

AIG got into deep financial trouble not because of the US state-regulated insurance business it was selling but because of the 'financial products' it was involved with internationally as well as in the U.S., the regulation of which it avoided. Its exposure on credit default swaps is immense and AIG deliberately exploited the absence of regulation on such products by carefully avoiding calling them what they really were: a form of insurance for which the purchaser paid AIG a premium. Calling them what they were would have inevitably exposed them to the attention of insurance regulators. The Bush administration, in thrall to a sophomoric conception of and belief in laissez-faire capitalism, did nothing.

US officials have tried repeatedly to explain to the public and to congress why AIG has to be saved from collapse. What it boils down to is that AIG is so connected to so many other financial institutions internationally as well as in the US via credit default swaps and various 'derivatives' that AIG's collapse could pull down big pieces of the international financial community and perhaps the system itself.

What has not been talked about publicly by U.S. regulators is the risk posed by AIG to the insurance business. In the US AIG insurance companies have more than 375 million policies with face amounts totalling $19 trillion. What would happen if many or most of those policyholders got so frightened by the continuous drumbeat of terrible financial news about AIG, the corporate holding company, that they started rushing to surrender their policies in separate and solvent AIG-branded life insurance companies?

Depending on the size of a rush to surrender there might well be insufficient funds to pay out surrender values even from industry guarantee funds which would have to be replenished by other life companies already weakened by the US financial meltdown, perhaps to the point that some of them would be so further weakened by loss of funds combined with their own policyholders' diminished confidence in their financial stability that several might be bankrupted. 

What a mess. The U.S. life insurance industry (including the Canadian companies operating there) should be thankful that this aspect of the AIG financial disaster has not received much media attention.  Edward Liddy, who became AIG's CEO in the fall of 2008, was quoted in the New York Times describing AIG as having "an interesting structure where you have an insurance company that works really well and on top of it is a holding company and the holding company's biggest asset is this huge hedge fund... It just doesn't make any sense to me." 

The AIG meltdown since then would certainly support the idea that little "sense" was involved in the management of AIG or in government allowing the absence of regulation. Result:  the unregulated AIG financial products business may pull down the regulated insurance part of the AIG structure. If this happens it is anybody's guess how much of the U.S. life insurance business may come tumbling down with it. 

The US government now owns close to 80% of AIG. While it may well wish not to go above that level in order to avoid potential liability involving the AIG companies' 375 million in force policies, that is likely to be a faint hope. The latest government $30 billion infusion of cash to AIG will not be the last needed to prevent its collapse -- even if there is no 'run' on AIG by its many thousands of policyholders.

Alastair Rickard,

Tuesday, March 3, 2009

(No.19) Executive status: written on water

Executive status is written not in stone but on water. With some exceptions it lasts only as long as the job, until the water evaporates. It is absurd when it is used as a de facto substitute in the executive's day-to-day business life for credential or qualification. But it often is.

Is one, for example, qualified to represent commonsensical views on financial services distribution if one arrives in a corporate executive role unburdened by knowledge or experience, qualified principally for the role by a self-proclaimed or borrowed 'vision' of how things need to be changed? Translation: "in order to show 'leadership and vision', whatever exists within the business unit to which I am appointed must be changed in order to demonstrate my superior abilities".

Such career management self-interest can generate decision-making about a company's financial product distribution that may appear to boost sales productivity in the short run while eroding it in the longer term. Senior management conclusions about the supposed  'failure' of this or that active agency system (i.e., one that SELLS product) tend often to focus not on the real causes but on symptoms, a prime example of a cause being company failure to invest adequately in supporting and enhancing the distribution system.

Over the years I have observed, interviewed, chatted and worked with life insurance company executives without agency experience who, notwithstanding this handicap, were prepared -- even eager -- to mandate their intuitive (or consultant-derived) ideas about how life insurance distribution generally and agency operations in particular should be changed -- or sometimes reduced or even eliminated altogether. 

The decline of the active (i.e.,prospecting & selling) agency system in all its variations in North America owes much to such executive combinations of self-interest, ignorance and arrogance.

