US appeals court revives Prudential shareholder case

By Jody Godoy

(Reuters) – A U.S. appeals court on Tuesday partly revived a shareholder lawsuit against Prudential Financial Inc (NYSE:) alleging the insurer concealed a shortfall with its individual life insurance policy reserves in 2019.

The 3rd U.S. Circuit Court of Appeals said investors had a plausible claim the insurer falsely downplayed mortality among policyholders as “normal” on June 5, 2019, less than two months before Prudential had to increase its reserves by $208 million to account for an unexpected number of deaths affecting one group of policies.

A spokesperson for Prudential did not immediately respond to a request for comment.

A Michigan pension fund sued the Newark, New Jersey-based insurer and three of its executives in November 2019, alleging the false statements led to a 10% drop in share price.

Based on former employees’ testimony, investors alleged that Prudential already knew in February that there had recently been an unexpected number of deaths among holders of 700,000 policies the company purchased from another insurer.

Prudential and the executives moved to dismiss the lawsuit, arguing that the right level of reserves was a matter of opinion and that investors did not adequately claim the company was insincere in its belief.

A New Jersey judge agreed with the company in 2020, saying the shareholders did not point to facts that would show Prudential and its executives knew the reserves were deficient.

While it revived investors’ allegations over the mortality statements, the Philadelphia-based appeals court agreed that the adequate level of reserves was a matter of opinion, affirming dismissal of those claims.

The case is City of Warren Police and Fire Retirement System et al. V. Prudential Financial Inc et al., No. 21-1147, 3rd U.S. Circuit Court of Appeals.