South Florida Sun Sentinel from Fort Lauderdale, Florida • Page 49

1 wwm PB Sun-Sentinel, Friday, January 23, 1998 3D BUSINESS WATCH Insurers curb churning but buyers still have stories' On Monday, Prudential Insurance will go before a federal appeals court to defend the legality and fairness of a proposed class-action settlement that it hopes will resolve most sales-practice litigation. been on extracting fines and restitution from the biggest corporate wrongdoers. One measure of the continued prevalence of churning, however, is a national anti-churning media campaign recently launched by Prudential. Motivating the insurer a sharp jump in surrenders of Prudential policies that it blames on churn- ing by competing companies and ex-Pru agents who work for them. One tactic the ex-Prudential agents have been using and don't deny is to argue to their old Prudential clients that Prudential faces steep costs putting the churning scandal behind it.

Although Prudential's balance sheet is stronger than ever, ratings agencies have downgraded the insurer repeatedly since the early 1990s, at least in part bef cause of the churning costs it facr es as well as other corporate problems. new one rarely makes sense, even if additional coverage is needed. The reason: New policies carry enormously steep upfront costs; the first year's entire premium can go to fees and commissions. If the policyholder has aged significantly since taking out the original policy, a new one likely involves steeper premiums. A better alternative is usually to keep the original policy and buy a new one only for the desired amount of additional coverage.

Both the agent and a spokesman for Prudential, in Newark, dispute that the conversation took place as Baker maintains, vehemently denying any effort to "churn" the policyholder that is, persuade him to switch policies in a transaction that would do little or nothing more than generate commissions for the insurance agent. Prudential for the state, favors the class-action settlement as it now stands. In addition to the money for the state, individual consumers in Florida stand to benefit from the class-action settlement Many industry regulators and consumer activists say that Prudential, the nation's biggest insurer and the one that has faced the widest allegations of deceit, has made great strides in wiping out bad practices. Some of Prudential's measures are being held up as industry models, including a program under which salaried underwriters help consumers complete their insurance applications to ensure they understand what they're buying, what it costs and how they're paying for it. While state regulators have taken away the licenses of some agents, the focus generally has By LESLIE SCISM The Way Street Journal After years of regulatory scrutiny of the life-insurance industry, and well-publicized efforts by major insurers to clean up their shops, you'd think it was finally safe to listen when an agent makes a pitch.

But try convincing Ricky Baker that anything has changed. The Godfrey, 111., auto mechanic maintains that about six months ago, a Prudential Insurance Co. of America agent attempted to persuade him to trade in two perfectly good older Prudential cash-value policies for a new one. "Pretty close to the agent's exact quote was, 'Oh, I don't know why they sold you the policies set up like this. The one we have right now is much Baker recalls.

Replacing an old policy with a Hancock Mutual Life Insurance Co. of Boston and other major insurers during the past four years. On Monday, Prudential Insurance will go before a federal appeals court in Philadelphia to defend the legality and fairness of a proposed class-action settlement that it hopes will resolve most sales-practice litigation at a cost to Prudential of at least $410 million. Florida Insurance Commissioner Bill Nelson, who won a separate $15 million award from And even if such sales attempts occur, the company says, measures are now in place that should prevent the completion of a cash-value life-insurance sale that isn't in a consumer's best interest. Cash-value life insurance, such as whole life and universal life, combines a death benefit with a tax-deferred savings component.

Policy churning forms the core of the allegations that have rocked Prudential, Metropolitan Life Insurance Co. of New York, John Foreign Exchange Business topics MARKET WATCH A DAILY GUIDE TO STOCKS ON THE MOVE .1 British Pound 1.6504 German Mark 1.8035 Brazilian Real 1.1201 Canadian Dollars 1.4445 Japanese Yen 127.15 Mexican Peso 8.2850 U.S. Treasury Bonds 30-year T-bond yield 5.85 1 0-year T-bond yield 5.55 Gold Silver Close Change Gold, troy ounce $290.8 Silver, troy ounce $5.689 1 1 Asia worries continue to plague U.S. markets The fourth-quarter profit reports remained generally strong Thursday, but stocks pulled back again as big names such as Microsoft, Texaco and Sears joined the list of companies expressing concern about 1998. The Dow Jones industrial average fell 63.52 to 7,730.88, extending Wednesday's 78-point slide.

