Ronald D. Brown greets the congregation of a dozen or so senior managers. With a flip chart and colored markers, he discusses the importance of creativity in today’s business climate. “The status quo isn’t working,” he asserts, his calm instructive tone more reminiscent of an Ivy League professor than an executive. “Creative solutions to problems and identifying opportunities are imperative.”
Using the flip chart to illustrate his points, the president and CEO of Atlanta Life Financial Group, the holding company of one of the oldest black insurers and two BE 100S financial services firms, lists elements critical to producing creativity — preparation, incubation, insight, and verification. It takes, he says, doing one’s due diligence with regard to a concept, digesting the findings, projecting the best way to execute, and finally determining if it’s suitable, feasible, and doable. He then jots down the barriers to such novel thinking: fear, habit, prejudice, and inertia. In the financial services game, with its ever-changing rules, identifying winning opportunities is a must. “The way we were successful in the last three to four years isn’t how we’ll be successful in the next three to four years,” Brown points out.
His analysis is accurate and evident as the company’s senior managers give updates on their respective divisions. Financial services companies are pulling back on their corporate issuances in light of the implosion of Bear Stearns brought on by its toxic mortgage portfolio — an event that could have an impact on the company’s corporate bond underwriting business for months to come. Then there’s the question of how lower interest rates and the subprime mess will affect their other commercial activities. The old rules of business no longer apply, and the new ones demand creative thinking, decision making, and execution.
Brown continues with a story about Walt Disney. The legendary entrepreneur had learned that revenues at the company’s theme park dropped precipitously every time it rained. Attendees got wet and went home. Not to be foiled by bad weather, Disney created a rainy attraction where families could see a fireworks show and their favorite characters on parade during inclement weather. Visitors would pay to line up for the festive event, huddling under newly erected shelters or using umbrellas and ponchos they purchased. Brown cites Disney’s ingenuity as a classic case of turning a challenge into a revenue-generating opportunity.
As the blueprint for success in corporate America has changed, so has Atlanta Life. The century-old institution has evolved from a door-to-door seller of insurance policies to a comprehensive financial services holding company that is not only involved in reinsurance but controls fast-growing Atlanta Life Investment Advisors Inc. (No. 15 on the BE ASSET MANAGERS list with $1.1 billion in assets under management) and Jackson Securities (No. 8 on the BE INVESTMENT BANKS list with $4.8 billion in senior-managed issues), the black-owned investment banking firm that it acquired last year. As a result of its stellar growth, top-notch leadership, and prime example of a black-on-black business partnership, BLACK ENTERPRISE has named Atlanta Life Financial Group this year’s Financial Services Company of the Year.
A RICH HISTORY
The roots of Atlanta Life stretch back to the antebellum South. Alonzo Franklin Herndon, who was born into slavery in 1858 on a Georgia plantation, founded Atlanta Mutual (which later became Atlanta Life) in 1905 with $140. Over the years, Atlanta Life, with a business model consisting of selling insurance policies primarily to African Americans door-to-door, would grow and make Herndon one of the richest men in the city. By 1915, the company Herndon founded had more than $1 million of insurance in force.
The company would continue to show phenomenal growth through much of the 20th century. In fact, legendary businessman Jesse Hill Jr. ran the company in the 1970s and 1980s, growing the firm’s assets, in part, through the acquisition of smaller African American-owned insurers. Because of Hill’s prowess and the institution’s continued success, Atlanta Life was named BE Insurance Company of the Year in 1982 and 1988.
However, by the turn of the 21st century, black insurers that used the door-to-door retail business model couldn’t effectively compete in the rapidly changing financial services industry. “The distribution system and the products were such that once large majority companies introduced group policies where they were giving them the benefits [at the workplace], there wasn’t a need to buy [individual policies],” says Leonard P. Grimes, vice president of group and reinsurance for Atlanta Life. “What happened to the African American insurance industry is simply this: They never progressed.”
