The Company He Keeps.

As chairman, president and CEO of one of the world's largest companies, Sy Steinberg focuses one eye on the near-term and the other 30 years ahead.

Tradition runs deep at New York Life Insurance Co. Its gothic-styled, stone-block headquarters building, which occupies a full block at Madison Avenue and 27th Street, hails from the gilded era of the 1920s and is topped with a pyramid of gold-leaf ceramic tile. The dimly lit lobby-cool, cavernous, a city-block long and open to the public-exemplifies the fine workmanship of the era. The city has designated the entire structure a historic building, just as it has the headquarters of competitor MetLife Inc. one block to the south.

Like other chief executives of major life insurers, New York Life's Sy Steinberg has grappled with the challenges posed by the increasingly competitive financial-services environment. And when it came time in late 1999 for him and his board to confront one of the hot-button issues of the day--whether to convert to a publicly traded company--they stuck with tradition and decided to remain a mutual.

Their decision, so counter to prevailing wisdom, surprised the domestic life insurance industry. Even today, Steinberg acknowledges--even relishes--the contrarian nature of it. But the decision was not simply a blind adherence to heritage. Instead, it reflected hard corporate realities and the belief that New York Life was different. Steinberg and his board found that their company already had what other companies coveted and hoped to achieve through demutualization: a powerful brand, a productive distribution system, strong capitalization and revenues. In particular, the company understood the value of its career agency system at a time other insurers were looking for less-costly alternatives.

"Certain companies, such as Prudential, have been struggling with their agency systems," said Sternberg. "If Art Ryan [CEO at Prudential Insurance Company of America, which is in the process of demutualizing] had his choice, he'd love to have a vibrant career agency system."

For its core products--life insurance, annuities and long-term-care insurance--New York Life believes the mutual is the appropriate structure, and Sternberg seems the perfect advocate. At ease in his animated style of articulation, he is unabashed in his enthusiasm, secure in his convictions, dedicated to his mission to serve policyholders without the distraction of shareholders. He is equally at ease giving a speech or talking with one person. He can be both leader and cheerleader. He describes his management style as a mix of flexibility and consistency, and he works at both a high level and, when necessary, a hands-on level. He strives to make the company "an exciting place" at which to work.

"We have growth. We have a relatively flat organization. I'm visible and accessible. We're not as entrepreneurial as the extreme dot-coms in California, but we're entrepreneurial," he said in his 13th-floor office.

Traits of a Public Company

That's certainly a change from the typical mutual-company culture of 10 or 15 years ago, when mutual employees were thought to be lethargic, unmotivated and insulated from the pressures of the marketplace. In terms of workplace culture, New York Life doesn't manage itself as a mutual company, Steinberg said. "We treat ourselves and manage ourselves as a public company," he said. "We have a chief financial officer. We maintain quarterly financials. We have a mergers-and-acquisitions operation."

To attract top talent, the company offers what Steinberg calls "phantom stock plans based on our results." They could not match the compensation of the recently departed dot-coin era, he said, "but they provide steady, solid and good compensation." In the last three years, the company lost only one top executive to a public company, and the departure was not due to compensation. "People make their decisions based on the work environment and the excitement of being on a winning team," he said. "We maintain good communication with employees and make them feel part of the team."

Three years ago, New York Life launched an on-campus, MBA recruiting program that initially netted one person holding a master's in business administration. A year ago it recruited three, and this year it has recruited nine.

For his own part, Steinberg said he loves the challenges and diversity of his job, that every day is different. He said he sleeps well, never looks back, and never feels weighed down by the responsibility of running a big company. "The only thing close to that is when I think about how our agents count on me for their own success," he said. "So on occasion, I become aware of the responsibility I have, not only to the people here, but to our 10,000 agents across the United States and 8,000 in other countries. But I'm never concerned about it, and I don't lose any sleep about it at all."

30-Year Promise

One of the reasons Steinberg can sleep is his belief that the mutual structure is the best fit for a life insurance company's long-term obligations. "Our customers pay us money, and they get nothing except the promise that 20, 30 or 40 years from today, we will pay a claim," he said. "Therefore, my stewardship must assure that this company be a vibrant, vital and financially sound institution 30 years from today. That's my most important responsibility."

