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Michael Roth: navigating a giant insurer through stormy weather; the president of MONY finds his experience as a CPA invaluable in helping a leading insurer restructure for difficult times.

STEPHEN H. MILLER is a news editor of the Journal.

The president of Mony finds his expeyience as a CPA invaluable in helping a leading insurer restructure for difficult times.

Michael Roth, president and chief operating officer of the Mutual Life Insurance Company of New York (MONY), is a man with a mission. As the insurance industry faces unprecedented competitive pressures and an increasingly risky financial environment, Roth is guiding his company through a major restructuring. His aim: to create a leaner, more efficient operation-just as he did earlier when, as chief financial officer of American Can Co., he oversaw that conglomerate's restructuring into Primerica Corp.

The former Coopers & Lybrand partner knows a lot about facing daunting challenges head on and coming out on top and is quick to credit the experience he gained on his way up the corporate ladder--not the least of which were his years in public accounting.

THE ROAD To THE TOP

Roth, 45, was born and grew up in Brooklyn, and the cadences of that borough remain in his speech. Also evident in Roth are other characteristics for which the borough is known-like a tough, streetwise approach to problem solving.

A product of New York City's public schools, he earned an accounting BBA from New York's City College, went on to Boston University Law School and came back to New York for a master's degree in taxation from New York University.

"I was one of those strange kids who had a pretty good inkling of what I wanted to do," Roth reflects. "My father was an attorney and my mother was a bookkeeper, so I put them both together, combining accounting and law."

While at City College, Roth worked for a small CPA firm in Manhattan called Aaron Perel, doing write-ups and individual tax returns. During law school he worked for Coopers & Lybrand in Boston, full time during summers and part time the rest of the year. "It was clear to me," Roth says, "that I liked the idea of working with a major firm.

"The tax work and client contact at a CPA firm were much greater than I would have had at a law firm," Roth says. "So when I graduated law school, it was easy for me to stay with Coopers." He transferred to the New York office and five years later was made a partner. Before too long, Roth was the head of the tax department at the Stamford, Connecticut, office. Having been so successful so fast in public accounting, what made Roth switch to industry? "It wasn't easy," he says with characteristic understatement. "I loved what I was doing. I proudly wore my Coopers & Lybrand T-shirt. It just happened that one of my biggest clients was a company called American Can."

At the time, American Can was going through a management transition and had been trying to hire Roth as its tax director for about three years. I'd had a number of offers from other clients," Roth says, "but there was no reason for me to be a tax director of a corporation and give up the stability and credibility of being a partner of Coopers." American Can then decided to strategically restructure the company. Roth worked closely with the management team, negotiating asset dispositions and aequisitions-carrying out 40 transactions in five years.

"When Jerry Tsai became chairman of American Can he told me, "I think it's time you joined American Can full time, since you spend most of your time here anyhow,' " Roth recounts. "He knew he wasn't going to get me as tax director, so he offered me the position of senior vice-president for corporate finance, which included tax but would expand my role well beyond my training and background in accounting, tax and law. Here was an opportunity for me to step into a whole different arena. So, reluctantly, I left my career at Coopers and jumped into the corporate environment."

Roth underscores that while the decision wasn't easy, it was the right move at the right time. One of my fears was that I was taking on more than I could chew. I'd been fortunate in my career path. I had made partner at Coopers when I was 30 years old. Many of my friends and family counseled against leaving. They said, Why are you giving up a career as a partner to go and do this crazy thing?' "

During the next six years Roth was part of the senior management team under President Ken Yarnell that restructured American Can into a financial services giant. Ultimately, he became executive vice-president and CFO of the company (renamed Primerica after selling off its can and packaging business).