The main culprit, again, was the mounting uncertainty about the economic crisis in Asia and how much it will hurt U.S. companies in this quarter and all of 1998. Complicating matters on Thursday, however, were separate warnings about issues such as bad consumer debt and falling oil prices, as well as worries about the fallout from allegations President Clinton had an affair with a young White House intern and asked her to lie about it. Microsoft rose $1,625 to $138,625 as the most active Nasdaq issue after beating analysts' expectations with a 52 percent surge in profits for the final three months of 1997. The bellwether of computer software, however, cautioned that the economic crisis in Asia may drag its revenues lower over the next six months.

The renewed worry about Asia was also compounded by another sharp decline in the Indonesian currency, which has lost an astonishing 85 percent of its value over the past seven months. MARKET MOVERS Companies whose shares actively traded in U.S. markets. The stock symbol is given in parentheses after the company name. BellSouth (BLS) Shares rose $1.69 to $60.31 after the telephone company said fourth-quarter profit from operations rose to 72 cents a diluted share from 64 cents a year ago.

Analysts expected the company to earn 71 cents. Fiat (FIA) Shares rose $1,125 to $17 as Sybase (SYBS) Shares fell $1.92 to $7.77 as the maker of network software disclosed that its fourth-quarter revenues will be lower by $60 million to $65 million because of improper revenue recognition by its Japan unit. Companies whose shares may move today in U.S. markets. Prices are as of Thursday's closing.

BankAtlantic Bancorp (BBX) The Fort Lauderdale-based company, parent of BankAtlantic, reported its sixth consecutive year of record earnings. Income for the year ended Dec. 31 increased to $27.8 million, or 98 cents per share, from $19 million in 1996. The company also reported record income for the fourth quarter. Shares fell 12.5 cents to $15,875.

During 1997 the company's class A stock appreciated 96 percent. Silicon Graphics (SGI) After the market closed, the company that makes powerful desktop computers reported a loss of $31 million for the October-December quarter as it took $53 million in restructuring and acquisition charges. The company's loss for the three months ended Dec. 31, its second fiscal quarter, amounted to 17 cents a share. Silicon Graphics lost $13 million, or 7 cents a share, in the year-ago period.

Stock fell 50 cents to $11.25. Information from Bloomberg News and Associated Press was used in this report. company sells telecommunications equipment to more than 30 countries. Hunt has been with Nortel since 1988. He NORTEL 2Ttly group vice president for wireless networks -for the Caribbean and Latin America.

Hunt replaces Gary Donahee, who was appointed senior vice president and president, Public Carriers Networks, Nortel Europe. Ingram Micro of Santa appointed Hans T. Koppen, 55, president of Miami-based Ingram Micro Latin America. He will manage Ingram's Latin American operations as well as its Latin i American export division. Koppen joins Ingram from General Electric Capital Information Technology Solutions, where he was president for Latin America.

PUBLISHING Life magazine is eliminating about a third of its editorial staff in a reorganization by the venerable monthly's new top editor. Isolde Motley, who took i over as managing editor on Jan. 1, decided to lay off 15 editors, reporters and researchers over the past two weeks. David Friend, assistant managing editor and director of photography, also resigned last week. His resignation and the layoffs, which will be effective in March, will leave Life with an editorial staff of about 30 people.

The monthly magazine has circulation of 1.5 million. i WORKPLACE Merrill Lynch Co. plans to rewrite its corporate policy to allow employees to take discrimination complaints to court, a ground-breaking move that could hasten the demise of Wall Street's mandatory arbitration system. The leading Wall Street firm refused to comment, but a source familiar with the plan said it would give employees the option to sue the firm after an unsuccessful attempt at mediation. Many Wall Street employees are now prohibited by an industry rule from taking internal disputes to court.

