The Paul Revere Corporation

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The Paul Revere Corporation

18 Chestnut Street
Worcester, Massachusetts 01608-0828
U.S.A.
(508) 799-4441
Fax: (508) 793-1415

Public Company
Incorporated: 1895 as The Masonic Protective Association
Employees: 3,353
Total Assets: $5.9 billion
Stock Exchanges: New York
SICs: 6321 Accident and Health Insurance

The Paul Revere Corporation ranks as North America’s top provider of individual non-cancelable disability income insurance (DI), holding a market share of 18.4 percent at the end of 1993. The company, which had over a half-million individual DI policies in force in the early 1990s, is the only firm with a primary concentration on individual disability insurance, accounting for over two-thirds of total premiums and nearly three-fourths of income before income taxes in 1993. The remainder of Paul Revere’s business is in annuities, individual life and group business, which are employed to complement disability products while contributing to earnings. The firm celebrates its centennial in 1995, having emerged as a publicly traded company after operating as a wholly-owned subsidiary of Textron Inc. from 1985 to 1993. Textron still held a majority (83 percent) stake in Paul Revere in 1993.

The corporation traces its history to the 1895 establishment of the Masonic Protective Association (MPA) in Worcester, Massachusetts. This fraternal accident, disability, and life insurance company was formed by James E. Farwell, Frank M. Heath, and Francis A. Harrington, who was named president. Groups like the secretive Freemasons proved vital to the insurance industry in these early years, helping to diffuse the hardships associated with loss. The MPA operated as a mutual cooperative owned by the policyholding members and was exempt from state insurance legislation due to its fraternal affiliation.

In 1909, however, mounting suspicion of such groups’ business dealings spawned legislation that discouraged fraternal insurance organizations in Massachusetts. Thus, MPA reincorpor-ated as a stock company owned by shareholders, all of whom, not coincidentally, were Freemasons. In 1918, Francis Harrington and his family won exclusive ownership of the MPA in what the company called a landmark legal case. The founder controlled the MPA for four more years, until his death, when son Charles Harrington succeeded him; the Harrington family would continue to lead the company for the next 50 years. In spite of its corporate reorganization and a 1922 name change to the more generic Massachusetts Protective Association, the MPA continued to sell policies exclusively to Masons until the formation of Paul Revere in 1930.

The MPA launched its first non-cancelable, guaranteed-renew-able disability income product in 1918, and the concept of insurance companies offering disability insurance became popular in the 1920s. There were generally two types of disability protection, both of which were linked to life insurance benefits. One allowed the waiver of premiums without the cancellation of the life insurance, while the other, a more expensive plan, offered a premium waiver as well as a predetermined monthly income to disabled policy holders. The face value of the life insurance was often not reduced by such amendments and was payable in accordance with the original contract provisions at maturity. The policies usually designated a waiting period before disability benefits would be distributed, while providing for the termination of benefits if recovery from disability occurred. While many of these terms endured, contemporary disability insurance is often bound to income and/or earning power. MPA also pioneered non-medical life insurance, which did not require a physician’s examination, through the creation of its Massachusetts Protective Life Assurance Company (MPLA) in 1924.

Although losses during the Great Depression and the 1935 creation of Social Security drove many companies out of the disability segment, MPA stayed with it. During this time, the company supplemented its income by offering life insurance products to the general public through a new subsidiary, The Paul Revere Life Insurance Company, which was formed in 1930. Insurance companies initially lost business during the Depression era, and insurance in force declined slightly to below $100 billion in 1933. Moreover, many insurance companies experienced decreased interest earnings and stock losses during this period. Nevertheless, premium income began to recover beginning in 1934, as life insurance emerged as a safe investment (especially in comparison to the volatile stock market), and “life insurance” became a synonym for absolute security and safety.

After World War II, Frank L. Harrington, Sr., nephew of Charles Harrington, succeeded to the leadership of the company. The new president brought sweeping change to the firm, merging MPLA with The Paul Revere Life Insurance Company and assuming the more easily recognized latter name in 1946. The company branched out into the nearly $30 billion group insurance industry that year. Group insurance covered a large number of people, usually the work force of a common employer, under a blanket policy without requiring medical examination and at a very low cost. This type of business grew rapidly in the postwar era. Paul Revere applied its investment expertise more broadly with the 1949 establishment of a brokerage organization. The company established a Canadian office in 1950 and soon became that country’s largest disability insurer.

