Pru Financial To Buy American Skandia

American Skandia has placed its products with about 10.5% of U.S. independent financial planners, Prudential reports.

Mary Flowers, the Prudential spokeswoman, says the company is certain VAs will bounce back from their current doldrums. “We maintain the future is very attractive in the variable annuity industry. Were committed to it in the long term,” Flowers says.

For the time being at least, Prudential plans to co-brand the acquired business as Prudential-American Skandia products, says Flowers.

The acquisition will also give Prudential an increased presence in banks, although American Skandia VA sales in that channel have been declining of late.

The company had been among the top five VA vendors in banks until 2001 but had dropped to 15^th place in the first half of 2002, according to Kenneth Kehrer Associates, Princeton, N.J.

Skandia says that selling its U.S. unit will give it increased flexibility by significantly reducing its debt and cash consumption.

The company says it plans to focus on developing its European business and to expand into new markets with attractive growth possibilities.

In response to the announcement, Moodys Investors Service downgraded Prudentials outlook from stable to negative, while Standard & Poors Ratings Services affirmed its existing rating of stable for the firm.

S&P says it believes Prudential has ample financial stability to handle the acquisitions without adverse affects on its existing business.

Moodys, on the other hand, says it thinks the addition of American Skandia would modestly increase Prudentials leverage and its equity market exposure.

American Skandias in-force VA business currently carries $6 billion in guaranteed death benefits and has a partial-withdrawal feature that, Moodys notes, “Prudential will have to manage carefully in the event the equity markets remain volatile or decline further.”

It adds, however, that Prudential is well positioned to withstand downside risks.

Moodys also notes that the acquisition carries strategic benefits for Prudential, including access to independent financial planners.

Andrew Kligerman, an analyst with Bear Stearns, Inc., New York, says the deal looks good for Prudential.

American Skandias purchase price “appears compelling at nearly a 40% discount to current book value of roughly $2 billion and Prus fair value assumption of around $2 billion,” Kligerman says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, December 30, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.