A.M. Best Affirms Credit Ratings of Prudential Financial, Inc. and Its Subsidiaries
January 05 2018 - 5:08PM
Business Wire
A.M. Best has affirmed the Financial Strength Rating
(FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings
(Long-Term ICR) of “aa-” of the domestic life/health insurance
subsidiaries of Prudential Financial, Inc. (PFI) (Newark,
NJ) [NYSE: PRU] referred to as Prudential. Concurrently, A.M. Best
has affirmed the Long-Term ICR of “a-” of PFI and all existing
Long- and Short-Term Issue Credit Ratings (Long- and Short-Term
IRs) of the group. The outlook of these Credit Ratings (ratings) is
stable. In addition, A.M. Best has assigned Long-Term IRs of “a-”
to two recently issued senior unsecured notes, due 2047 and 2049.
The outlook assigned to these ratings is stable. (Please see link
below for a detailed listing of the companies and ratings.)
The ratings reflect Prudential’s balance sheet strength, which
A.M. Best categorizes as very strong, as well as its strong
operating performance, very favorable business profile and very
strong enterprise risk management.
Prudential’s balance sheet strength is enhanced by favorable
financial flexibility as its parent, PFI, has access to various
sources of liquidity and a proven ability to access capital
markets. Partially offsetting these strengths is Prudential’s
extensive use of captives to finance redundant reserves for its
term and universal life products.
Prudential’s operating performance is considered strong, as its
return metrics are favorable and generated positive statutory
income in each of the past five years. Prudential benefits from
meaningful economies of scale, which is reflective of its market
leading positions in core business lines.
In addition to its growing domestic and international insurance
businesses, Prudential has operated in the pension risk transfer
(PRT) marketplace over the long term and now has over $65 billion
in funded pension account values, as well as a meaningful presence
in the unfunded U.K. PRT market. A.M. Best believes Prudential
continues to be viewed as an attractive counterparty for large
transactions due to its proven ability to effectively administer
and fund them.
The rating affirmation of PFI reflects its highly diversified
earnings sources, considerable financial flexibility, strong
liquidity profile and strong debt service capabilities. Cash and
short-term holdings at PFI exceed $4 billion, providing ample
liquidity to fund shareholder dividends, share repurchases and
possible acquisitions.
PFI, however, employs a significant amount of operating
leverage, in part, to fund domestic individual life redundant
reserve requirements, as well as for securities lending and other
spread-based borrowings. However, financial leverage and interest
coverage remain within A.M. Best’s guidelines for the company’s
current rating level.
PFI’s international segment, which is dominated by its Japan
operations, remains the single-largest segment representing roughly
two-fifths of the company’s total operating earnings. The
international segment has benefited from acquisition activity,
which has helped to increase earnings and further diversify market
risk for the overall liability profile of PFI. In PFI’s domestic
business, the retirement segment has been the biggest area of
growth, primarily due to the successful closing of several large
PRT deals. Moreover, despite the recent decline in sales, the
company continues to rank among the leaders in the variable annuity
(VA) market due to its diversified product offerings. Its unique VA
auto-rebalancing feature continues to be positioned well in the
marketplace. The rebalancing feature also reduces Prudential’s
exposure to equity market volatility. In addition, improved group
disability insurance claims experience has begun to emerge in the
group insurance segment. Lastly, the company’s investment portfolio
continues to exhibit a low level of impairments, and the fixed
income portfolio remains in a net unrealized gain position.
Partially offsetting these positive rating factors is the
increasingly large concentration of annuity reserves, primarily due
to the increasing number of PRT transactions, relative to its total
statutory general account reserves. A.M. Best believes that in
general, annuities are a less creditworthy line of business
compared with ordinary life insurance products. While Prudential
has a track record of managing, and to some degree, mitigating many
of the risks inherent in its various annuity product lines, the low
interest rate environment continues to have a negative impact on
net investment yields. Moreover, A.M. Best notes that the
allocation to commercial mortgages continues to increase, and
relative to capital and surplus, is higher than the industry
average. While Prudential’s holdings of below investment grade
fixed income securities relative to capital and surplus is somewhat
higher than industry totals, A.M. Best notes the exposure relative
to capital and surplus has declined significantly over the past few
years. PFI continues to maintain sizeable liquidity resources, and
its prudent utilization will continue to be monitored by A.M.
Best.
A.M. Best notes that its concerns in this area are mitigated
somewhat by Prudential’s history of prudently managing its overall
leverage. The company also continues to rely on captive insurers to
help manage redundant life-reserve financing requirements. A.M.
Best will continue to review these structures in conjunction with
its operating companies in its assessment of capital adequacy.
For a complete listing of Prudential Financial, Inc.’s FSRs,
Long-Term ICRs and Long- and Short-Term IRs, please visit
Prudential Financial, Inc.
This press release relates to Credit Ratings that have been
published on A.M. Best’s website. For all rating information
relating to the release and pertinent disclosures, including
details of the office responsible for issuing each of the
individual ratings referenced in this release, please see A.M.
Best’s Recent Rating Activity web page. For
additional information regarding the use and limitations of Credit
Rating opinions, please view Understanding Best’s Credit
Ratings. For information on the proper media use of Best’s
Credit Ratings and A.M. Best press releases, please view
Guide for Media - Proper Use of Best’s Credit Ratings and A.M.
Best Rating Action Press Releases.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2018 by A.M. Best Rating
Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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version on businesswire.com: http://www.businesswire.com/news/home/20180105005825/en/
A.M. BestWilliam Pargeans, +1 908-439-2200, ext.
5359Directorwilliam.pargeans@ambest.comorChristopher Sharkey, +1
908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorThomas Rosendale, +1
908-439-2200, ext. 5201Directorthomas.rosendale@ambest.comorJim
Peavy, +1 908-439-2200, ext. 5644Director, Public
Relationsjames.peavy@ambest.com
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