The plan is part of an effort by Merrill to settle a 1996 sex- discrimination lawsuit. success caution about the companies 1 they bring to the public market. Too many of the companies that did initial public offerings this past decade no longer exist, he said. How is it that Outback Steakhouse has not only survived, but prospered? i "You have to have passion and, motivation to be successful in any business," he said. 1 That's the No.

1 rule. Business Strategies appears on Fridays. If you have comments on or ideas for the column, call Marcia Heroux Pounds at 561-243-6650 or e-mail her at (marciabiz aol.com). For information about starting a business, go to the Sun-Sentinel Digital Edition, or keyword DEMONEY on America Online. Acquisition for $5 million in cash.

Preferred Employers Acquisition is a subsidiary of Preferred Employers Holdings. The transaction is expected to close no later than the week of Feb. 13. Travel Nurse provides registered nurses and other professional medical personnel, often referred to as travel nurses, primarily to hospital clients for extended periods. Preferred Employers Holdings provides workers' compensation and business insurance products and risk management and cost containment services to franchised companies.

Hospital Staffing Services is a professional health care services and recruitment organization. Hospital Staffing Services continues to experience critical cash flow shortfalls and remains in default under its line of credit. Its board of directors is evaluating alternatives, including an equity infusion or sale of the company's home care operations. Hospital Staffing Services stock closed unchanged at 62.5 cents. INSURANCE Allstate the largest publicly held insurer of U.S.

homes and autos, misled people who made claims against it by urging them not to use lawyers, a suit seeking class-action status alleges. The lawsuit, filed Jan. 16 in Cook County, 111., Circuit Court, charges the Northbrook, insurer tried to keep claimants from hiring lawyers to gain "better bargaining leverage" and to rein in its claims-related expenses. No estimate of the class size was provided. Plaintiffs in the case seek an injunction to keep Allstate from corresponding with new claimants, as well as damages for claimants allegedly misled in the past.

Industry advocates say the insurer's policy may actually have helped many consumers get bigger settlements because attorneys earn some of their pay from settlements. PEOPLE Daniel J. Hunt has been named president of Nortel CALA, Northern Telecom's Caribbean and Latin American division based in Sunrise. The off. Sullivan said Outback's international expansion alone won't take the company from a $1.4 billion (market capitalization) to a $5 billion company.

"That won't get the job done." So Outback is looking for acquisitions. It plans to add hospitality and entertainment businesses, such as its Down Under Catering. "We're looking to develop multiple concepts to broaden the appeal of Outback," Sullivan said. Outback Steakhouse held its initial public offering in 1991 and has returned to the public market twice. The restaurant chain's stock performed weakly last year, but has bounced back recently.

It closed Thursday at $29.94 on the Nasdaq Stock Market, trading under the symbol OSSI. Sullivan told the venture capital investors to exercise AERONAUTICS A special NASA safety study will not prevent a private company from cutting about 600 space shuttle jobs at Kennedy Space Center in Titusville. The safety report calls for some changes in the layoff plan by shuttle operator United Space Alliance, but the gist of it would allow cuts to proceed, NASA shuttle program manager Tommy Holloway said. The study will be released next week after it is examined by top officials. The National Aeronautics and Space Administration last month asked the space alliance to slash its current shuttle operating budget by $100 million, partly because fewer shuttles are set to launch this budget year.

So the space alliance last week came up with a plan to reduce its space center work force to somewhere between 5,250 and 5,300. AVIATION Low-fare carrier Eastwind Airlines, based in Greensboro, N.C., plans to add service to Fort Lauderdale on Feb. 12. It already operates scheduled service from Boston, Greensboro, Orlando, Tampa, Trenton, and WashingtonDulles. Airbus Industrie is in talks to sell 50 or more narrow-body planes to United Airlines for about $2 billion.

