Prudential’s Losses May Be Good Medicine Nation’s Largest Life Insurer Not Performing To Potential

When Robert C. Winters, the former chairman of the Prudential Insurance Company of America, called 1993 “a very tough year,” at least he was able to soothe the pain of admitting that Prudential had steered thousands of customers into bad investments with the balm of $879 million in profits.

Arthur F. Ryan, who succeeded Winters a few months ago, will have no such comfort. When he reports Prudential’s 1994 results in late February or early March, the past misdeeds at Prudential Securities will remain an open sore. And the salve of profits is likely to be replaced by a loss of as much as several hundred million dollars.

By absorbing those losses now, however, Ryan finally may be setting the stage for a long overdue revamping of Prudential’s diverse operations. Indeed, for all its fabled image as “The Rock,” Prudential has not been the kind of company that has produced big, stable profits.

“Hardly any part of the company is earning up to its potential,” said David A. Havens, a life insurance analyst for Standard & Poor’s Corp.

Prudential, based in Newark, N.J., is probably the closest thing to a cradle-tograve provider of financial services as exists today in the United States. Being the nation’s largest life insurer is only one component: It also runs the third-largest medical care network; the second-largest mortgage lender; the fourth-largest securities firm and the sixth-largest insurer of homes.

So far, there is enough truth in Prudential’s image that the damages from the recent setbacks are more akin to graffiti than a serious fissure. The leading credit rating agencies have marked down the company’s top-notch ratings, but only to double A’s from triple A’s.

While further reductions could come, today’s double-A rating still leaves Prudential with a higher rating than most of the country’s other insurance, banking and securities companies.

The company’s standing among customers is harder to measure. On top of the two-year barrage of news reports about improper and illegal sales practices at Prudential Securities, the company’s insurance business was hit by a wave of allegations of and state investigations into improper sales tactics by agents.

Given all that, analysts say they are unsure whether last year’s decline in insurance sales was an aberration or a sign that Prudential’s reputation has suffered along with its ratings.

Despite the problems, the company expresses confidence that its stature remains basically unscarred. Robert DeFillippo, a Prudential spokesman, said consumer surveys “show our brand equity is holding up.” He would not elaborate.

The top executives at the company declined to be interviewed about any aspect of the company’s performance in 1994 or their plans for the future.

With $10.7 billion of capital at the end of 1993, Prudential retains a sizable cushion to absorb any new blows. Its healthy finances enabled the company to stand firm against a loss of $1 billion from Hurricane Andrew two years ago and expenses, fines, and customer settlements in excess of $1 billion from the Prudential Securities scandal.

There is little agitation for change from the policyholders who theoretically own Prudential. But that has not deterred Ryan and other Prudential executives from vowing to improve the bottom line.