Print

Phoenix's CEO Stepping Down As Insurer Battles For Survival

DIANE LEVICK

March 24, 2009

Dona D. Young, who tried to turn around the struggling Phoenix Cos. for six years as CEO, will retire April 15 as the Hartford insurer fights for survival in a dismal economy.

James D. Wehr, 51, who is senior executive vice president and chief investment officer, will become president and chief executive and join the board of directors, The Phoenix Companies Inc. said Monday. Thomas S. Johnson, 68, a member of the company's board since 2000, will be non-executive chairman.

The change of CEO — long advocated by weary investors — comes as Phoenix is reeling from the loss of major distributors, ratings downgrades, investment losses and a trampled stock price. Although Phoenix says it is still financially strong, some analysts say that the sale of Phoenix is more likely than ever.

Analysts said they believe that Young's departure is partly the result of pressure from Phoenix's directors and investors. But Young and one of the board members said that she's not being forced out, that the retirement is purely her decision and that she recommended Wehr as her successor.

Young, 55, who has spent 29 years at Phoenix, will retire as chairman, president and CEO, and leave the board on April 15. She will continue serving Phoenix as a consultant for one year for $300,000. Her accumulated pension benefits were valued at $14.6 million as of Dec. 31.

Young "is the one who initiated the conversation" about retiring and had talked with directors about it over the past several months, said Sanford Cloud Jr., a Phoenix director and CEO of The Cloud Company, a local real estate development and management firm. "She has worked 24/7 to position this company to survive this particular marketplace challenge" and has done "an admirable job in turning this company around."

Young says she had planned for years to retire when she reached 55, which happened in January. She intends to remain active in the community, where her passions include the United Way and the Goodspeed Opera House, and she wants to spend more time with her three adult children and mother.

It's a good time to retire, Young said, because Phoenix is now focused on a new strategy to enter or expand businesses that require less capital, and to find new distributors.

"It's much too easy at times to lapse into the trap of thinking or rationalizing that maybe there's just one more thing that can be accomplished" by staying on, Young said Monday. Having no control over the economy, "it's a trap to sit here and say if I sit here another six months, the sun will come out again," she added.

Young, who joined Phoenix in 1980 as an attorney, was president and chief operating officer when the company's financial troubles surfaced in 2001 — the year it became a public stock company — and turnaround attempts began.

Although many insurers' shares jumped Monday, analysts said that the news of the CEO's replacement helped fuel Phoenix's stock. It closed up 21 cents at 61 cents a share.

"Investors have been extremely frustrated," said Jukka Lipponen, a senior vice president and analyst at Keefe, Bruyette & Woods in Hartford, and a Phoenix stockholder. "This company has been a turnaround story for a long time and the turnaround hasn't happened," although life insurance and annuity operations seemed to improve for a while.

A new CEO and Phoenix's lowered ratings — a mortal blow to new sales — indicate that the sale of the company is highly likely, Lipponen said. "Frankly, I don't see any other option for them."

MassMutual, Manulife or Sun Life Financial — both Canadian companies — could be potential buyers, Lipponen said. He noted that State Farm, which owns just over 5 percent of Phoenix and was its largest distributor before suspending sales recently, might want to buy the company to protect its agents and reputation, if no other buyer surfaces.

Analyst Jimmy S. Bhullar of J.P. Morgan credits Young with cutting expenses and realigning Phoenix but says she wasn't as successful as hoped in improving its subpar return on equity. "I think (Phoenix) can survive," he said. "I just don't think they can thrive."

Some of the problems that Phoenix has had "are not easy to fix regardless of who the CEO is," Bhullar said.

Wehr, who joined Phoenix in 1981 and has served as chief investment officer since 2004, said he's up to the challenge.

A former basketball and rugby player, Wehr says "that may explain some of my tough-mindedness and resilience, which is serving me well in the current challenging market environment."

Bhullar said that Wehr shouldn't be penalized too much for losses in Phoenix's investment portfolio because it's in line with other life insurers' mix.

Wehr said he'll focus on preserving Phoenix's capital and keeping existing customers through "strong communications" to policyholders and agents. The company spun off its asset management business Dec. 31, has eliminated the shareholder dividend and is cutting 25 percent of its staff.

Phoenix executives would not comment on speculation about a sale of the company.

Asked whether it could survive as an independent company, Wehr said, "Absolutely. My strong belief is that we have been around for a long time. We have a very strong balance sheet. We have very solid people and we're committed to serving our policyholders and constituents in the best manner possible."

Wehr quickly added, "It's always hard to say what the future's going to hold."