BizAims

The Prudential Insurance Company of America is one of the largest diversified financial institutions in the world and, based on total assets, the largest insurance company in North America. Along with its primary business, insurance, the company also operates in securities, investments, residential real estate, employee benefits, home mortgages, and the corporate relocation industry. In 1999 Prudential was in the process of reorganizing as preparation for a transition to demutualization and public ownership, pending regulatory approval, in 2000.

Opportunities Amidst Inflation and Stagflation: 1970s

When the New Jersey legislature revised insurance laws in 1967, it broadened the operations of life insurance companies, permitting them to offer fire and casualty coverage, individual variable annuity plans, direct investment in real estate, investment management services, mortgage investing, and to own or lease business or communication equipment. Prudential took advantage of these new opportunities; inflation was corroding the pay checks of U.S. workers and fewer customers wanted policies that pledged fixed payments. Instead Prudential aimed its sites at the new middle-class consumer, aiming to meet all their insurance needs.

In 1970 Prudential entered the property and casualty insurance business. Unable to secure the necessary state licenses, and without a sufficiently large body of trained and certified agents, the company contracted with Kemper Insurance to provide "shell" companies in 26 states. Homeowners insurance policies had traditionally been written for three to five years, and corporate profits suffered from inflation. Instead, Prudential wrote all its policies at current rates. To minimize losses, it carefully selected the geographic regions it entered. However, the retraining costs of certifying 30,000 agents were great. By 1972, Prudential dropped its contract with Kemper and continued in the casualty and fire field through its subsidiary Prudential Property and Casualty Insurance Company.

MacNaughton continued the search for higher returns in a period of inflation and stagflation. In 1973 Prudential formed Prudential Reinsurance Company, insuring other insurance companies against extraordinary losses. In 1974 Prudential purchased CNA Nuclear Leasing, renaming it Prudential Lease. In its first year, contracts grew by 88 percent and returned 16 percent on equity. Prudential Reinsurance gave Prudential its first entrance into the international market.

In 1976 Prudential acquired Hanbro Life Assurance Ltd. of Britain and entered the European Common Market. MacNaughton developed many more product lines between 1973 and 1978. PIC Realty Canada, Ltd. owned and developed property in Canada. Prudential Health Care Plan operated health maintenance organizations. Pru Capital Management provided administration and management services to Prulease. Le Rocher, Compagnie de Reassurance, wrote reinsurance in Europe. Pru Funding offered long-term loans and operation leases for Prulease. Pru Supply contracted to supply fossil fuels or other inventories. Prudential General Insurance Company provided group casualty and property protection, and Pru Service Participacos, a wholly owned Brazilian subsidiary, provided services to another Brazilian property and casualty company.

MacNaughton retired in 1978 and was succeeded by Robert Beck, who had joined Prudential in 1951 as an agent. Beck attacked the problem of the continuing lapse rate on life insurance policies by entering new markets. The company formed Dryden and Company and Gibraltar Casualty Company to sell coverage of unusual and difficult insurance risks to the surplus lines market. Prudential also formed additional subsidiaries to market group and commercial property and casualty insurance. In 1979 Prudential signed with Sony Corporation to form Sony-Prudential to sell life insurance in Japan. Beck also led Prudential in another investment opportunity; PRUCO formed a subsidiary, P.G. Realty, to purchase, sell, and operate farmlands in Nebraska. Later, other subsidiaries were formed to operate farm lands in Florida.

Beck's most controversial acquisition came when he purchased the Bache investment and brokerage house in 1981. With Bache, Prudential could sell money market funds, mutuals, tax shelters, real estate partnerships, as well as stocks and bonds, all hedges against inflation. Prudential-Bache hired George L. Ball, former president of E.F. Hutton & Company, as its chair and CEO. Ball, a Wall Street star known for his aggressive and innovative tactics as a broker, led the brokerage firm on an expensive, but ultimately failed effort to break into the top levels of Wall Street investment banks for the next nine years.---Source: fundinguniverse.com