The 1960s brought new business activities, corporate consolidation, and a reorganization. The insurer established the Paul Revere Variable Annuity Company, which was awarded Massachusetts’ first variable annuity charter, in 1965. This retirement benefit product differed from standard annuities in that its return fluctuated with the economy. The yield of variable annuities was linked to either the stock market or cost of living indices, and this investment vehicle grew more popular as inflation set in during the 1970s. The company established the Paul Revere Corporation in 1966 to direct a expanded program of investment activities.

The MPA was retired in 1966 after over 70 years in business through a reinsurance agreement with Paul Revere that called for the former subsidiary to assume all of the liabilities and obligations of the original company. That year, Frank L. Harrington, Jr. succeeded his father as leader of the company and directed a “reverse merger” with Avco Corporation. Avco, a nationally-recognized financial services company, was actually acquired by Paul Revere, but the new entity assumed the better-known Avco name, while Paul Revere became a subsidiary. The Harrington family leadership ended shortly thereafter, when Frank Jr. resigned and George L. Hogeman was elected to replace him as president.

Paul Revere’s services grew in proportion to increasing complexity of the insurance industry and the general economy in the twentieth century. The company founded a reinsurance division in 1972 to provide supplemental coverage to other insurance companies and created the Paul Revere Protective Life Insurance Company the following year. During the decade, the company began offering disability insurance to groups, including employee groups. In 1974, career Paul Revere associate and top salesman Aubrey K. Reid, Jr. became the company’s sixth president. Reid worked to loosen up the traditionally conservative, regimented corporate culture by putting everyone on a first-name basis and espousing a delegative leadership style. Just over a decade after he assumed the top role at Paul Revere, the company and its parent, Avco, were acquired by Textron Inc., an international multi-industry corporation.

Reid lead the mid-1980s implementation of a Total Quality Management (TQM) program adapted from the Japanese manufacturing industry. Paul Revere was one of the first companies in the insurance industry to embrace TQM, a trend that later swept the financial services sector. Paul Revere’s adaptation of the theories, dubbed the “Quality Has Value Process,” stressed efficiency and customer service in all functions. Tangible results credited by the company to its quality process included a near doubling of annual premium revenues from 1987 to 1992. This growth far outpaced the industry average of 47 percent over the same period.

Paul Revere ended its involvement in the group health insurance sector in 1992, as health care reform became an important issue in that year’s presidential campaigns. However, while disability insurance was often discussed in conjunction with health and medical coverage, Paul Revere’s primary business was not threatened by the health care reform proposals proffered during the Clinton administration. In fact, the administration heralded an era of unprecedented potential for Paul Revere, as over 80 million workers entered their peak earning years, when their need for disability insurance also peaked. The insurer hoped to maintain its share of the disability market and increase it through the continued introduction of innovative products and policies.

From 1970 into the mid-1990s, Paul Revere emerged as North America’s premier disability insurer, and its competitors exited the segment in droves. Out of 1970’s top five disability insurers, only Paul Revere remained in the segment, and, from 1988 to 1993, numerous competitors closed their individual disability lines. Paul Revere stepped in to fill the void by forming a National Accounts Program to sell its disability products through other companies. As a pioneer of such strategic alliances, Paul Revere was able to maintain its competitive edge. By 1993, around 30 companies in the United States and Canada sold Paul Revere products through their own distribution systems. By that time, National Accounts constituted over half of annual premiums and was the company’s fastest-growing segment.

In 1993, an eventful year for the Paul Revere Insurance Group, Textron sold 17 percent of its insurance subsidiary in an initial public offering on the New York Stock Exchange, an infused an estimated $100 million in capital into Paul Revere. Moreover, the firm, touting its near 100-year history in its first annual report, became the first American insurer to top $100 million in new disability premium in a single year.