Penn Mutual CEO The Untold Benefits of Permanent Life Insurance

 It is an honor to have a CEO and a president of a mutual life insurance company here. Back in the day, a couple years ago, interest rates were coming down, down, down. And there were some people that were like, is this going to blow up insurance companies? Let's talk about permanent life insurance. Whether or not it's term insurance and protecting your death benefit, right, and being able to do that and allowing other assets to that permanent insurance, creating cash value to the ability to access that, you have this sort of uncarlated asset where a looser quarly asset, you also get the benefits of our risk management, our ability to manage that premium. Insurance is we aggregate risks that no one individual could manage themselves. What all insurance does is it takes risks that are so hard to do, right, things that don't happen every day, right, with life insurance obviously, you know, we're providing death benefit protection, being able to provide cash in that product so that you can end up living the life you want. We're going to move on to talking about mutual insurance companies and investment philosophies and all. What do you say to the gurus out there that say insurance and like whole life index universal life and annuities are a total scam? At the end of the day, risk creates malatility. What's your definition of risk? Hey Dave, welcome to The Better Walls Show. Thank you very much. It's great to be here. It's great to be with you. It is an honor to have a CEO and a president of a mutual life insurance company here. And I have lots of questions for you and it's weird because we have a niche on the internet of people that actually like this whole concept of insurance and annuities and they have a lot of curiosity around it. So this will probably get more than one view on the internet. But before we jump in and I'd really own all things, what it's like to run a mutual insurance company, why don't you give your backstory and because I think it's really inspiring and I think that there's a lot of lessons that could just be learned from the lessons that you've learned growing up, now running one of the most successful, well-respected insurance companies out there. Yeah, it's from my perspective it is completely wild that I end up in the seat that I'm in and being able to be the CEO of a 177 plus year old mutual insurance company. But you know, for your viewers to not go too into it because at the end of the day it's been a really interesting career arc and there's been a lot of interesting aspects of it along the way. I went to Drexel University and one of the things that Drexel is known for is for its co-op program. So it's a five-year program and economics and finance was what I was going there for and so for my first internship, I was doing that working for PNC Bank in the research operation that supported their money market funds as they had owned Black Rocket that now I'm dating myself here with that. And my job as the intern was to photocopy the money market approval list so I was really good at running the photocopier and getting out those paper jams. But one of the analysts there and it was a really great culture that they had in that research group ended up moving to the mutual fund arm of Penn Mutual at that time. So independence capital management was the name of that subsidiary that we had and when he went there they needed somebody else who was really good at the photocopy the stuff files and he knew I was his person because he actually knew I grew up only about five miles down the road from where Penn Mutual's primary headquarters was. And so it made me a deal at 19 years old that you can't beat which is he raised my pay from seven dollars an hour to nine dollars an hour. And 19, 30 plus years ago now you can't say no to that and so I started at Penn Mutual in the in the investment area as an intern spent the rest of my internships and my college college experience working for Penn Mutual and then when I graduated I took a job being an investment analyst and taking over what really ended up being the commercial mortgage back securities area and so my kind of background is in some of the more complex securities structures and derivatives and those things and over the course of the the next chunk of years I really ended up being responsible for each of the areas of the general account and general account is in the the general investment account that Penn Mutual has. Yes so basically it's the comingle assets that are what I'll call our portfolio products right so obviously we variable annuities they're in funds but in life fixed life insurance fixed annuities those are in the general account and we manage that for the benefit of the policy orders and to make good on the the product features that are in those products and so industry lingo would be that's the the general account of a insurer and so from there I had a lot of interesting opportunities including getting into building out sort of the today everybody knows them very much the variable annuities with living benefits so these are lifetime income features that are in all types of annuities and so in the 2005 time frame was asked and tapped on the shoulder to build out a cross-functional team to develop not only the products but also the hedging strategies that that were behind that after we rolled that out and that was really the first opportunity that I got to meet financial professionals when we actually did that and going out to our office in Akrono-Hau is the first time I actually ever went to a field office in 2005 and it was an incredible experience to kind of hear and see the products that you know really at that point were just a bunch of formulas we're just kind of an academic exercise truly come to life and how that financial professionals position them to solve client needs and then after that was became our first chief risk officer of the company so enterprise risk management was was up and evolving at that point and that's when I joined the management team so it's hard to believe that 18 years ago I was joined the the management team of the company and you know kind of fast forward from there the global financial crisis cappened in 2008 and pen mutual we did exceptionally well really the programs that we had put in place to protect the organization you know kind of the mutual philosophy we have to how we manage risk paid off and then I was asked to lead product development broadly ended up becoming our CFO of the firm chief operating officer and then president in 2016 and now CEO and now chairman starting at the beginning of this year so it's been a wild 30 year ride I've just passed my 30 year anniversary with the company back here in March and you would never have planned it yeah you would never have planned all the things that happened along the way but it just it's been a great experience and have a chance to work with amazing people in the company and amazing financial professionals and field leaders across across the organization yeah I feel like I could ask you lots lots of questions but the two that I'm most curious about as it relates to your stories number one why insurance I mean you're 19 years old you want to conquer the world I imagine why did you choose to dedicate your life to one insurance company that's number one and the number two is what are some of the lessons that you've learned in in leading grow I'm sure you've had many failures and lessons that you've learned and if you had to summarize just a couple like over the last 30 years here a couple things that I generalize what I've learned by being in leadership what would those be it's interesting as you ask that question I'm sitting here say you know I wonder if Caleb knows the fact that I actually did leave Benutron I left that out of my of my of my career arc and and let's be perfect as the truth was the early 20 something year old version of me yeah I wanted to be on Wall Street yeah there you go that was my dream yeah right that's what I wanted to be and I think the other truth was Wall Street didn't hire kids mm-hmm from Drexel and so I had this amazing opportunity I did some really interesting risk management transactions in what now feels like a million years ago before a lot of the derivative rules that are in place today in derivative accounting and caught the attention of Morgan Stanley with some things that we did coming out of again long-term capital management in the Asian financial crisis that happened in 1998 and got offered the opportunity to to be in their fledgling credit derivatives effort in 2001 and so actually I left Benutron for what is inside the company jokingly known as the repo trade right because I stayed there for not very long and that that piece of the story I think gets to your question about kind of why Benutron but yeah was at the beginning of kind of where credit derivatives were out there had the opportunity to work on the first synthetic credit trade and developing that with at my time with Morgan Stanley and you know interestingly enough all those products were part of what caused