Costing a bundle

The U.S. District Court that approved the settlement is responsible for releasing numbers on the claims paid so far. The latest figures from April 1999 showed that Prudential had paid out more than $1 billion to about 250,000 policyholders, and the company notes it has made significant progress since then.

Patrick Finnegan, senior vice president at Moody's Investors Service, the insurance ratings and research company, estimates that total expenses relating to the settlement have cost Prudential roughly $3 billion so far in administrative costs, legal fees, settlement checks, and so forth. The blow did impact Moody's rating of the company, which dropped it from Aa3 to A1 in February 1997. Finnegan also notes that Prudential's future earnings have been impacted by the business lost when the company's wrongdoings came to light. Nonetheless, Moody's believes the company earned about $937 million in 1996, $1.6 billion in 1997, and $1.3 billion in 1998.

How many will hear the whistleblowers?

Whether or not the dozens of discrimination and whistleblower lawsuits in Minneapolis have teeth remains to be seen. The lawsuits are in only the beginning stages and could potentially stretch into 2001 — and that's long after policyholders eligible for the settlement will have received their settlement checks.

For Prudential itself, the lawsuits may be more of a continuing public relations nightmare than a financial imposition (if the Minnesota cases are indeed ever settled or decided in the plaintiffs' favor). Neil Strauss, director of insurance ratings services at Standard & Poor's in New York, notes that any lawsuit price tag would have to be pretty big to affect the company. "It's a big rock with a lot of resources," he says.

Whether pending litigation could hamper Prudential's efforts to demutualize and become a publicly traded company also seems to be only a remote possibility. Finnegan of Moody's says that, in his view, individual race and bias suits won't affect the company's demutualization. However, Finnegan also says that Prudential "is still exposed to types of matters we believe are going to be a hindrance to their financial performance over the near term. The company has not shed all the problems associated with its culture, corporate controls, and management oversight."

Plaintiffs' attorney Freeman notes that churned policies can have a long tail because policyholders may not realize for many years that their policies were indeed churned. Thus, there may be many unsuspecting Prudential policyholders who, down the road, will discover what others already know.

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