Atlanta Life needed to get into a new line of business, and what made sense was transitioning away from retail sales to becoming a corporate institutional player. “What we were able to do was reinvent ourselves to get as quickly as we could into that space. Acting as a reinsurer versus a marketer of the product, we’ve been able to capture that space,” says Grimes. “So we remained one of the viable insurance companies in the corporate space.” Today, Atlanta Life is the nation’s third-largest black-owned insurer with assets of $75.6 million.
The move helped keep the company viable, but in order to really grow, it needed new lines of business. When Brown became the company’s president and CEO in 2004, Atlanta Life got an executive that could bring the company into the next century and who understood the ever-shifting business landscape. After all, he not only had international businesses experience but he had a track record of building strong executive teams and increasing profitability. The Morehouse graduate even made a lot of money taking Synavant Inc., a provider of customer-relationship management solutions and interactive marketing programs, public.
At that time, Atlanta Life had two businesses: group reinsurance and asset management. Within four years, Brown would add a third. However, he first had to strengthen the core businesses.
THE PUSH TO DIVERSIFY
Because of the shifting dynamics of the insurance business, the senior management team realized that if the company was going to thrive, it needed to diversify. Why not plant a flag in the asset management arena? So they launched Atlanta Life Investment Advisors Inc. When Brown came on board, he worked with the asset management team to boost its pension fund advisory business. In fact, by 2005, Atlanta Life Investment Advisors inked agreements that gave the company management of $150 million of MetLife Inc.’s assets — 3% of the financial giant’s equities and other limited partnerships.
In 2007, the four portfolios in the company’s asset management business — large cap value, large cap growth, large cap core domestic, and large cap core international — all ended with positive gains. “Last year in value, we outperformed our benchmark [the Russell 1000 Value Index] by about 1,000 basis points, or 10%,” says Randell A. Cain Jr., a principal who oversees the large cap value strategy portfolio that makes up about 70% of the firm’s managed assets. Cain made the right move to invest in energy and natural gas and shun the financials, which pumped up the firm’s returns and limited its subprime exposure last year.
Through strategic alliances, relationship-building, and sheer performance, assets under management have grown substantially in four years, from $53.9 million in 2003 to $1.1 billion in 2007, earning a berth on this year’s BE ASSET MANAGERS list.
COMING TOGETHER
By 2007, Brown was ready to put in place the third component of his master plan: an acquisition. Jackson Securities was almost a perfect fit. Both companies were based in Atlanta, and Jackson Securities had preserved excellen
t relationships cultivated by its late founder, the former mayor of Atlanta, Maynard Jackson.
The iconic black politician and entrepreneur had passed away in 2003 and the company struggled after he was gone. Reuben R. McDaniel III, president of Jackson Securities, says the loss of Jackson was devastating for the business. Jackson was the personal guarantor for all the firm’s credit lines, which dried up after his death. According to McDaniel, the company actually went two years without a working capital line. Furthermore, without Jackson’s presence, employees worried about whether the firm was going to make it. “One major issue was he could make any phone call you needed. He could make that first phone call and make that first meeting in a way that was much easier,” McDaniel reflects.
Those were hard times for the firm Jackson launched in 1987. “By the beginning of 2004, it
was rough,” McDaniel recalls. “We had a couple of clients who were able and willing to pay us early and stepped up and worked with us, and we just managed cash flow just as tight as a tick. You do what you have to do.”But even so, Jackson Securities was in a rut. From 2003 to 2006, total managed issues for the firm dropped 45.4%, from $44.1 billion to $24.9 billion. While it was getting municipal and corporate bond underwriting deals, it didn’t have the capital to participate in larger and more lucrative transactions. It was a classic Catch-22: It takes money to make money since government regulations require relative levels of net capital for every underwriting deal. Jackson Securities needed capital. Generally, an investment bank must have between 5% and 10% of the size of the transaction in capital to do underwriting.†If it doesn’t have the capital, it can’t do the deal.
