DECEMBER 05, 2019 03:03 PM (EST)
AM Best Affirms Credit Ratings of Prudential Financial, Inc. and Its Subsidiaries
FOR IMMEDIATE RELEASE
OLDWICK - DECEMBER 05, 2019 03:03 PM (EST)
The ratings reflect Prudential’s balance sheet strength, which AM 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. Prudential also benefits from its market-leading positions in its core business lines. The rating affirmations of PFI reflect its highly diversified earnings sources, financial flexibility and strong liquidity. During 2019, the company has generated solid adjusted operating returns with positive business growth metrics. 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 pre-tax operating earnings. In PFI’s domestic business, the retirement segment has been the largest growth area due to pension risk transfer (PRT) deals and opportunities afforded by aging demographics. In addition, AM Best expects the company’s $2.35 billion acquisition of Assurance IQ, Inc, a leading direct-to-consumer solutions platform for health and financial wellness needs to help grow Prudential’s direct-to-consumer distribution while lowering customer acquisition costs, as well as creating a new earnings stream. However, the benefits of this acquisition are expected to take hold over a period of time.
Partially offsetting these positive rating factors is the increasingly large concentration of annuity reserves, primarily due to the increasing number of PRT transactions. AM Best believes that some annuities, such as variable annuities, are more sensitive to market movements, and therefore are more risky from a credit perspective as compared with ordinary life insurance products. In addition, the low interest rate environment continues to have a negative impact on net investment yields. The company has reduced the use of captive reinsurers on new business, although it continues to utilize such structures to manage redundant life-reserve financing requirements. AM Best will continue to review these structures in conjunction with its operating companies in its assessment of capital adequacy. Moreover, AM Best notes that the allocation to commercial mortgages continues to increase, and relative to capital and surplus, is higher than the industry average. In addition, Prudential’s holdings of below-investment-grade fixed-income securities relative to capital and surplus is somewhat higher than industry totals. It is noted that PFI continues to maintain sizeable liquidity resources, and its prudent utilization will continue to be monitored by AM Best.
A complete listing of Prudential Financial, Inc.’s FSRs, Long-Term ICRs and Long- and Short-Term IRs also is available.
This press release relates to Credit Ratings that have been published on AM 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 AM 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 AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data provider specializing in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.