How Mass Mutual is Choosing to Turn the Recession Into a Marketing Opportunity.

In the Life Insurance world there is a small handful of companies which really stand out. The most secure of these would include a short list of: New York Life, Northwestern Mutual, and Mass Mutual.

Of these companies, Mass Mutual has recently been bragging about having the highest dividend rate in the industry currently. (Dividends in Life insurance work like dividends in stocks - the company pays owners back a certain dollar amount each year expressed as a percentage of the cash 'invested' in the individual life insurance policy.) While this is true- they do illustrate a higher percent to their policy holders than any other insurer I know of - it may have been a mistake to do so.

In the face of the economic turmoil of the last year, most life insurance companies have made the choice to reduce their dividend rate. Conservative Northwestern Mutual chose to drop it's dividend rate from 7.5% on unborrowed funds to 6.5% for 2009. The reasoning behind it is simple: they don't know how long this recession will go on, so they want to keep more in reserve, just in case. This reserve of cash on hand is what makes life insurance companies so financially stable.

Mass Mutual made the gutsy move of not lowering their dividend rate at all. This gives them a couple of competitive advantages at the risk of tremendous damage to the company's strength ratings. They're able to say now, with confidence, that no other life insurance company has a dividend rate as high as Mass Mutual. They, assuming they survive the next few years, will be able to show a history graph of dividends which show a steady increase in dividends paid even through the recession of '08 and '09 - which they can then call 'financial strength,' rather than risky behavior.

What do they risk? Well, they just released their balance sheet for 2008 two days ago. On that sheet was a net loss of 1.1 billion dollars. Compare that to Northwestern Mutual which also released it's statements recently - a net gain of 400 million, even after billions of dollars of investment loss. New York Life has yet to post it's 2008 financial statements.

Mass Mutual may be playing the smart game after all, however. With a cash surplus of about 8 billion dollars, they could conceivably ride out another half decade or more of recession and still offer their high dividend rate. If they do, though, they'll certainly be downgraded in their previously high ratings from Moody's, S&P, Fitch, and AM Best, leaving the "highly rated" arena to the likes of the stodgy and conservative New York Life, Northwestern Mutual, and TIAA-CREF. The question then becomes: do consumers want a risky investment when they look at their life insurance, or do they want boring but safe?

-Oreo