Weathering a 'depression'
Hartford, Conn. — The Aetna Life & Casualty Company was founded in 1853. Just 20 years later it survived a financial panic when more than 5,000 businesses failed.
In an effort to find out how it would survive another economic disaster, similar to the great depression of the 1930s, Aetna recently completed a computerized study. According to John Filer, Aetna's chairman, the company ran the study a few months ago, ''when there were people saying there was a real chance of disinflation-depression.''
''If there is even a very small chance of a huge problem,'' Mr. Filer said, ''common sense causes you to look at it. So I said, run a study of the various impacts on this company if the country went over the brink and we had a depression.'' If there were such a depression, he said, ''I want to make sure that we're the last ones through the door and we're not going down the drain.''
In constructing its model, the company factored in a mild recovery in the economy later this year and then a falloff in economic activity next year. It figured on a relatively tight-fisted Federal Reserve Bank, with interest rates only grudgingly giving way until next year.
The results of the study showed Aetna sailing through any steep economic drop-offs without any major problems. Even though earnings would suffer, the study showed Aetna would not generate red ink. Since insurance generates lots of cash as customers pay premiums, the company would not have any cash flow problems. Even figuring the same bankruptcy rate as the great depression, Aetna found it would survive without any major problems.
Mr. Filer considers the likelihood of a depression as ''very slight.'' But he says the study was useful, since ''we know an awful lot more about this company and . . . (how) to stay relatively healthy.''