Prudential Financial Inc.

Case Code: BSTR114 Case Length: 31 Pages Period: 1875 - 2002 Pub Date: 2002 Teaching Note: Not Available

Price: Rs.500 Organization: Prudential Financial Inc. Industry: Financial Services Countries : USA Themes: Corporate Strategy

Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

Business Segments

After the demutualization process was completed in December 2001, Prudential's operations were organized into two business segments - Closed Block Business and Financial Services Business. The Closed Block business was established for certain individual life insurance policies and annuities issued by Prudential Insurance Company of America in the US. It represented the traditional participating products segment before the demutualization process. It also included the company's participating life insurance and annuity policies; assets that were used for paying the dividends and other benefits of the policies; and, other assets and equity that supported these policies...

Geographic Segments

Prudential's international operations were divided into two segments - Japan and all other countries. Japan was largest contributor to the company's revenue after the domestic operations (Refer Table II). In Japan, Prudential operated through four companies in the insurance and retail investments & securities segment (Refer Table III). Though Prudential had established its first overseas office much earlier in 1909 in Canada, the real growth in its international operations started when the company established its wholly-owned subsidiary, named Prudential of Japan, in Japan in 1988. By 2000, Prudential had not only become one of the fastest growing life insurers in Japan, but had also expanded to other markets in Asia...

Marketing

Prudential focused on marketing since its early days. In 1896, Prudential came out with its first advertisement in Leslie's Weekly. The advertisement had the Rock of Gibraltar as the company's logo, symbolizing its strength and security. In 1898, the company came out with another ad showing the $13,221 check given by Hahn and Company as annual premium for its $400,000 policy. Until 1993, Prudential had a single Individual Insurance Business unit, which had three alternate marketing channels, namely, district agencies, ordinary agencies and independent brokers and agents...

Human Resources

Prudential was recognized for its HR practices and policies. In 1999, the Congress of Industrial Organizations (CIO) magazine had placed Prudential among CIO's 100 best companies based on HR management, innovation and customer relationship. In the same year, the company's Executive Vice President - HR, Michele Darling, (Darling) was named the 'HR Executive of the Year' by a leading magazine, Human Resource Executive. Darling designed a training initiative called the One Prudential Exchange in which the employees learnt details about the company's operations, its strategic mission, and the action necessary to achieve its organizational goals. More than 60,000 employees of the company were part of the training program...

Social Responsibility

Prudential seemed to be conscious of its social responsibility from the time it was set up. The very idea behind starting the company was to offer insurance services to people with limited means by collecting premiums on a weekly basis. The company also supported many civic causes. In 1933, more than 1000 employees of Prudential joined a parade organized by workers of many companies in Newark. The parade was organized to support the National Recovery Administration, one of the programs initiated by the then president of the US Franklin Roosevelt in an attempt to alleviate the Great Depression...

Corporate Governance

Prudential's Board of Directors reviewed the company's policies and strategies and also advised the Chairman and the CEO. The Board comprised of 21 directors including the Chairman, 20 of whom were outside directors. As of June 1996, Prudential announced that there were about 240 lawsuits pending against Prudential and Pruco Securities. Most of the complaints were market conduct allegations and alleged short-term unethical sales tactics. The company paid more than $425 million in 1996 to claims of hundreds of customers in suits of deceptive sales practices. It was reported that the company's internal auditors had warned the directors in 1982 that the company's agents were following unethical tactics to boost sales. However, the company did not make an attempt to resolve the issue at that time...

Finance

Prudential's consolidated revenues increased to $27.177 billion in 2001 from $26.504 billion in 2000. The gross written premiums increased from $10.18 billion in 2000 to $12.477 billion in 2001. The company reported a loss of $154 million in 2001 compared to a net income of $398 million in 2000(Refer Exhibits IV and V). The closed block business reported lower revenues of $7.728 billion in 2001 compared to $8.729 billion in 2001. It reported a net loss of $456 million in 2001 as against a profit of $87 million in 2000. The financial services business of Prudential Financial reported revenues of $19.625 billion in 2001, compared to $17.885 billion in 2000...

Future Outlook

The company's IPO in December 2001 was the largest ever in the insurance industry with total proceeds of $3.48 billion, including an additional $450 million raised by underwriters. Prudential aimed at becoming a well-capitalized, strategically focused, well-positioned company, increasing customer and shareholder value. The company outlined two objectives to achieve the above goals - making the business expand; and increasing the return on equity. Public ownership offered many advantages to insurance companies. The capital market exposure enabled them to grow faster as money could be raised for restructuring and acquisitions. Public ownership also resulted in shareholder trust and provided more transparency in the overall earnings and business development...

Outlook for the Global Insurance Industry

The global insurance industry was being influenced by several external factors including new distribution channels to market insurance products, consolidation and globalization of insurance companies, rapidly developing technology, and new laws and regulations. In the late 1990s, insurance companies around the world believed that the size of the company influenced market power and helped in reaping the benefits of economies of scale in the insurance industry. Industry watchers felt that a huge capital base was necessary to achieve global dominance and to establish a presence in all the lines of highly competitive insurance industry...

Exhibits

Exhibit I: Stock Price Chart: December 2001 - July 2002
Exhibit II: Demutualization
Exhibit III: Ready to Learn, Work and Live
Exhibit IV: Prudential Income Statement 1997-2001
Exhibit V: Balance Sheet Data: 1997-2001
Exhibit VI: Products and Services of Prudential Financial

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