Prudential Sells 2 P-C Units, May Sell A Third

By Michael Ha

NU Online News Service, May 23, 2:17 p.m. EDT?Prudential Financial Inc. said it is selling off its auto and homeowners insurance businesses to Liberty Mutual Insurance Company and Palisades Group for some $673 million.

Under the announced agreement, the Berkeley Heights, N.J.-based Palisades Group will buy the Prudential Property and Casualty Insurance Company of New Jersey for $260 million. Boston-based Liberty Mutual will acquire Prudential's p-c operations in 47 other states as well as in Washington, D.C., for $413 million in notes.

These newly announced transactions, according to Prudential, are part of the company's ongoing effort to improve its profitability and focus on its life insurance and financial services units.

"Our focus is life insurance and financial services. Property-casualty has never really been our core business," said Laurita Warner, spokesperson at Prudential in Newark, N.J.

She also added that these deals would enable the company to free up more capital. "As you know, property-casualty insurance business is very capital-intensive. This transaction frees up capital for other opportunities," Ms. Warner said.

Prudential had announced late last year that its goal for the next couple of years is for all of its business units to post a return-on-equity of at least 12 percent, a target that most of its auto and homeowners insurance units have not met.

Ms. Warner noted Prudential had announced last year that it is "exploring options" for its p-c business. And the company, since last year's announcement, has also signed a deal with Nationwide Mutual Insurance Company in Columbus, Ohio, to sell THI Holdings, its specialty automobile insurance business, for some $142 million.

"Our chairman Art Ryan remarked that we will not keep underperforming businesses. Anything below 12 percent for the return on equity would be defined as underperforming over the next couple of years," she said.

The transaction was not a surprise, according to analyst John Keefe, senior vice president for Baltimore-based Ferris, Baker Watts Inc. He told National Underwriter, "The sale was long expected. At this stage, it's definitely positive that Prudential is exiting its personal lines p-c business, because homeowners insurance has been a black hole for the industry generally for some time," Mr. Keefe said.

He also noted that over a long period of time, a "12 percent return on equity is difficult to achieve for homeowners insurance, and it's not that much easier for writers of private auto insurance, either."

From this point on, Mr. Keefe forecasts, Prudential will solely focus on life insurance and financial services, where the company's strength lies.

Ms. Warner of Prudential noted that there are some 3,000 workers in insurance units that will be sold off to Liberty Mutual and Palisades Group and that most of them will be able to keep their jobs.

"We found buyers who are anxious to write auto and homeowners business. These deals really are optimal for our employees because the buyers have offered to retain most of the employees in those businesses," she said.

Further, there should be no changes for the policyholders either, and they shouldn't see any changes in rates because of these transactions, Ms. Warner said. And the deals will enable agents to continue to sell auto and homeowners insurance through the new buyers.

Prudential still has one p-c unit left: Called Merastar, it consists of personal lines business that the company sells to affinity markets. But Prudential said it will "continue to explore options" regarding this business.

Special Reports /

Prudential Sells 2 P-C Units, May Sell A Third

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