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Best’s News & Research Service - December 13, 2018 10:48 AM (EST)

AM Best Affirms Credit Ratings of Prudential Financial, Inc. and Its Subsidiaries

  • December 13, 2018 10:48 AM (EST)

Oldwick //BestWire// - AM 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, AM 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. (Please see link below for a detailed listing of the companies and ratings.)

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 meaningful economies of scale, which is reflective of its market-leading positions in core business lines. The rating affirmation of PFI reflects its highly diversified earnings sources, considerable financial flexibility, strong liquidity profile and strong debt service capabilities. During 2018, the company has generated annualized adjusted operating returns above its 12-13% target 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 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, the company has launched several additional cross-business initiatives utilizing technology, which are expected to build upon its strong distribution capabilities. Lastly, the company’s investment portfolio continues to exhibit a low level of impairments, and its 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. AM Best believes that some annuities, such as variable annuities, are more sensitive to market movements and therefore more risky from a credit perspective as 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. 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. While Prudential’s holdings of below investment grade fixed income securities relative to capital and surplus is somewhat higher than industry totals, AM 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 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 rating agency and information provider with a unique focus on the insurance industry.

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