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Insurance and Investments (click here for PDF of 2010 Investment Review)
When he founded the Knights of Columbus, Venerable Michael McGivney wanted to provide Catholic men with the opportunity to strengthen their faith, to create a strong fraternal bond, to make charity a central part of their lives, and to protect their families from financial misfortune. Today, 127 years later, we remain faithful to every part of that vision.
Having touched upon our devotion to faith and charity, let me turn now to the part of Father McGivney’s vision that deals with providing financial security to our members and their families.
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| College Knights at the University of St. Thomas in St. Paul, Minnesota collect a clothing drive for a homeless shelter in the city. |
If you’ve read the pope’s new encyclical, Charity in Truth, you may have noticed that in discussing economic activity around the world, he referred to “economic activity carried out by subjects who freely choose to act according to principles other than those of pure profit,” including “economic entities that draw their origin from religious and lay initiatives.”
If this sounds a lot like a way of describing the Knights of Columbus, it is no accident. Pope Benedict’s description of “hybrid forms of commercial behavior” is another way of describing Father McGivney’s vision for our insurance program, which protects the financial security of our families as a commercial insurance firm would, but whose “profits” benefit a wide variety of charities, the Church, and our own insured members and their families.
In his encyclical, the pope identified the type of behavior that led directly to this recession: “speculative use of financial resources that leads to the temptation of seeking only short-term profit, without regard for the long-term sustainability of the enterprise.”
And sure enough, over the past several years, many firms – some of which no longer exist – sought high returns from high risk instruments that no one really understood. The Knights of Columbus, on the other hand, is guided by Pope John Paul II’s observation that “investment always has moral, as well as economic significance.” Our goal has never been short-term profit. Our goal is, instead, to put the long-term interests of our members first, and that is why we have kept to what Standard & Poor’s describes in their just-issued report on us as a “very conservative financial strategy.”
According to S&P, our “capital adequacy” – a measure of the huge safety cushion that we maintain – “is among the strongest in the industry.” Knights of Columbus management, they reported, “has a very low risk tolerance and places a very high value on the society’s reputation.” That’s certainly true as far as it goes, but we would put it another way. We place the highest value on your safety and security. When we make vital business decisions, our first consideration is the welfare of our brother Knights and their families.
For Standard & Poor’s, their bottom line in this year’s report is that we are “achieving [our] primary objective of providing members and their families with high-quality, low-cost insurance benefits.” Citing our “extremely strong capital,” our “strong profitability,” and our “extremely strong liquidity,” S&P gave us their highest rating – AAA (Extremely Strong) – for the 17th consecutive year. Moreover, they declared our outlook to be “stable,” meaning that they believe that our sound management and careful investment strategy “even after applying stress factors” will keep us at the top.
At A.M. Best, the story is the same. In their report this year, they cited our “consistently positive statutory earnings, excellent persistency and an exceptional level of risk-adjusted capitalization” in giving us their top rating of A++ (Superior) for the 34th consecutive year.
Among the things that impressed A.M. Best about the Knights of Columbus is what they termed our “strong commitment to ethical market conduct,” and the fact that we participate in the Customer Assurance Program, and are certified by the Insurance Marketplace Standards Association (IMSA) for exhibiting the highest standards of ethical business practice.
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| Supreme Knight Anderson with leaders of the Outstanding College Council of 2008, Texas A&M University Council 10624. |
There are only four companies in the United States this year which have the highest rating from both Standard & Poor’s and A.M. Best, and IMSA certification for ethical standards. The Knights of Columbus is one of them. In Canada, there is only one company that has all three. That’s right – it’s the Knights of Columbus.
Let me offer you some details about the way in which we manage your assets.
Our professional staff invested more than $8 million each and every day in 2008, and for the fifth year in a row, the investment staff was able to increase the yields on newly issued bonds, which have gone up from 4.4% back in 2003 to 5.9% in 2008. That 1.5% increase may not sound like a lot, but it has a dramatic impact on the income generated by our portfolio. Bear in mind that 87% of our $14 billion in assets is invested in a broadly diversified portfolio of bonds. The increase in yield on those bonds has not come at the expense of quality.
The average rating of bonds purchased last year was once again AA. We had no issues in default at year’s end.
A relatively small portion of our assets are invested in stocks, especially in the current environment. At the end of 2008, our common stock holdings totaled $222 million, after deliberately reducing our holdings from $330 million a year earlier. When we do invest in equities, they are generally preferred stock, which have better yields and are less volatile. Our focus has been on companies with very strong balance sheets.
All of our investments are screened to ensure that they meet our religious, moral and ethical standards and are not in conflict with the teachings of the Catholic Church. That is yet another way that we heed Pope John Paul II’s teaching that “investment always has moral significance.” Our investment income increased to $814 million in 2008, an increase of 2%. Our total portfolio yield was a very competitive 5.75%.
A relatively small portion of our investments involve real estate, including our ChurchLoan program, which made 18 new loans worth $21.2 million last year, and which grew overall by about $4 million to $124 million. We also have a small diversified portfolio of multi-family housing, office, retail, industrial and warehouse buildings, which brought a combined yield in excess of 10%.
At the same time as our investment staff has been coping successfully with a very challenging economic environment, our general agents and field agents have been having remarkable success helping our members take advantage of our new and improved products. Our field force has now grown to more than 1,400 representatives, all of whom are brother Knights. And in its report this year, A.M. Best noted that our 4-year agent retention rate is double that of the industry as a whole. These highly trained professional agents have been extremely busy over the past year, helping members cope with economic uncertainty and understand our new product offerings.
Last October, we introduced the new 800 Series insurance products, which are more competitively priced and have a number of new features that have been very popular. Sales were very strong during the fourth quarter of 2008, helping to achieve the record $6.6 billion of insurance we sold last year. It was our eighth consecutive year of sales growth. That has continued into 2009, and we are well on our way to setting a new record again this year.
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| Bishop William Lori, Supreme Knight Carl Anderson, Archbishop Donald Wuerl and CUA President Father David O’Connell at the dedication of McGivney Hall. |
Once again in 2008, the Knights of Columbus led all fraternal benefit societies in new life certificates issued. Our 73,119 certificates issued was almost 40,000 more than the number two society. Our overall number of life certificates in force has grown every single year since 1970, and at the end of 2008, stood at 1,668,160. As of July 8, the dollar value of our life insurance in force exceeded $72 billion – a new all-time record.
With the collapse of stock prices last year, there has been a major shift to quality and safety in both life insurance and retirement planning.
During the first six months of 2009, our annuity sales totaled $256.1 million, compared with just $130.6 million during the same period a year earlier. That is an increase of 97.2%. We are having the best year in our history for annuity sales, as people have come to realize the safety and solid growth that we offer. And all this is on top of the fact that 2008 was a very good year: annuity contracts issued in 2008 had already grown by 40% over the previous year.
We also introduced a special new product in Canada on the first of this year – a Tax Free Savings Account – and sales have been very brisk.
The ultimate story, of course, is not investment success or sales numbers. It is the benefit that has come to Knights and their families, and that is our tribute to the vision of our founder.
Last year, we paid more than $222 million in death benefits to Knights of Columbus families, providing exactly the kind of financial support that Father McGivney intended that we should provide to our survivors.
Last year, we paid more than $372 million in dividends to our insurance members, helping them to fulfill their goals of financial security in a time of economic uncertainty and turbulence.
In this as in everything else, we stand with Peter: our moral compass always points in the same direction. | 