Atlanta Life had capital. “The insurance side actually throws off significant amounts of cash,” Brown explains. “And it’s a cash business because what happens is there’s a settlement that’s done at the end of every quarter, at the end of every six months, or the end of the year, where you and whoever the major insurance carrier is that you’re in business with settle up.” While 2007 was a banner year, the insurance business has its ups and downs contingent on the mortality rates of the policyholders. If more policyholders die, the insurer has to pay out more. If fewer die, then the company keeps more of its money. It’s potentially lucrative but also frustratingly unpredictable.
Atlanta Life had capital and needed another business leg. Jackson had the business leg but needed the capital. The relationship was almost serendipitous. “We felt that [J
ackson’s capital issues] were something we could fix by pumping net capital for doing transactions into Jackson Securities,” Brown says. “So now they can be looked at as a co-senior or senior manager because they had enough net capital to be involved in deals at those levels.”Ironically, Maynard Jackson himself had opened talks to combine with Atlanta Life in 2000 but little progress was made. “The board considered it but we didn’t get far with it and it kind of died,” recalls William A. Clement, chairman of Atlanta Life. “When Maynard passed in 2003, Reuben was the hand-picked CEO and successor to Maynard, and he and I worked on a plan to make sure that Jackson [Securities] was stable. And it was his idea to contact Ron Brown to pick up the discussions.” The agreement was hammered out and the transaction closed in early 2007. In one year, Jackson Securities’ total senior- and co-managed issues increased by a whopping 171% to $61.9 billion.
Atlanta Life is realizing the synergies of a successful merger that’s all too rare in the black business community. “I’m very happy with the way things are going. We’re doing well in spite of the bad economy,” says Valerie Jackson, the founder’s widow. “I was very enthusiastic about the partnership and that’s because several years before Maynard passed, he had talked about a partnership with Atlanta Life because we felt that the two companies could really complement each other. So when Reuben and I did talk about seriously pursuing it, I knew we would have Maynard’s blessings.”
HOTLANTA LIFE
One year later and business is looking good, despite the weakness in the U.S. economy and financial markets. Jackson Securites is on solid ground. The asset management firm is on target despite the volatility of the stock market, while its insurance business hit its 2008 goal in the first quarter.
In addition to extolling the virtues of creative thinking, solid communication skills, and clarity of vision, CEO Brown has structured the company in such a way that he says will allow the company to thrive regardless of business condition. “What you want to do is put a foundation in place that allows you to build whatever you need to build on top of it based on whatever the next 100 years brings,” he says, “and that’s something I felt I could do and I feel like we are doing. We aren’t there yet, but we’ve certainly made some pretty significant progress.”
Melissa Gannon, vice president of insurance and bank ratings at TheStreet.com Ratings, an independent provider of ratings and analysis of financial services companies, says Atlanta Life is currently stable — which is good given the financial environment. “If sales start to decline, then you may see more deterioration with capital,” Gannon says, but adds that she doesn’t see any reason why Atlanta Life won’t remain stable. “I expect them to remain fairly sound in the future.”
Going forward, expect more growth from Atlanta Life Financial Group, be it organic or through other strategic acquisitions. Jackson Securities is placing renewed focus on its wealth management business for high net worth African Americans. Atlanta Life is also considering getting into private equity having provided the $20 million growth capital to PRWT (No. 57 on the BE INDUSTRIAL/SERVICE 100 list with $76 million in revenues) and helped with the transaction services firm’s acquisition of a chemical manufacturing plant from Merck & Co. Inc. in 2007.
Brown says the future of Atlanta Life is in its asset management and investment banking businesses. Now with a solid foundation in place, Atlanta Life has transitioned itself out of the faltering business of retail insurance to become a full-fledged financial services firm — one deal at a time.
— Additional reporting by Aisha I. Jefferson