MET MetLife Inc

Yesterday, rating agency A.M. Best Co. reaffirmed the financial and issuer credit ratings (FSR) & (ICR) on Prudential Financial Inc.(PRU) and its subsidiaries, reflecting a stable outlook. Accordingly, the company’s ICR of  “a-“ and all the existing debt ratings have been reiterated. Also, its life and health insurance subsidiaries have witnessed a reaffirmation of their FSR and ICR at “A+” and “aa-“, respectively.

The rating agency takes into account the group’s diversified operations spanning across the United States, Asia, Europe and Latin America. Its broad product portfolio includes life insurance, annuities, mutual funds, pension and retirement-related investments, administration and asset management, and securities brokerage services. The right mix of businesses with strong fundamentals and superb risk management capabilities have helped it strengthen its market position and achieve greater business diversification. This, in turn, has made it more competitive than its peers.

According to A.M.Best, Prudential has lower exposure to volatility in equity markets due to a higher mix of variable annuities (78% at March 31, 2011) that rebalance automatically with the equity market movement.

The rating agency also acknowledges that the recent acquisition of Star Edison will further strengthen the company’s already established presence in Japan, thereby solidifying its International business. Japan is the largest business base of Prudential outside the U.S., contributing approximately 40% to its revenues. The company has been operating in the country for over a couple of decades. The acquisition had added around 7,000 new Life advisors, approximately 5000 independent distributors, and more than 3 million customers with $135 billion face amount in force.

Factors, which counteract Prudential’s ratings are its above-average concentration of investments in sub-prime residential mortgage-backed securities and its exposure to commercial real estate. However, the year 2010 witnessed a slowdown in credit impairments compared with the past three years (approximately $1 billion in 2008 and 2009).

Prudential's financial strength and credit ratings, which are intended to measure its ability to meet policyholder obligations, are important factors affecting public confidence in most of Prudential's products, and consequently, its competitiveness. The ratings affirmation and subsequent outlook upgrade to stable reflects optimism about the company’s future performance.

Newark, New Jersey-based Prudential competes closely with American International Group Inc. (AIG), MetLife Inc., (MET), and New York Life Insurance Co. The stock of Prudential carries a Zacks Rank # 3, which translates into a Hold recommendation over the short term (1-3 months). Also, over the longer term (6+ months), we rate the stock Neutral.

 
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