Alastair Rickard,



(No.18) MORE about the Industry's Mental Health

Continuing my contribution to the life insurance industry's mental health begun in the previous post (the 17th) to the RickardsRead blog:

-- Too many members of life insurance company senior managements still fail to understand -- or resist acknowledging for fear of impaling themselves and their grand planning on an unwelcome reality -- that agents' and brokers' steadily increasing focus on asset or wealth product sales reduces the life insurance sales which they would on average otherwise be making.

One sale, the asset product that many people actually want to buy, is easier while the other (life insurance) is the harder one; this is not rocket science but it appears to mystify those executives who seem to believe that companies can attempt to load up active sellers of insurance like a tinker's mule with a range of financial products and expect them to be sold with equal vigour and resolve. In that direction lies agency distribution cloud-cuckoo-land.

-- Because most financial journalists and rating agency analysts don't really understand the guts of the life insurance business involving (in particular) product pricing, reinsurance and distribution, there is excessive focus by them, and therefore by the companies publicly, on top line growth. For this sort of audience it seems to many to be more impressive for a life company to report that "we sold a 'zillion' dollars of life insurance last year" while avoiding any reference to what is often the 'dirty secret' that much or most of it was under-priced and over-compensated and/or priced in such a way that it will be many years before its lack of longer term profitability will become evident on the company's books. Hence it is a much more publicly appealing approach than stating frankly that "we sold only a half a 'zillion' dollars of new business but all of it will actually achieve our profitability targets over time".

-- Customer loyalty to a company (very often dependent on the client's relationship with the agent or broker) is actually more important to sales success than 'brand awareness'; organic growth by a company is often better and more profitable than growth by acquisition ( and there are endless examples of the truth of this); asking 'customers', whether a life company's sales people or the buyers of its products, what they think they 'want' will often give a company the wrong answers; and as the complexity of a product increases so will the likelihood that the product will not enjoy sales success because the sales intermediary and/or the client won't understand it.

-- If life insurance companies are forced to cut operating budgets (as distinct from, say, executive stock options) then such decreases should come first (as they too often don't) from non-operational 'corporate functions and from those staff functions which supposedly support the actual business of 'selling stuff'. These often tend to spend time and money on activity, the value and productivity of which is opaque. For example: so-called marketing support departments which waste untold amounts trying to measure (using largely useless pseudo-scientific tools like focus groups) what distribution systems need rather than listening to and then acting on what is said by agency and field people who are more aware than anyone in a company what they, as sales people, actually need in order to support the making to make greater sales and are not getting -- either at all or inadequately.

Alastair Rickard


(No.17) the Insurance Industry's Mental Health-pt 1

After I started publishing The Canadian Journal of Life Insurance as a spare time and rather quixotic activity I would, when asked why I was doing it, sometimes respond by saying it was my contribution to the insurance industry's mental health. In retrospect I would not claim that it helped all that much.

I believed then, as I do today, that people in the business need to hear and consider ideas that depart from the industry orthodoxies so beloved by many members of life insurance company senior managements. Herewith a few examples relevant to the too widely accepted conventional wisdom these days:

-- Agency executives are expected to be so vocationally positive about meeting sales and related targets that it often threatens to make tenuous their hold on marketplace and distribution system reality while personal career management considerations promote the triumph of hope over experience.

-- One of the most pernicious ideas handicapping the effective operation of life company distribution systems (both career and brokerage) is spawned by corporate bean-counters, those corporate 'finance' watchdogs of so-called revenue-expense deficits: i.e., that too often their uninformed views of agency distribution have the effect of determining distribution strategy for the company even though it too often means following a ridiculous distribution system belief that, year after year, a company achieve more and more sales can be achieved with less and less support for the system.

-- One of the most dangerous aspects of the non-agency executive's typical ignorance of sales and distribution is not just that many don't really know an agent or broker much less have any feeling for agency distribution (although for too many that is the case) but that they seem so often to take for granted the sales engines that drive the business. 

I recall years ago writing an editorial or a memo (likely both) positing the premise that most life insurance executives thought the premium dollars flowing into corporate coffers were left on the steps of the  companies' head offices every morning by the sugar plum fairy.  


Alastair Rickard,