By 1988, when Primerica merged with Commercial Credit Co., Roth decided it was best to leave, "for various reasons, not the least of which was financial." As it turned out, his "retirement" was short-lived. A friend of MONY Chairman James Farley sat on the board of Primerica and arranged an introduction. (That friend, incidentally, was Charles Hugel, hailed as one of the country's savviest deal makers for helping facilitate Kohlberg Kravis's takeover of RJR Nabisc ne of the largest transactions of all time. It's always good to have friends in high places!)

"I met Jim Farley and we hit it off," says Roth. "I felt his vision of what could be done with MONY was exciting and that I could make a difference." Roth joined MONY in 1989 as executive vice-president and CFO. In 1991 he was named president and COO.

NEW DIRECTIONS FOR THE 1990s

Roth arrived at Mony-which has some 4,200 employees nationwide-as an outsider coming into an almost 150-year-old company with a tremendous history culture regarding how things are done. More than that, most leaders in the mutual insurance industry get to the top from either the marketing or actuarial side of the business, whereas Roth's background was in finance. "I never held myself out as an insurance expert. They were willing to consider an outsider with some business acumen who was willing to take a fresh look at how to run the business," explains Roth. "My challenge, as they say, was to move the battleship.' "

The vision he shared with Farley was to bring MONY into the 1990s, evaluating "what businesses we wanted to be in and which ones we didn't." The company, in short, needed a strategic plan, and Roth has played a key role in overseeing its development.

"We're going to be in specific markets and niches," Roth reflects. "We're going to do what we do best and not try to be everything to everybody. Anything that doesn't fit within the plan doesn't belong."

Roth now has operating responsibility for the three core businesses established by the strategic plan-insurance, pension and investment operations-and oversees several subsidiaries as well.

One of the dramatic changes he helped MONY make was to get out of the health insurance business altogether. Revealing his pragmatic streak, Roth observes, "Frankly, given the rising healthcare costs, it's very tough to make money in that business, and we felt it would be better for us to allocate our resources elsewhere."

Another focus has been new product development, emphasizing retirement planning for aging baby boomers.

A CPA's EXPERTISE

And how has Roth's accounting background aided him, first at American Can and now at MONY? "When it comes to business planning, an accounting background, coupled with legal training, is a tremendous advantage in terms of seeing the total picture and at the same time understanding the nuances and the mechanics of what's happening," says Roth. "In structuring transactions in particular, the accounting and legal background was critical."

This expertise is especially important for Roth as he confronts the challenges of steering MONY through rough waters. "No one has a really large market share in this business," Roth says. "It's a mature business. If we gain 1% in market share, we're doing well. There are actually 2,500 insurance companies. We're not trying to be the biggest; we just want to be the best in the markets we serve."

TOUGH LEARSHIP FOR Difficult TIMES

Life insurance insolvencies have increased significantly since 1987, when insurers who made risky bond and real estate investments began feeling the pinch. Earlier this year two Los Angeles-based insurers, the Executive Life Insurance Co. and the First Capital Life Insurance Co., were seized by state regulators after losing heavily on investments in high-yield, high-risk junk bonds. More recently, New Jersey took over the Mutual Benefit Life Insurance Co. of Newark customers had begun cashing in their policies when the insurer's solvency became questionable). Mutual Benefit's problems related almost entirely to commercial real estate loans made to developers in the 1980s.

Roth, however, dismisses predictions that the insurance industry as a whole is headed for a crisis similar to the thrift industry's. He argues the financial press has exaggerated the industry's difficulties and that rating agencies, mindful of inadequate warnings about problem savings and loans, overreacted when they downgraded the ratings of the nation's largest insurers, including MONY.

Last July the A.M. Best Co., which specializes in insurance industry ratings, gave MONY a "contingent" A + , citing the size of problem real estate loans and the potential for further write-downs. It also said MONY's position in high-yield bonds remained significant, though manageable, and noted its good earnings in the individual life and group pension lines.

"Obviously, the economic environment is a real challenge to us," says Roth. "We have over $23 billion in assets under management, and our portfolio consists of $5.5 billion in commercial mortgages. But the whole industry has a much stronger capital base than the thrift industry had. We have the ability to ride through a difficult period and to manage those properties without being forced to sell them at distressed values."