the global financial crisis right at the end of the day right because it was that levered credit and CDO squared and things like that that were really starting to be built but you may say well why did you come back well the opportunity you know presented itself because of things that were happening at that time to go back into the the history books right and Ron had defaulted in that same time period and the company was looking and approached me to come back to run really all of fixing come investing at that time and I really realized and this was kind of maybe my first sort of epiphany of the good that the insurance industry does right because at that point right in your 20s it sort of you kind of have these dreams and aspirations but maybe you don't know better that we did something that was meaningful we did something that had value in purpose and I think at that point I was also seeing not that making money and being able to do that but that what we were doing in the credit derivative side we were basically it was financial alchemy and that the products that we offered in the insurance industry do good for families they they support businesses they do that protection and so the opportunity and maybe even some enlightening of myself eyes open that I wanted to be part of something more than just a financial transaction was kind of going on and so I took the opportunity to come back the company was gracious enough to to have me back at at that time and so I did come back and I kind of skipped that part I guess in the in our fire but that's a little bit that history and I think at the end of the day why have I stayed so right that was 2001 and so you know 23 years ago it's really been the people it's been the impact it's the size of the firm the culture of the firm yeah that we have a real mission we know why we're in business the mutuality aspect right that we're policyholder is our beneficial owner of the firm that we operated in the best purpose all those things really resonated with me yeah but the platform itself and the people that have had a chance to work with is really what has kept me there we have great people we have really really good people that come to the firm and it's been a privilege to not only work with them but now lead them and I hope that we continue to attract the right people and continue to build on that culture and I found that very fun yeah when it comes to lessons was one of the lessons just like realizing like why we work to begin with like impact over because it's like again there's that that I can make potentially more money on Wall Street I when I first got into this business I wanted to be a hedge fund manager mainly main is shallow as I just looked at all the billionaires and it seemed like a bunch of billionaires were hedge fund managers and so I was like that would be cool and then again similar to potentially you I'm you know I've realized that there's probably more life than just making money yeah and you know and being a capitalist make I'm a big time capitalist and all that but I didn't out earn what I earned at Morgan Stanley until I actually joined the management team and it you know did very well but it was sort of like it wasn't just all about the money and yeah there was a whole other experience that when I mentioned that I was out to that office in Akron and there was a a long time sort of consultant had been a field leader the financial professional passed away at 93 years old Mori Stewart just a few years ago and he spoke before me at that first agency meeting that I went to and Mori wrote a book called the Miracle of Life Insurance and he got up and he gave his talk about the miracle of life insurance and I was sitting there in that room going I am so not aware of what we do wow the impact we make and also or Mori was one of the great orators as well and kind of going uh oh I'm this nerdy kid yeah I am in big trouble getting in front of this big group of people because and Mori had been a great mentor me he provided me with great insights into the business to being able to work with individuals and things like that and so it kind of you know as we all have our own career actually I have those experiences there's another one where somebody who was so impactful and not only in my life but the number of people that he impacted over his seven decades in the business was tremendous and so I remember those those moments and you remember those relationships and you try and pass those things on yeah if you're talking to yourself at 19 knowing what you know now what would you would there be any lessons that you would say Dave remember this or this will save me a lot of heartache if I just you know I think at the end of the day if I was to look back and sort of say at the end of the day all the accomplishments the you can look at all the quantitative accomplishments the performance versus benchmark the those things at the end of the day the most rewarding things looking back we're seeing the how you worked with people how you advanced their career how they you helped them achieve things that maybe they didn't think they could achieve that that would be so much more rewarding than what is so important right on the financial side which is the numbers and being able to deliver results not that they're not important but the truly rewarding things would be the impact on people and the impact on your colleagues and the people that you work with that I didn't get at in my in my early 20s but appreciate so much today yeah what I what I love about you is you have a very strong investment understanding background and that really has built the foundation I think of you know we're going to talk about insurance in a second like you need if you're running an insurance company you have to have people that understand what's going on and so before we dive into some of my questions around interest rates and where your thoughts are for right now and in the future of what it looks like to running a mutual insurance company if you had to take a step back and say let's give the big 30,000 foot picture of like what is insurance why is it important from the insurance like from from your perspective because I've given time and time again of why it's important for people to have insurance and some of the reasons I like permanent life insurance and how they it can be an amazing asset that can enhance other parts for your life but if we had to take a step back like and if you had to explain to your family of like I don't know you know the few minutes of like how insurance works how would you articulate that when I think of you think about insurance very broadly insurance is we aggregate risks that no one individual could manage themselves right so what all insurance does is it takes risks that are so hard to do right things that don't happen every day right with life insurance obviously you know we're providing death benefit protection being able to provide cash in that product so that you can end up living the life you want being able to live confidently but those are risks that are extremely hard to manage as an individual and so an insurance company aggregates all those risks brings modern risk management techniques to price those risks so much more attractively than you could attempt to do that and as a result is able to deliver great value because none of us really know the future right and insurance is all about protecting the future and protecting that from that uncertainty and so really then it's just the mathematics and all of what has to be there to make good on those promises and manage risks that are just very uncertain and so the insurance industry is tremendous risk managers we manage that risk from you know with that's with life insurance with mortality with the newities with longevity if we manage that risk with okay we have to buy assets what's how do we manage credit risk how do we look at interest rate risk because we don't know how long the products are going to be on the books how many people are going to access loans at different time we become exceptional risk managers and that's really what insurance does of all types but I think that's what you see the mutual companies do the best because at the end of the day we look at that and say we have to run the company to make good on the promises our product and do so in a way that we're able to invest back into the business and invest back so those policies perform for our owners the the policyholder and so to me that's that this is my simplest way to describe insurance we take risks that are out there we manage risks on certain de-risk that are out there we provide the ability for people to live life confidently to know that their loved ones their business owners are taken care of in those events and be able to make all the other products that you buy that you buy financial and you need financially work better yeah yeah we're gonna we're gonna touch on that in a second because again I think there's a lot of different camps of people out there and I'm under the camp of how how do you get how do you enhance what maybe what you're currently doing or how can you