NU Online News Service, March 27, 4:09 p.m. – Weak guaranteed product sales are hurting employee benefits income at Prudential Financial Inc., Newark, N.J., but group insurance could help turn things around, according to a new, 32-page research report on Prudential from Lehman Brothers Inc., New York.

The benefits division accounted for only 19% of Prudential’s operating income in 2001, down from 28% in 1998, analysts Eric Berg and E. Stewart Johnson write.

Earnings in the “Other Employee Benefits” unit ? a unit that sells guaranteed investment contracts, immediate annuities, funding agreements and related products ? have fallen to about $200 million, from $342 million, over the same period, the analysts observe.

The analysts blame the decrease on a 14% drop in guaranteed product account values.

“The reason is simple,” the analysts write. “Contracts that were issued years ago are now maturing and new contracts are simply not being issued. ? At the the core, the issue is ratings. When Prudential lost its double A rating status in the 1990s, its ability to sell guaranteed products fell substantially because of its less attractive ratings.”

The guaranteed product business is unlikely to improve much unless Prudential improves its ratings, but the Lehman analysts say the company could make up for the decline in that segment by improving sales of group life insurance, and improving sales of other group insurance products and individual life insurance policies to existing institutional clients.

“With over 24,000 institutional clients, a concerted effort to sell each of these companies an additional Prudential product is an extremely compelling case,” the analysts conclude.

The Lehman report also gives an overview of Prudential’s business, discusses the improvement in its ability to retain financial advisors, and gives some details about Prudential’s operations in Japan.