An order of that size would be a setback to Boeing particularly after UAL United said last year it might follow American Airlines, Delta Air Lines and Continental Airlines in building an all-Boeing fleet. Boeing, meanwhile, said Thursday it received an order for 59 jets worth about $2.5 billion from Southwest Airlines. Deliveries of the 737-700s will run through 2004. HEALTH CARE Fort Lauderdale-based Hospital Staffing Services plans to buy Travel Nurse, a subsidiary of Miami-based Preferred Employers lack of available workers in their early '20s, he said. Another challenge in the restaurant business today is value, he said.

Consumers don't want to pay a lot for casual dining so it's difficult to raise prices. Instead, Outback Steakhouse has made its lower-priced items more prominent on the menu. Outback has had less success with its Italian restaurant concept, Carrabba's Italian Grills. The company recently closed restaurants in poor markets and took a charge against earnings. But Sullivan said Carrabba's is fixing its problems and became profitable two months ago.

Today there are 60 Carrabba's restaurants and plans call for opening 10 to 12 more this year. Yet expansion plans for that Italian grill concept have been significantly trimmed and analysts say Outback Steakhouse's build-out is not far iff DOW JONES INDUSTRIAL i For the past 30 trading days 8,100 the Italian automaker said Cesare Romiti is stepping down as chairman and that an executive from General Electric, Paolo Fresco, has been asked to replace him. Romiti, who turns 75 in June and has been at Fiat for 25 years, was recently indicted on corruption charges in connection with a kickback scheme involving Rome's subway system. General Electric (GE) Shares fell 37.5 cents to $75.19 as the conglomerate reported that its fourth-quarter earnings rose 14 percent, led by strength in its financial services division and increased sales of aircraft parts. The earnings were roughly in line with analysts' expectations.

Planet Hollywood International (PHL) Shares fell $3.31 to $7,125 as the theme restaurant company warned late Wednesday that it will report fourth-quarter results below Wall Street expectations. Planet Hollywood, based in Orlando, also warned that it expects flat revenues and lower earnings in 1998 compared with 1997. To recover, Planet Hollywood plans to fire about 10 percent of its headquarters staff and scale back its expansion. Sears Roebuck (S) Shares fell 87.5 cents to $45.06 as the retailer reported that its fourth-quarter earnings fell 5.5 percent as it sharply increased its provision for bad consumer debt. The results were slightly better than expectations, but the retailer also warned its first-quarter earnings would be well below year-ago levels.

MARCIA HEROUX POUNDS Business Strategies The Australian-themed restaurant, whose motto is "No rules, just right," has plenty of rules for operating its restaurants. And that's why it works so well. An essential building block for the restaurant chain has been its rule for managers: give them 10 percent equity in their restaurant and a five-year contract. "Giving people a piece of the action is very important to long- II I I I I I I I I I I I ll i III I I I I I I 1 I I It I I II I I I It 7,500 l- I 15 22 29 5 12 20 Dec. Jan.

1997 1998 Motivation makes Outback a venture capital term success," Sullivan said. "It gives people the opportunity to establish roots in a marketplace." Another Rule of the Outback is attentive service. "People are very cynical today about service. Generation all they hope for is not bad service. When you give great service, they really feel good about it," he said.

At a visit to an Outback Steakhouse earlier this week, my twentysomething waitress said she had only been working for the restaurant for two months. She was attentive and helpful. After our meal, I asked her if she had any concerns or questions for the company's chairman. She shook her head no. "I'm happy," she said.

"They give very good training." Labor hiring and the cost is one of the biggest challenges for restaurants today. Sullivan said minimum-wage increases continue to squeeze retail establishments. And there's a When Chris Sullivan first pitched his steakhouse concept to Don Burton, the managing director of South Atlantic Venture Funds said he was not intrigued. He soon changed his mind. "In one hour Sullivan described his business and opportunity better than any business I've heard.

He went through the business strategy and what it offered to consumers, employees and shareholders," Burton told those gathered Wednesday evening for the annual Florida Venture Capital Conference in Coral Gables. That steakhouse chain is Outback Steakhouse, now considered one of the great success stories not only in the restaurant industry, but in Florida venture capital. Outback Steakhouse began with one Tampa restaurant in 1989 and now has 520 restaurants internationally. -i -i i i.