"Our credit losses on our portfolio are very small," he is quick to note. "We match assets and liabilities very carefully. When we design a new product, we know what types of assets have to back it up. And we have strict controls in terms of making sure our assets and liabilities are matched."

Again, he stresses the importance of business and accounting expertise: "I don't think there's any question that you have to be financially sound and understand both financing and accounting and controls. In a difficult environment, if you don't have financial acumen, you're going to get beat up."

REGULATORY OVERLOAD?

Not shy about criticizing government policies affecting his industry, Roth is particularly riled by the increased tax burden insurance companies face due to the Revenue Reconciliation Act of 1990 and, more recently, the deferred acquisition tax, as well as a host of new federal regulations.

"It's ridiculous for the federal government to talk about its concern over the financial stability of the insurance industry and then to impose a huge tax burden on the same industry. There just isn't any logic in that," he declares.

"Over the next five years," he explains, "the new taxes are going to cost us about $90 million, which is not insignificant, and cost the industry about $8 billion. I'd like it to be fairer. I think what they should probably do is restructure the entire tax system so that it's more equitable. I think we should pay our fair share of taxes, but I emphasize fair share.' "

Roth is also dubious about Washington's penchant to impose additional regulations on the industry, which, like the accounting profession, has traditionally been overseen by the states. Congressman John Dingell (D-mich.), chairman of the House Energy and Commerce Committee, argues that state regulation is inadequate and is drafting legislation to give broad regulatory powers to an oversight agency in Washington.

"New York State, where we are domiciled, has the toughest regulatory rules in the country for insurance companies," Roth says. For Congress and regulatory agencies to impose additional federal requirements is overkill. There's no need for the federal government to step in and impose what would amount to dual regulation.' "

Roth offers a more grass-roots solution to the regulatory quagmire he fears may be down the pike. "I'm sure there are states that don't have the regulatory rules we have, " he says. "Maybe they should adopt rules as thorough as New York's. It would be a way of allowing companies to focus on running their businesses rather than fighting Washington."

PRACTICAL VICE

Roth likes to relax by spending time with his family or playing golf. He and his wife, Carol, have been married for 23 years (they have three children: an 18-year-old daughter and two sons, ages 16 and 13). He admits he'd like to be a scratch golfer, "but I think that's unrealistic, given my time demands plus my level of ability."

What advice does he have for CPAs in public practice who might be considering entering industry? "It's hard to say, This is how to become a president and chief operating officer of a major company,' but I think it may be as simple as this: If you do what you do well, your strengths come out and are recognized." He adds, "Basically, what you have to do is keep your head down and do what you do best. Eventually there's a reward in it. It's when you try a lot of things that you really can't do that you get yourself into trouble. Capitalize on your strengths and the rest is going to follow."

Perhaps not so surprisingly, the advice sounds reminiscent of Roth's prescription for how a well-structured company should operate.

* MICHAEL ROTH, president and COO of the Mutual Life Insurance Company of New York (MONY), began his career at a small New York City accounting firm. By the time he was 30, he was a tax partner of Coopers & Lybrand-then he opted for the challenge of the corporate world.

* AS CFO OF American Can Co., Roth oversaw the conglomerate's diversification into financial services and its restructuring into Primerica Co.

* AT MONY, FIRST AS CFO and now as president, Roth has seen the life insurance company strategically redefine itself-getting out of health insurance entirely and developing new products for a demographically changing population.

WILL THE INSURANCE INDUSTRY follow the country's thrifts into crisis? Despite a string of insurance company failures and downgraded ratings for big insurers (including MONY), Roth doesn't think so-but he doesn't think Washington is making things any easier.
COPYRIGHT 1991 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Miller, Stephen H.
Publication:Journal of Accountancy
Date:Sep 1, 1991
Words:2394
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