take other asset classes and make it better and so I'm not a person that's like insurance is going to be the one thing that you need in your portfolio just like you know I'm sure you have multiple assets that you have to operate to make sure that you deliver on your promises well you've heard me talk right in one of my monitors around how do you manage the risks of insurance company is that diversity occasion has and always will be your best form of risk management yeah and so yes insurance is an important asset it's not the only assets it's not the only thing you should have but it does make because of the unique aspects of it some of the uncarillated features if we get kind of into the the mathematics of this that allows other products to work even better and allows you to be more confident to the other decisions that you make right because you have that insurance or that protection component well managed you can do a lot more around savings and growth and investing and making other decisions in your life that that that product will really help you with but diversification is always will be your best form of risk management well one thing that I admire about you is your humility like you have a ton of humility I'm sure that's what makes you an amazing leader that's what what people really adore about you you understand investments you also have a really good pulse on what's going on as a financial professional and what we what we deal with do you remember the first time you have the epiphany of like oh life insurance could be an amazing asset there's a world I heard you say this on stage once that you're like you want to like you want like life insurance sometimes gets a bad rap or insurance products get a bad rap from like financial gurus out there and like what would you say I know again you're not giving investment advice you're just speaking from your point of view but like where where do you see like these insurance products like why do you think they're so important and how do you think they can enhance someone's financial life I kind of said that questions kind of a run on sentence but I'll just like you take it from it. It's one and it's one that I get a lot and I think it is because it is a unique asset in that it has a product that has a lot of different features to it and it's not completely correlated to everything else that goes on so there's different aspects of how the asset performs if you think of it like a fixed income security it's not marked to market that way right so you can access your cash value on the basis of within that product where if interest rates have risen or have fallen it's not impacted by that we manage that risk as the insurance company overall and so I think that when I think of the asset class that way it provides that benefit whether or not it's term insurance and protecting pure death benefit right and being able to do that and allowing other assets to that permanent insurance creating cash value the ability to access that you have this sort of uncarillated asset or a looser correlated asset you also get the benefits of our risk management our ability to manage that premium that you pay the price that you pay for the policy the investment you make in the policy we then manage those assets in places that maybe you're not able to access whether or not it's in the fixed income world whether or not it's in the private asset world whether or not it's in the alternative asset space within your capital private equity that are small portions of our balance sheet but also make that asset perform very differently than a traditional traditional bond yep so let's talk about permanent life insurance there's concepts of like by term and invest the difference you guys have an amazing term product I'm a fan of term insurance just in general but we talk about permanent life insurance and if you had to take a step back and talk about some of the pros and cons of why some people should consider it and I know I'm putting you on the spot here but like what would you from from your positions like I'm sure you own permanent life insurance I do I do I do I don't own a lot of different products by the way and so do my kids and my family right and we've used it for a lot of different purposes because you know it it does provide it's a great you know in a way it's a great Swiss army knife yeah it provides a lot of different solutions like for my kids so when they were really little and my oldest is now off to college you know we're using it as a 529 plan again not making any investment vice for people you have to look at what's right for your situation but there's so many different things you can use the cash value build up or not use it for right I've been very fortunate that way that you know she'll be able to use that differently than what it was originally put in place because we thought about it for school but it's not going to be used that way maybe it's going to help her buy her first house yeah pay for the wedding yeah I don't know right it's and that's the beauty of it is it's so flexible but that store of cash is there and then you have the different types of permanent insurance right own index universal life that is going to credit based on a cap and a floor around the S&P 500 yeah whole life insurance is a more of a bundled product with strong guarantees in it I know in that for for retirement income purposes so have these products they're out there I think it's looking at sort of saying what need do I have what do I want to accomplish and what's the best tool in the tool belt because I think one of the things that we're a bit unique in is that we offer a full portfolio of products so I won't ever sit here and tell you oh yeah this is the best product yeah you have to look at what all the different products are out there and say okay well what's right for your need what's right for that situation rather than saying this product works great and term is a terrific product as well where you don't have cash value right but it gives you ability to convert yeah it gives you the ability to provide temporary protection for maybe other certain needs right and I've used term for over the course of to protect if something was to happen to me for my family is income replacement yeah right and so I think looking at the products for what they are and how they can can do that but you know that's why we position ourselves as a leader in life insurance and we haven't just picked one product really right as you know I have really diverse product portfolio which is pretty unique in the industry one thing that I do and lots of people that you know work work and represent multiple insurance companies do as they do it's called overfunding they they're max funding using paid up addition writers maybe some term term built in writers and get early cash and and use it as an accumulation tool but also as a protection tool and it's interesting because when I look at that and you know a lot of times you can get early cash or early on and it's an amazing product but I look at it and go how would these insurance companies make money because you're paying a staff you're paying us you're giving them lots of liquidity and you're on the hook for current and future a pretty significant death benefit that increases and I always go like part of it another question I have is like people rag on life insurance being a bad investment and being the worst thing in the world we can touch on that for a second but I look at it and go like how do you guys even how do you pull this off it's shocking to me like how this even works obviously we're pulling a lot of risks and there are charges in the product yeah so those charges may sit there in cost of insurance charges for the amount of life insurance protection we are an interest margin yes that through right so there's different profit levers from from from our perspective and I think that's where you start to see the institutional nature of us being able to invest in asset classes that you know are either harder to access being or bringing our expertise around risk management to do that and being able to offer our compelling offering within the the product itself and so yeah different products different funding patterns maybe great for you right a lot of people do over fund the policies because you can put a lot of cash and a tax effective way into that product and that's all part of the the IRS sector we know the the Mac rules the modified endowment contract sort of tells you how much is the maximum you can put in which tends to be the most efficient cash value structure that type of analysis is so important to understand the need understand how that works but really we manage all those levers and yeah we do play large claims I can remember just the other day I was approving can I have to prove any claims over ten million dollars and the policy wasn't in force that long but that's what we're here for wow that's what we're supposed to do and yeah we would not have paid money on that sale we would not made money on that situation but that's what pooling of risk does because we're able to make that that payment