In a public environment, a company is under pressure to generate quarterly earnings. "Think about how many shareholders of insurance companies like John Hancock or MetLife--most of which are institutional holders like Fidelity or pension funds--really care what will happen 30 years from now," he said. "They care what will happen next year or the following year... To me, that creates a fundamental conflict that I can only resolve by remaining a mutual."

Mutual companies, of course, can't raise capital as easily as companies that can issue stock. But with some $2.5 billion of free surplus and a strong cash flow, New York Life can afford to remain a mutual, Steinberg said. Then there is the matter of remaining independent. "If we were to go public, we could very well see a hostile takeover because the company is so strong," he said. Probably a European company would be the buyer, since European stock markets value their financial-services companies at two to three times book value, Steinberg said, as opposed to U.S. markets valuing domestic insurers at one to 1.5 times. If a European company took over New York Life, "I could not be assured that the same kind of sensitivity to policyholders" would be preserved, Steinberg added.

Agent Preservation

One of New York Life's most contrarian positions, to strengthen rather than jettison its agent-primary distribution strategy, is working extremely well, according to Steinberg. Most of the industry sees career agencies as relics of the past. The expenses of recruitment, training, compensation, benefits, turnover, office space and supplies, were all seen as too high, but Steinberg said New York Life considered its proprietary, highly productive and professional system "a clear market advantage. The company traditionally leads all others in the number of producers earning spots at the Million-Dollar Round Table, an agent-recognition organization with membership based on sales.

"On the surface, it's expensive, but you have to get below the surface," Steinberg said. "You can't have the expense without the productivity, and if your agents are not loyal, then it's too expensive." While New York Life agents are not bound to exclusively sell the company's products, 90% of what they sell are. Also below the surface is the matter of lapse rates, which are low for New York Life. "The difference is like buying a car that you expect to last 50,000 miles vs. one you expect to last 200,000," Steinberg said.

Harder to measure, but real nonetheless, is the value the agents bring to projecting the company's brand. "What better way to project your brand than to have a company sign on every office in every little town we're in?" Steinberg rhetorically asked.

Last year, career agents wrote $600 million in premiums for life insurance, $3 billion for annuities, $1.5 billion for the company's Mainstay mutual funds, and another $10 million to $12 million for long-term-care insurance. But the company has substantial distribution through other channels, too, with about 25% of all annuity sales and half of proprietary mutual-fund sales through banks and stock brokers. In super-large insurance cases, the company uses outside brokers through the independent M Group and through a special company-supported operation based in Kansas City, Kan. And in the low-end market, New York Life sells life insurance through direct mail and an exclusive arrangement with AARP. With about $50 million in sales from direct marketing, the company is the largest direct marketer of life insurance in the United States, Steinberg said.

Still Participating

Through the years of the 1990s bull market, New York Life never flinched in its dedication to the out-of-fashion participating whole-life product. Last year, when variable-life products were still hot, the company would typically sell 450 to 500 participating whole-life policies a day, 350 to 400 term-life policies, about 150 variable universal-life policies and about 50 universal-life policies. "This year, people are back to traditional whole-life in droves," Steinberg said. On some days in June, the company sold 800 whole-life, 500 term, and 100 variable universal-life policies-the most in any month over the past four years, he said.

Participating whole-life policies are where mutual companies can beat the performance of a stock-company product, Steinberg said. Most stock companies try to achieve a return of 15% or so in each new product, while mutuals might accept a lower return, which goes to surplus and is a principal way for mutuals to raise capital. In a public company, returns in excess of the 15% target must accrue to shareholders, but mutuals provide a dividend to policyholders. "That's why participating policies can't be supported in a stock company," Steinberg said.

Since profit margins are wider on life products than on annuities or mutual funds, Steinberg wants agents to sell life insurance. But to encourage that to happen often enough, the company needs to "bias" the compensation levels toward life products, Steinberg said. "We treat annuities as a core product, like life insurance, and our objective is to sell both," he said. "But the life sale is harder to make. It takes more time and more experience, so the only way to achieve a good balance is to have a bias toward life."

