Prudential Financial Inc.

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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...

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...

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...

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...

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...

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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