we're able to do it quickly we're able to provide that certainty that's what the product does and then there's other people who are going to live long past their their life expectancy but they're going to be able to access that cash value to that period of time we're going to earn interest margin for longer yeah and so it really is how do you think of all these risks that all behavior isn't the same yeah and that's what we manage so well and then we're able to drive that value back because everybody has a different set of circumstances on when they're in access how they're looking at the product and so what we're able to do is we're able to take that and pull that all together into what is really good offerings for consumers yeah and then also still be able to have enough money left over to continue to grow the company and invest in the company and technology and that kind of is the virtuous cycle you're looking for with an insurance what do you say to the gurus out there that say insurance and a new like a whole life index universal life and annuities are a total scam rip off and you'd be better off putting your money in the backyard than doing that like at the end of the day I think that my belief is that insurance makes all the other products work better that when you take care your protection pieces when you take care of those things that you that matter most to you in your life that only insurance can do is a financial product that that that it's really not just a cost equation yeah it's a benefit equation yeah and you always should be looking at cost and benefit together you shouldn't separate those two things I think we know that there's a need for retirement guarantee income yeah huge need we don't see that I mean when I when I started working we still had to define benefit pension plan yeah that was closed in 2005 yeah most people out there don't have guaranteed lifetime income yeah you can't really get that anywhere else then from an insurance company and so those type of products they have benefit you have to decide what's right for you yes there is a cost to provide guarantees yeah I'll sit here and tell you that you know there it's not a costless product right but what's the benefit and that's the problem a lot of people just look at the cost and they're not looking at the benefit and a lot of people that you know downplay insurance or risk management products are looking on the front end and not looking on the back end and I think if more people are educated by how retirement planning works and I like to call future cash flow planning like they may decide to make different decisions if you have that framework of mine yeah and I completely read because it is that framework my insurance is not the asset class that you're looking for to have returns right like your stock portfolio right or an individual stock that's really doing it is not and no one ever should be told it's there for that it is a really good stable appreciation over time asset class that has costs in it because there's benefits that accrue to either on the mortality side from a death benefit for protection from a guaranteed minimum interest rate yeah those things have cost but that doesn't make them bad yeah that just means there's benefit to that and does that work well in what you're trying to accomplish and I think that cost benefit should always be the way that it's it's thought of and and everybody has to decide what's right for them right but there's no really other great place to be able to find these type of of of guarantees and benefits in other financial products that are out there and so what's the right tradeoff what's the right balance of those things it has to go to personal risk tolerance and situations and and and everybody situations different and that's why I've trusted financial professionals so he right because and you and I've had this conversation over time it's sort of you know everybody it has the road needs and it really needs to be a custom tailored solution to their life their outcomes and what tradeoff that they willing to make you know today for goals that they have tomorrow you pass you pass we're gonna we're gonna move on to talking about mutual insurance companies and investment philosophies and all when it comes to just the whole concept of mutual versus stock you touched on it briefly I've heard you say obviously you're you're biased like you're running a company right we are mutual companies so I am biased but but but you you have said you said hey listen do the right thing for your client and if we're not the right fit pick another mutual insurance carrier and so again I don't want to put words in your mouth but like why is the mutual story so important and the people watching whether they work with me whether they work with Penn Mutual like why is the whole mutual conversation something that is important yeah I think it's really important to kind of go back and sort of say what is mutuality right at the end of the day Penn Mutual and every other mutual insurance company we were founded and we're beneficially owned by our policyholders right so those who have paid premiums into the company are the ones right we don't have a share so you don't own a piece of the company but we operate for the benefit of those policyholders think it is kind of membership in another way that way so my job right as CEO of the company is to be fiduciarily responsible to the beneficial owners our board is there to oversee the governance of the company for the benefit of our policyholders you take that away and you start saying okay now I'm gonna bring in a shareholder or other type of equity holder in one of these companies that as we talked about is managing these diverse set of risks that really do emerge over time and right so and to put to your viewers perspective our longest policy on the books on a annuity side was written in the 1930s wow wow 1930s so you're looking at 91 years ago this policy was written and the annuity pays $25.34 and has since the 1960s wow so it was a deferred annuity and it's been paying that and our oldest life policy was written in 1935 so almost 90 years ago and that's for a paid up $5,000 whole life policy that was written back that time that's nine decades think of what was going in the 1930s with the great depression and everything that's happened since then yeah shareholder is looking for a return yeah their time step is not nine decades right and so mutuality allows the company to take a longer term perspective it also says at the end of the day we need to earn enough to keep the company viable continue to invest in service make good on the claims continue to grow the company because that's in the best interest but we're not trying to exact extra returns in order to satisfy an equity owner who wants a return who wants a return that's commensurate with other assets in the world and so what we do and I think that and mutual really focus on is how do we run the company optimally but we give back that money yeah right we run the company for the best interest so you see that kind of invested back into the business either in dividends or crediting strategies or taking less inherent risk having less leverage and I think you see this with rating each season you know you viewers can look at this through other other services with with with the creditworthiness of the industry but that's where mutuality differs it's who is the company who's the management team for the the day-to-day stakeholders why are they operating the company in the way they are and in the long-term promises business you know I have said and I continue to say if you're a financial professional and a consumer please look at the mutual companies they may not be the cheapest yeah again it's back to cost benefit and being there for the long term that's why you know 177 years is a long time to be around right and so you say 177 years but you said that your first life in Transpolicy was in the 1930s where's the what do you guys do before 1930 oh well this is the oldest one that's still active still active okay yeah so we wrote policies all the way back into 1847 okay the company was founded that way by Quaker business owners in Philadelphia got it for the benefit of them it's interesting interesting little side note for your viewers the company was founded at the same time as the Pennsylvania Railroad wow in Harrisburg Pennsylvania as a stock company wow and so you've seen that you know pen mutual continues to operate and so but we do that and that we've offered insurance all the way through that nice and and and but those are the two longest still active policies that are amazing that's amazing yeah you're servicing them nine decades yeah after they were put on and that's that's the that's the purpose that's the point those guarantees yeah delivering on that for long long period it's and this is more of a statement but if you want to share anything more obviously you can't share names or super details but like when I talk to people in our space and they have a death claim or they have like a an epiphany where like insurance or an annuity really came in