The steep drop in the markets last year ended "business as usual" for financial services companies. Among other things, longstanding relationships between fixed-income, stable-value clients and their providers became strained by detailed, probing questions about the assets supporting guaranteed products.

That meant the curtain also fell on the "everything is fine" era of financial disclosure to retirement plan sponsors. Nearly every financial institution faced the same problem of effectively communicating complex and detailed financial data to clients who demanded to know exactly where they stood.

For years, disclosure by insurers managing conservative, fixed-income accounts for retirement plans essentially entailed announcing the new guaranteed interest rate along with a reassuring message about the company's financial strength and stability, underscored by ratings agencies and tons of dense financial data. Prudential, for example, filed annual listings of the assets in its general accounts, which support its stable-value products. But the information was unavailable until well after year-end and not updated for another full year. The sheer volume of undigested data -- as many as 20,000 separate portfolio holdings in some cases -- was simply overwhelming to clients.

At the core is the connection between institutional retirement-plan clients and their stable-value provider, a relationship of trust based on a proven track record and expertise. In addition, insurers provided reassurance of their financial strength through the quality of their portfolios and investment-grade fixed-income securities and the guarantee of a rate-of-return backed by their full faith and credit. While investment houses that provide other types of investments for retirement plans (such as mutual funds) can point to share price and net asset values and provide quarterly reports to equity analysts, fixed-income investors have traditionally been given far fewer metrics to assess the strength and health of their investments.

In fall 2008, tensions finally erupted after building up in capital markets for months. The risks of both equity and fixed-income investing were revealed in ways most of the world had never seen. The pressure on the industry was unprecedented. Many firms' senior debt and financial strength ratings were under pressure from the ratings agencies, with many seeing downgrades. Daily calls to my firm's retirement call center exceeded 10,000 at the height of the crisis -- about twice normal volumes -- and most involved detailed, time-consuming conversations.

Clearly, vendors of stable-value products needed a way to engage in a more fact-based, substantive conversation with clients about what had traditionally been a relatively worry-free investment option. Plan sponsors were extremely concerned about the risks they might be facing and, as a result, were asking serious and unprecedented questions about stable-value products, looking for more -- and better -- responses than had sufficed in the past.

The most effective answer was to communicate with clients directly, providing a full, transparent and accessible articulation of the facts. Given the new needs of the marketplace and existing clients and advisers, Prudential set out to deliver significant, additional details about the portfolios' liquidity, diversification, collateralization and overall strength, organized in a way to specifically, yet easily, address clients' questions. We decided to produce a new set of periodic reports for customers and their advisers that would:

• Describe our approaches to risk and investment management.
• Provide a new, fact-based and structured view into the details of our general account portfolios.
• Outline in detail our approach to asset and liability management as well as strategic and tactical asset allocation, with holdings quantified, categorized, and presented by type, asset class, industry, investment grade and region.

The clarity and fact-based nature of this information would be strikingly different from the often emotional and speculative reporting that many clients were seeing in the media. This sort of detail wouldn't be amenable to five-second sound-bites nor immediately apparent from a dense and essentially unstructured listing of 20,000 individual holdings. In short, we took information that was overwhelming and not terribly helpful and recast it into useful, easy-to-understand segments and structures.

Crisis Mode

At the end of October 2008, after securing approval from the company's top leadership and risk management committee, about 25 people in a Prudential Retirement working group -- from marketing to legal to compliance to investment-management and finance -- effectively took on second jobs for six weeks, including nights and weekends. Their charge: Prepare the new portfolio reports for Prudential's general accounts and make sure that the end product would be easy to understand but also sufficient in quantity, facts, and details to help sponsors become more comfortable with their plans' guaranteed and stable-value products.

The first reports, for the third quarter 2008, were finished in early December. Copies were distributed, with a separate narrative "Guide to the General Account" and a Q&A document, to all institutional clients and to plan intermediaries and advisers. The result? Clients reported that the new reports were an effective response to the extraordinary crisis everyone was witnessing, and the new documents have subsequently become the foundational tool Prudential uses to engage clients in conversations about stable-value products.

In a live webinar produced to share the new reports, some 800+ clients and advisers logged on from across the country and submitted 66 questions, which were subsequently answered in writing and provided to all clients and advisers, regardless of who had asked the questions. The information and live webinar dealt so effectively with the concerns and issues that fewer than 200 clients and advisers logged on for the webinar covering fourth quarter reports, and there were only four questions.

A sample chart in one of Prudential's General Account guides informed clients and advisers at a glance that turmoil in the equities market had little direct impact on the overall portfolio. In subsequent charts, sub-segments of the total portfolio are addressed individually, with key underlying data such as debt-service coverage and loan-to-value ratios highlighted.

Clients and advisers had absorbed the investment rationale, approach, and details, and had been reminded that facts are always more relevant and important than headlines. Those regarding failing subprime mortgages, for example, were addressed when clients readily saw that the General Account's exposure to asset-backed securities collateralized by subprime mortgages was a quite minor and manageable portion of the total portfolio.

Changing Habits

Despite the pressured environment and the short timeline to create the new reports, we were able to rely on a strong financial and reporting infrastructure to create the new documents. The financial and reporting professionals at Prudential provided guidance, data, commentary and review for the new reports on our General Account portfolios. To be sure, there were significant differences between the work these teams normally focus on and the new reports we were creating, but those differences paled in comparison to our highest goal: that the reports be comprehensive and accurate and stand up to the most intense scrutiny.

In the process of developing the reports, one of the first questions we addressed was, among the myriad options, what to include. To allay clients' concerns, we decided to go to the heart of the matter by delivering portfolio detail on securities composition by industry, credit quality, diversification and holdings by asset class, levels of capital and, for real-estate-based securities, by region and property type.

We determined to meet head-on the portfolios' exposure to assets perceived to be of higher risk, including commercial and residential mortgage-backed securities, below-investment- grade fixed-income holdings and subprime mortgages, giving year-over-year comparisons for each asset class in both GA portfolios.

Overall, the firm described its conservative approach to risk management over many years and its broad experience in public fixed-income securities, private placements and commercial mortgage loans. The reports also highlighted how the company deliberately separates risk management (decisions about exposure limits, investment guidelines, types of risk, etc.) from risk taking (the investment side of the house). With two distinct organizations reporting separately to the office of the chairman, Prudential effectively separates risk policy, exposure limits, and guidelines from the actual management of the assets and liabilities, the risk-taking part of the organization.

For clients and their advisers, the effect was like turning on a light in a darkened room. The obstacles are a lot less scary and dangerous when you can see, touch, and explain them.

A second and third set of reports, for 4Q08 and 1Q09 results, went out in April and July 2009, respectively. Client reaction was so low-key that we decided to scale back the reports to twice a year.

The lesson from this initiative -- about the importance of transparency and accessibility during a time of crisis - was a powerful one. The new level of openness helped restore calm and provide comfort to clients and their participants.

The market has kicked the tires and made its judgment. So now it's back to business . . . though probably never again "business as usual."

James Mallozzi was senior vice president and head of the institutional solutions group of Prudential Retirement, based in Hartford, Connecticut, until October. He is now chairman and chief executive officer of Prudential Real Estate and Relocation Services.