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The adoption of a reorganization plan brings Prudential Insurance Company of America one step closer to demutualization. Stock could be on sale by the fourth quarter.

Prudential Insurance Company of America's board of directors has unanimously adopted a reorganization plan under which the 125year-old mutual company will convert to stock ownership. The directors authorized the company to submit the plan to the New Jersey Department of Banking and Insurance early this year.

The action was the third of seven steps Prudential must follow under New Jersey's 1998 demutualization law. That process could end with an initial public offering sometime in the fourth quarter of 2001, said Mark Grier, executive vice president, financial management.

Once Banking and Insurance Commissioner Karen L. Suter deems the application complete, Prudential will mail information and voting materials to about 11 million eligible policyholders. Only those policies in force on Dec. 15, 2000, the board's adoption date, would be entitled to receive stock, cash or policy credits in the demutualization. At least 1 million policyholders and contract holders must vote, under the state's demutualization statute, and conversion must be approved by at least two-thirds of those who vote.

Newark, N.J-based Prudential anticipates submitting its plan to the commissioner in mid-February and beginning its mailings to policyholders in April, Grier said, noting that he expects that a public hearing could take place in mid-June and that the commissioner could approve and implement the plan by Labor Day.

Within weeks of the commissioner's approval, Prudential would embark on what Grier called its "road show," during which management will call on institutional investors with the help of one or more investment banks to drum up support for the stock. Policyholders will be able to vote by mall, Internet, telephone or in person at a special policyholder meeting, which has not yet been scheduled. Prudential said it will be the first demutualizing insurer to offer policyholders the choice of voting by phone or Internet in addition to the traditional paper ballot.

The company has begun to finalize its application to demutualize, which includes compiling supporting opinions and memoranda, comprehensive policyholder communications and updated financial information. "We want to ensure that all of the materials submitted to the New Jersey commissioner are as complete as possible," said Arthur E Ryan, chairman and chief executive officer, in a statement. Those details will become available when Suter receives the application.

Unusual Step

Grier confirmed press reports that Prudential is considering the unusual step of offering stock to policyholders of variable products, but he declined to discuss that topic or any other plan features until they are submitted to the commissioner.

Competitors, including MetLife Inc. and John Hancock Financial Services Inc., which demutualized last year, afforded stock only to owners of participating policies that share in the overall investment performance of the company. Variable policyholders invest in separate accounts and bear the full risk of their investments. Grier said that under New Jersey law, the standard for determining eligibility is that a company show its plan to be "fair and equitable."

Grier said the fact that New Jersey did not have a demutualization statute when Prudential announced its intent to demutualize is one reason the company's demutualization has taken so much longer than other insurers. Prudential announced its intent in February 1998, well ahead of MetLife and John Hancock, which have already completed their demutualizations.

"Our first step involved working with the state on legislation," Grier said. "We are also larger, and our plan is more complicated. We've taken our time in looking at all aspects of becoming a public company." Among those was an effort to improve its business performance, he said, and "getting some things behind us," an apparent reference to successful implementation of the court-approved agreement with litigators on marketconduct claims.

"We've never viewed this as a contest or a race," he said. "We're comfortable with where we are."

Grier also said the company would not be in full control of the timing of its IPO. "The process is determined by the statute," he said. "Once we're on the track, the train goes." But he said that the company is strong financially and still will have "significant flexibility" with respect to the IPO's timing and capital size.
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Author:Panko, Ron
Publication:Best's Review
Article Type:Brief Article
Geographic Code:1USA
Date:Feb 1, 2001
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