clutch like their conviction increases I can't imagine for the insurance company because you're seeing not just one scenario but you're seeing all these scenarios over time so it's just one of those things where every year goes by just your conviction compounds because it's just the more and more claims and and stories that you guys get to see I think the more and more stories you hear the more and more stories you see where lives are impacted positively yeah they continue to resonate and then also you hear the stories where things didn't go as well yeah and it's that is the harsh contrast that's really tough when you hear sometimes how well things went but then other times when people maybe didn't do the planning or the past on doing the things that they thought or it said I'll do it later and then it doesn't work out as well and so we do get both time when we do get both we do have people as you know people in this business whose lives were impacted both positively and negatively because of experiences they had growing up and either insurance being there to help them fulfill their dreams or actually having to go through hardship because it maybe it wasn't and that planning wasn't done and so those things are impactful and and over time you do pick up more and more of those stories and you also hear about the people who live to 117 years old and you know have lived these amazing lives over time overall do you what are some of the risks going forward when you look at the next hundred years obviously most likely won't be around on years around we'll see you know but like when I think of longevity when I think of interest rates when I think of is the US dollar going to be around a hundred years from now and there's probably other other things that potentially come up like what are you what are you thinking about and like what are some of the possible risks that not only are going to affect pen mutual but could affect other mutual insurance companies yeah I think the world's always evolving right yeah the world is going to continue to evolve innovation is going to continue to happen I do think that longevity is going to continue to be out there healthcare is going to continue to get better people are going to live longer lives hopefully we live longer lives and more impactful lives right and quality of life continues and I and I believe those things will happen yeah so I think you always have to look that innovation and progress will happen I think you have to look that you know we're going to continue to have to be able to evolve yeah you know one of the things about being around for a long time right yeah the idea of computers yeah AI you know you go back 50 years ago they were really just concepts yeah now they're what we deal with and know what we talk about the fact that we can even have these conversations yeah totally how we we just be reading communicate with with with all of our stakeholders is completely different than it was and progress will happen and progress will happen yeah and I'm a big believer that you have to lean into it you have to embrace that change is constant yeah that the fact that today is the least day of change in the rest of our lives yeah right change only accelerates so you don't bet against innovation you don't bet of us gets progress and you touched on the dollar I also don't think you bet against American the long time right the end of the day the dollar is still going to be there the American dream the American experiment is still relevant today and you know we're still being able to offer more quality of life than any country out there and that's part of what we believe is a proud American company is that those are the things that we weren't that have been true to who we are yeah and are going to continue to be true to who we are as a company yeah yeah let's talk about interest rates and this will be fun because you're a nerd when it comes to this okay so totally back in the day a couple years ago interest rates were coming down down down and there were some people that were like is this going to blow up insurance companies so I'd love to hear your thoughts about that but then now interest rates have spiked up and and so would love to hear your thoughts as it relates to future what of how interest rates impact insurance but then also yeah even where were you guys worried or was it something that was you know like what was your thoughts around interest rates and how they impact so interest rates coming down right we would see 40 years of interest rates going down over a long period of time really since they peaked in the early 1980 so when they got to that near zero level yeah there was definitely pressure on the industry there was pressure on pen mutual why because there's embedded guarantees on our products that provided minimum floors for crediting yeah we made good on all those promises we made on good on all those promises because we locked in interest rates over a long period of time but it did pressure results and that's I think a truism for for for all life insurance companies and as rates have risen that has been a tailwind now it's not an overnight tailwind right because we don't see that run through because we still are good discipline risk management you don't ever bet it on a forecast you don't ever bet it on rates are going to go this way that way but you're starting to see that kind of you know tailwind come through as you reinvest our assets at higher yields as they mature and new cash comes into the company at higher higher levels and so and you're seeing that start to flow through into products and products for both enforce crediting as well as new product design continues to benefit from that so just as interest rates being low and going lower towards zero was a was a headwind interest rates rising is a tailwind for for the industry and our on our products but it really comes from because there are those guarantees in there and so they cut kind of both ways yeah I going back to the risk question one of the interesting things about longevity and interest rates and all like if you think about it insurance insurance insurance companies have amazing like balance risk because on one side you offer annuities longevity put on another side you have life insurance which longevity ultimately I would be favorable for insurance companies and so I think it's that's pretty interesting to see like insurance company have multiple products and is that why you guys offer multiple products is it gives you guys a little bit like options it gives you options to be able to pivot 100 percent I mean that's where that diversification right we're in the mortality business we're in the longevity business yeah and there is an offset to that there's a natural hedge and we price those products again back to that they're attractive on a standalone but you start to put these pieces together and they even work even better and those risks we manage them out we diversify them over a large base of policyholders and so we're able to to have that kind of positive impact that that that way and so yeah we are on kind of both sides of it you know offering solutions and that's why I go back to it's the solution that the client needs what are they trying to accomplish and then what's the right tool for that and what's the right tool to have that have that done and then so for us yeah we can actually naturally hedge ourselves yeah right and that's something that is really tough to do as an individual yeah or even as a corporation you looking at how do I actually create self-hearing because you need those diversification benefits of scale yep so I'm going to throw a curveball at you and I'm curious to hear how you're going to handle this so you most likely own individual stocks in your personal portfolio I'm assuming when it comes to you at the insurance company you guys have you know promises that you deliver on and I imagine that majority of the portfolio is not equities so what is what is your thoughts around that and why is there like is there something that consumers can learn about how insurance companies manage for the future and is there something that is that something that we should model or is it one of those things where it's like let's just buy an insurance product and then I guess I'm looking for Dave O'Malley's framework of how he thinks about money and if there's a lessons that we can learn as an individual about you know not just do what they say but do what they do yeah so I think that you know I do own equity securities actually own mostly funds and ETFs and things of that nature you can imagine in my role with the fact that we have four insurance companies yep two broker dealers three RIAs 40 security 40 act fund complex that there's a quite a bit of requirements on terms of the reporting of transactions and so you know the more generic those things are the better off they work because there is a lot of reporting and appropriate reporting for that type of but I think first you have to look at where's your risk tolerance what are you trying to accomplish with your money is that money short term money is a long term