Like other companies, New York Life is also under pressure to freshen its product lineup, especially those sold through the broker channel. Steinberg said the brokerage market needs to see new products every six months, a need so pressing that the company now has a separate manufacturing facility. Among new products are the Pinnacle series for top-end clients, bonus annuities and a new range of corporateowned life products.

Attention to Current Trends

Decisions like those emanate from Steinberg's managerial style. While he is most concerned with the company's strength 30 years out, he is attentive to current trends. "I manage different parts of the organization differently, based on value added and potential problems;' he said. "I'll work in a very detailed way if there are issues to deal with, but if something doesn't need attention, I operate at a high level. I have systems in place to take the temperature so that I'm not blindsided. At the top level, the challenge really is managing time. What is the best application of those 55 hours a week?"

Last year, lagging sales of the company's long-term-care insurance product required Steinberg and other executives to take a new look at strategy and tactics. They decided they would no longer try to sell the product through brokers "because pricing was too crazy in the marketplace, and we weren't going to try to beat our heads in it." They decided to make it an agent-exclusive product, and they adopted new tactics to increase the level of interest in selling the product, including a new compensation system and the hiring of new people.And the company sticks to its discipline of pricing the product properly, even if it means losing business to competitors it believes are charging too little.

"I spent a lot of time on long-term care in the last six months;' Steinberg said. "Now sales are coming up. We're still not where we want them, but we're getting sales, and we showed a profit in LTC for the first time at the end of last year. So we're feeling a lot better about LTC. There's still more work to be done, but we're getting there. The market is still kind of irrational; there are still some people underpricing the product, but we have to live with it." He added that NewYork Life prices the product so it never has to raise the annual premium, and it has been able to maintain that pricing.

In shaping New York Life's international expansion initiatives, Steinberg said he is also guided by the long view. "I'm not being paid to look at what today is about, but what 10, 20 or 30 years is about, and when you look at the population of the United States and the slowdown in the bull market, which we foresaw three years ago, you come to the conclusion that you're looking at high single-digit or at best low double-digit growth rates domestically. If you want really solid double-digit growth, you've got only two choices: expand into other products domestically or take your skill sets and competencies internationally into high-growth foreign markets."

Going Global

Rather than battle the likes of Citigroup and Merrill Lynch-"I'm not going to try to out-bank or out-secunties these two," Steinberg said-New York Life is taking its skills to Taiwan, Hong Kong, Korea, Mexico, Argentina, Indonesia, Thailand, the Philippines, India and China. Last year, about $400 million, or one-third of new life sales, came from its international business. In January, the company partnered with Max India, a pharmaceutical company, and already ranks second in in-force policies in India. About 10% of total revenue currently comes from international business, and Steinberg expects that figure to grow in five years to 25%. Next year, he expects the international segment to show its first profit.

The company balances the currency risks and political risks of foreign countries by building higher profit margins into its products. Steinberg said the margin might be 17% or 18% in Mexico. "It's like having different expectations for returns from stocks vs. bonds;' he said.

Sy Sternberg

Born: Brooklyn, N.Y., June 24, 1943

Position: chairman, president and chief executive officer, New York Life Insurance Co.

Education: Bachelor's Degree (electrical engineering), City College of New York; Master's Degree (electrical engineering), Northeastern University; chartered life underwriter

Family: Wife, Laurie; grown daughters, Jodi and Donna; son Matthew at home

Aspirations in Childhood: Journalist. Worked on school newspaper in public junior high school. "But I found I didn't like writing as much as I liked math."

Hobbies and Passions: For last 30 years, has been a big brother in Big Brothers/Big Sisters program. Thirty years ago, a boy lost his father to a heart attack, and Steinberg became his big brother. "We're still very close. He's been like a son to me. I was best man at his wedding."

Biggest Accomplishment: Working way up from lower- to middle-income beginning to become chairman of N.Y. Life. "If you look at it on a broader scale, I have to give credit to this country."

Favorite Reading Material: Business and news magazines, National Geographic.