money what is the horizon what's it therefore is it for retirement income obviously you can take more risk at and have a longer term horizon you probably have a risk your portfolio as you get closer to retirement maybe you need income that portfolio changes well we do similar things on the insurance company side but we because we're liability driven investors so right we sell all these products and we sell these products consumers as we've talked about the two different things and then we take those products and say how are we going to buy assets against them that meet the sort of expectations of that and then how do then all those come together so that we can bring them together into that overall portfolio construct so our balance sheet rate most simply defined for for for your listeners is that we're about 85% fixed income about nine as we said here now about 97% of that's investment grade 3% below investment grade so a very high quality book of fixed income it's broadly diversified amongst corporate bonds which represent around half of that fixed income component and then different structured securities be it residential mortgages different types of asset securities commercial real estate type of loans that we buy in packaged form treasuries cash alternatives those type of things make up that fixed income portfolio then you say what's the what's the remaining 15% we have about 5% of the portfolio that I'll call is very much driven for liquidity and hedging rate because we utilize derivatives to manage interest rate risk yield curve risk other types of things and we have to put up collateral for that so we have about 5% that's derivatives and collateral we have another 5% that we view as more of our long term growth investing which is in our what we call our alternative asset portfolio that's broken up about 50% roughly in venture capital a b round mostly and then the other 50% in private equity we tend to focus on small mid buyout type funds we do some credit funds we do some things on the real assets side so very diversified that provides a little bit of upside to the portfolio because those assets are really sticky and long or the liabilities are really sticky in long term so we can buy some less liquid assets with that 5% sleeve and the other 5% are affiliated companies which provide you know whether or not that's asset management and where we earn fees on managing other people's assets and then also in broker dealers and wealth management platforms where we earn money from from having those assets on platform and so those results come back in overall but I always think when you look at it you have to come up with a long term strategy as a investor and then make it go oriented because part of that goal is how much risk and what are you trying to do with money for us the liabilities drive how we invest yeah and that's how we think about it I think for individuals and when I think about my own what am I trying to accomplish what's my time horizon and what do I want it to look like when I get there what's my savings rate what am I looking to accomplish in retirement yes what I love what you said is okay so you guys have certain liabilities you invest for a purpose and you're and there's intention about where your money is going and I think individuals like if you don't know where you want to go then that's problem number one get really clear on that but then look at assets as a way to fulfill on the promise or the desire of your of your of your life and I think it's like if it instead of us removing responsibility of saying like I'm just going to defer to somebody to tell me what to do it's it's like no like we're you have assets that should hopefully be able to fill and and and really take ownership of that and I think again a lot of times investing it becomes scary but if you simplify it it it shouldn't be and it should be something that regardless of who you are you should embrace and take responsibility for your point if you think of the outcomes you want to do yeah want to accomplish as an individual or as a business right for us it's making good on the promises we have in our products for individuals it's right what do I want to accomplish retirement what I went for you know money at this point do I want to open up my own business whatever whatever it is and then start with the outcome and work backward to what are the tools in my toolkit yeah that make that happen I think it's a much bit better than saying here's all these tools in this proudly diversified financial world I think this one's going to beat all these others yeah I think there's it's a lot more easy to look at what's the right answer for you yeah it's always going to be the right answer for you or the institution if you look at it the other direction yeah or when it comes to PE is if they was all went to zero would you guys still be is are those like just giving you like home run because I imagine they're either going to hit home runs or go to zero but like that's why the majority of your fund is like fixed fixed in common all but like the PE I bet that that's a world that was especially with the massive balance sheets that insurance companies are like that might be small but it's still I mean I'm sure you guys are are able to write some pretty exciting checks to yeah I mean it's it's it's an interesting area right having been involved in the investment yeah for a long time because it's broadly diversified yeah it provides pretty good returns oh nice and we get some advantages over the public markets and aggregate over the long term I bet right and but you guys are getting deals that I'm not getting close to no one can either do to be perfect like institutions yeah and there is providing access to that and our we have an entire team that is out there building relationships in that world I'm talking about why a good partner would be pen mutual why should you take our money in that space because the difference between the top performers and the bottom performers is so great and so sorting through that but we don't make big positions there because you don't know which ones are going to be the best ones and which ones may go to zero but what we have it is broadly diversified enough that we see good solid returns over time doesn't mean doesn't have volatility right has volatility but we have enough financial wherewithal to absorb that volatility there you know take the upside over time and that adds incremental value so I like to think of it as right because our policies are around for so long yeah we have the ability to take some amount of liquidity risk yeah right I like that and so this is a piece of the portfolio that benefits greatly from our ability not to need to access money that we're we're very operationally positive yeah on a cash flow basis yeah which means more money is coming into the organization so some of our assets don't have to be throwing off returns or consistent returns like coupon on a bond right and so we can take advantage of that and then put that into the equation of creating value for for policy orders the features or the performance of their cash value yeah it's interesting because what you do on a massive scale is if you if you bring it down into the consumer volatility buffer well one of the reasons why permanent life insurance or an annuity or even like a reverse mortgage could come in handy is it creates volatility buffer and potentially allows other assets to be able to be able to recover and also from an investor's standpoint if you're if you're able to not need the money you could potentially have more of a long term mindset but if you need that money you can't say yes to potential opportunities that may get a better return over time but it would be irresponsible if you're you know you're holding that stakes in something that you know has that volatility absolutely and so how do you think about managing volatility right and I'll probably use the word risk more in the conversation we've had today yeah but you can almost use them analogous right at the end of the risk creates volatility yeah what's your definition of risk so risk can be broadly an outcome that's other than the one that you expect right I like that I like that is I expect that this is going to do X or return X but it returned X plus or X minus that difference is risk that's risk and expected outcome right risk might be that you expect that my life expectancy will be somewhere in the 85 to 90 year range might could pass away sooner than that I could live much longer than yeah that's risk yeah volatility from the expected is risk how do we manage to that assets have that we don't know where the market I don't know where the market's going tomorrow yeah I don't know where it's going over the next year yeah how do I want to manage the difference between that right we know that there's broader economic things around inflation growth expected real asset performance yeah but you can build and say well this is what I think the long term is yeah the truth is it's going to be different than that yeah that's the one certainty is it's not going to go in a straight line it's not going to be that and so that's the risk yeah and how do you manage that risk what assets buffer risk but as it's provide a buffer to it and brings stability yeah and what assets give you the upside to be able to do that and some of those things are liquidity some of them are are different things like credit risk equity performance right and how do you build that but I always think you have to look at the risks that are out there and that's the differences from expected yeah and then how do you build either your personal finances with a long term perspective to deal with that I want to talk about alternative assets but like is there a reason you guys don't invest in ETFs or indexes as a company and the reason I think why is like it there's less upside it's like you're taking on the volatility but if you put your money in the S&P 500 let's just say like the upside versus in PE like I guess maybe you do but like why doesn't it pen mutual put most their portfolio in an index well at the end of the day the reason we don't put it in indexes you think of the liabilities rewrite rather than I was doing the life insurance and you would say it looks more bond like yeah then equity like so if you start with the liability in you're paying a consistent return or consistent dividend to policy hold it right it changes but consistent being that there's expected to be an annual credit there's gonna be a quarterly credit to that policy yeah that's gonna be best managed that risk by fixed income got it but then it's not gonna leave tomorrow it's not that only piece so you can get some additional upside because you're not managing that that cash flow now we do manage and hold things we actually own insurance for in the insurance company uh ensure in sure own life interesting and it manages other risks for things like our deferred compensation programs and for different different benefits that we offer to our employees and in there you see we own index funds yeah and things that interest because that's actually the best place for that uh got it and that asset why does alternative assets fit because actually it has less market to market volatility because of the broad diversification so it actually goes through our financials and if you think about our finance rate it's the assets we have as the company minus the liabilities is our surplus that's what's there to pay claims yeah if those assets are really volatile then that flows through yeah to your surplus being volatile yeah we don't want our claims paying to be volatile yeah I understand we can accept some volatility to that but so the fact that alternative assets have a different market to market profile than the public markets actually is advantageous and that's why you see that handling there when we have other liabilities whether or not it's employee benefits or things like that you may see us invest that yeah we're in some of those index strategies so it's not that we have an issue with index or we're against that because I own them myself yeah it's that the right tool in the right place for the right reasons all right so we're going to do a fire round we're going to ask you just a bunch of questions okay fire around really interesting so dividend like yeah like how what goes into you guys deciding on a dividend and it's so interesting because every insurance company per like a lot of insurance companies that we represent you know have dividends that they publish what's frustrating to me is it's it's like they all mean something different doesn't mean that they all will perform the same but how do you go like how do you decide what the dividends going to be and then what is your philosophy as it relates to the state of dividend yeah and there's a lot to this that I'm sure you've gone into around the difference between a dividend rate and what the cash value of a product and they're not the same thing yes and some some people say they are and it should be malpractice for them to but yeah it is they are not the same thing you should always in my opinion you should look at what's the cash value RR yes great and understand that the dividend credit rate is one of three components of the dividend right so there's an intro the dividends are made up of three things interest yeah mortality and expense I think every company should be able to talk about those components interest is pretty straightforward it's yeah we earn money on those bonds that we've talked about in this conversation what are we earning on them what's the margin we need for profit how do we pass that through what's the portfolio rate this isn't just the bond we bought yesterday but we've been buying them for a long period of time and how's that portfolio performing and so that moves up and down more slowly over time as that rate changes then you have mortality is mortality performing as or better than expected yeah we expect that our mortality pricing over the long term is going to be really solid and that adds to the dividend and back into that and then expenses are we running the company efficiently how are we operating you mentioned like salaries computers real estate right all those other things that go into it that's another component of the dividend you pull those all together and that becomes kind of how a whole life policy performs so the way we think about it is what is the rate that we can offer to our policy orders based on all of our assets the company's mortality performance our expense management that we can maintain and sustain based on our current balance sheet for you know we we prefer to have a consistent dividend story which means we really want to only change the dividend up or down once every couple years and be able to really try and hold that dividend at that level for that period of time obviously we don't know where the future is we've touched on that but that's where we think we see the world going because we don't want the dividend going up and down with volatility we're going to be able to have a more of a consistent dividend approach so it's really three components is that interest component mortality and expense all goes into what a dividend calculation is. Well and I just want to congratulate you because over the last 10 plus years and I can only speak from my experience ever since I got into the space pen has always been respected and over time as other companies have maybe created a little bit more volatility in their dividend rate pen is really shown there and so that just goes back to the consistency and also the the performance of the contracts perform well and so. We need is reflection of the performance of the company the performance of its assets the performance of its more underwriting its performance of its expense management and I do think that what we've tried to do is be able to pass that back through and a consistent dividend and it's something that you know we're very proud of as it goes back to benefit our policy holders. If you're an incredible investor watching this and you're like I'm curious to hear Dave's thoughts on alternative assets that you're not giving investment advice but is there any asset that you'd be like you should do more research on this I remember a couple of years ago allegedly mass mutual you know put money into a Bitcoin like a large dollar amount when it when you look at a consumer and that got people kind of buzz in but is there anything that you're like looking at from a standpoint of like oh this is what we're seeing that maybe the listener watchers should do some more research on. Well I think I'm going to stay away from crypto from that perspective and not really a pine on that I think there are a lot of investment tools out there I think that do your own research. At the end of the day that's my you know if you really have an interest in this space do your own research really dig in see if this is the right fit for you. The true long term performance and financial assets come so I think from really understanding what's underneath it what's the best expectation and doing that doing that homework you know we spend our time there I don't think there's one magic class there's always things that are evolving yep I can say that we don't own crypto okay and and the reason and I'm not going to make a judgment to anybody else the reason we don't is you know when you think about what our liabilities are driven and they're denominated in dollars yeah that at the end of the day that's where we have to deliver we have to deliver those dollars back and so to me it's it's it's very uncarleted may not be a bad thing yeah but we've chosen to sort of you know stay with dollar denominated yeah right just like we don't invest in a lot of foreign currencies yeah our US company where we write our our policies are written in dollars you're not seeing us go out and do big investments in your rows or yen or some other foreign currency because it's not tied to understood what we do understood when we talk about size mattering and one of the things that pen mutual is a well-run company but they're not as big as some of these what some people call mother mutuals what would you say to to that and and I'll kind of ask another question when I talk to people about how we choose different insurance companies it's like the mutual conversation is a is a must the ratings making sure that these companies are financially strong and the ratings are good and then also do these companies can do they can they give us the products that can enhance because you could have a really solid company but they might not have the contracts that you know could be designed such a way to achieve enhance and so pen mutual like a lot of other carriers check those three boxes what would you say to someone who says well size like I just want to go with the biggest company and what are the pros and cons of that yeah so I think that at the end of the day right there is some efficient you know efficiencies that come from scale right that's just a truism right whether or not spreading fixed expenses over over a larger base and then there's advantages to being nimble yeah and being able to take advantage of it opportunities in the marketplace and being able to do that and those are tradeoffs and that's where companies differentiate so I think you have to decide what's better in which when you look at the end of the day financial strength and the ability to make good on the claims here really does come down to that surplus that we talked about earlier right yeah how much money do you have to make good on the promises that are there that really is something that doesn't matter as much by size it really is I have this many things that I have to pay on this is where it is and you see the rating agencies do that through their kind of claims paying view and I think you see the mutuals have extremely strong balance sheets partly because we're able to hold that extra capital yeah because we're not under the pressure to get the highest return on capital for shareholders yeah so I think you have to look down at ratings but yeah we are able to be very nimble yeah um I think what we really focus on is making sure that we have exceptional products and services that meet the needs of consumers yeah we want to make sure that it's easy to do business with us we've invested a lot in technology yes you have tools that make it easier to require our products provide an exceptional customer experience but at the end of the day we have to also have tremendous financial strength so I like to think about those three things got it products ease of doing business financial strength we need to be focused on doing the best we can around each of those every day and I do think the fact that we are not the largest company allows us to be very nimble yep and you can see that in our technology we're a hundred percent virtualized in the cloud company yeah which is very unique in the in the insurance industry yeah we have really good tools for our customers with your leading the way when it comes underwriting and and like you you don't necessarily have to get poked every single client has doesn't have to go through the maybe typical route obviously there's there's exceptions to that but it's like that's amazing you guys save so much money and just embracing technology as it relates to that yeah and even think about the paper applications and not having incorrect applications or having a consumer fill something out and finding out there's a new variant to that application that's out there being able to have a digitized buying experience you know and then underwriting is just kind of I'd say the additional area to that and so for us those are the areas but I don't always think that you know big hazards advantages but being nimble hazards advantages to and then it comes down to execution and being able to deliver and I do think you have to look at financial strength that's sort of something of that is something that is proportional to the exposure you have yeah well and you also you had a great answer the other day when you talked about the difference between a Ferrari and one of these bigger and you guys what I love about Penn Mutual is like your your laser focused on what you're doing and and you're not the goal is maybe not to be the largest like that's not necessarily your goal it's to have excellent service and products to the people that you serve well yeah I think our strategy and I think this has been refined over a long period of time that I've been with the company right is that we are unwavering in our commitment to mutuality which we touched on you know we look to have great relationships with financial professionals right because we realize that the best advice is going to be given by a financial professional to determine what's in the best interest of of your client what's the right product what's the right company what's the right value proposition that way so we want to make sure we develop those relationships we want to be a leader in life insurance so you see us have that that broad portfolio and we want to make sure that we have exceptional service to do that and that is really what we work on each and every day is getting better in sort of who we are in that value proposition we're not trying to be everything to everybody and I think we continue to evolve and continue to grow and continue to add good value where where we've chosen to compete Dave if you could snap your finger and and like pass on one thing to the financial professionals out there and like if you could download like this one concept or like this one mindset that you have would there be like what would that be if you were like all the people representing and helping people when it comes to money what would be like the one thing that you would pass on to them if you have that ability you know I think it's to see more people I mean I really do I think that financial the financial marketplace right there continues to be incredible innovation proliferation of products not just in the insurance space but all across financial products and I think that the more financial professionals can get out see more people help them utilize the tools technology techniques to be able to communicate connect and deliver value I think that's the thing keep you know who's you've heard me say this right what you do today as financial professionals is more needed and more valued than ever and I've used an uncertainty has done that yeah right we're coming off of once in a hundred year pandemic yeah who saw that coming yeah we haven't seen inflation right during my entire working career yeah right my entire career we haven't really seen an inflationary period out there that creates uncertainty it's a different environment than a disinflationary yeah all those things impact people's financial lives the expectations that they have and that's why I think that the you know the the opportunity to see more and connect with more people that would be my message to finish what you do is valuable what you do is impactful and you know please keep getting out there and connecting with people and being able to help them live their dreams and aspirations Dave is there anything else you want to share no this was this was great you know it was great great spend in time with you Caleb and you know let me also congratulate you is as as a as a top financial professional and something somebody who has impacted many lives leading the company last year in the number of lives that and and individuals that you've written business on with the company HROMEN to say how it comes so it's been great being with you today it's been great being with you I appreciate again the humility you're down to earth you have a pulse on investing you have a pulse on financial professionals you have a pulse on products and it's fun to see where the future holds got one last question has nothing to do with insurance or investments so the question I end all all my shows with and it's the legacy question if this is your last day on earth and you're with the people that you love the most and you couldn't give them any book video or anything you just had a conversation what would you touch on in that conversation I think it would be to to live life to the fullest make your life significant and impactful and touch other people as you'll that's what you'll remember I think at the very end is who impacted you and who did you impact along the journey Dave thank you so much for taking time to be on the show now thanks kale great being with you hey it's kale Williams here I'm just interrupting this video quickly to invite you to check out our and asset vault you may have been there we've actually re revamping it and if you are somebody that wants to learn more about his life insurance right fit for me does this and as it makes sense like does this actually help me be more efficient we've put together a 10 minute documentary style video and I can test a really really good job giving the history why the end asset different setups and designs that we use and then we have an end asset vault that gives like case studies calculators handbooks and so much more we are here to serve you whether it's a conversation whether it's education or the video so make sure to go check out and asset.com slash vault learn more