AM Best Information Services

MARCH 08, 2006 12:00 AM (EST)

A.M. Best Affirms Ratings of Prudential Financial, Inc. and Its Subsidiaries

Rosemarie Mirabella
(908) 439-2200, ext. 5892

Andrew Edelsberg
(908) 439-2200, ext. 5182

Public Relations
Jim Peavy
(908) 439-2200, ext. 5644

Rachelle Striegel
(908) 439-2200, ext. 5378


OLDWICK, N.J. - MARCH 08, 2006 12:00 AM (EST)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit rating (ICR) of "aa-" of The Prudential Insurance Company of America, the lead operating company of Prudential Financial, Inc. (Prudential) [NYSE: PRU] (Newark, NJ). A.M. Best has also affirmed the FSR of A+ (Superior) and assigned ICRs of "aa-" to Prudential's domestic life/health subsidiaries. Concurrently, A.M. Best has affirmed the existing ratings on the organization's outstanding debt securities. All ratings have a stable outlook. (See link below for a detailed list of ratings.)

These rating actions follow Prudential's announcement that it intends to acquire the variable annuity (VA) business of The Allstate Corporation (Allstate) [NYSE: ALL] via a reinsurance transaction. The acquisition of the roughly $16 billion block will boost Prudential's VA assets under management and pro forma sales by over 25%, adding additional scale to a business segment that requires critical mass to achieve sustainable profitability over a prolonged period. In addition, the transaction affords Prudential opportunities to enhance its distribution footprint in the broker-dealer channel, particularly with Morgan Stanley, as well as within Allstate's proprietary agent and banking channels. A.M. Best notes that Allstate's VA products were sold with secondary guarantees, mainly guaranteed minimum death benefit (GMDB) and guaranteed minimum income benefit (GMIB) features, which create exposure to equity market volatility and interest rate risks. Specifically, sales of Allstate's GMIB product were halted in 2004 due to performance inconsistent with pricing targets. Prudential plans to offset some of this risk by applying its hedging strategies for its inforce VA business to the Allstate book, which A.M. Best views as a sound approach.

Prudential's ratings reflect its diversified earnings profile, prominent market position within its core business lines, strong risk-adjusted capitalization, excellent financial discipline and significantly improved operating returns. A.M. Best notes that while total leverage - both financial and operating leverage - has increased in recent years, Prudential has exhibited substantial improvement in its historical fixed charge coverage ratios and has significantly strengthened the liquidity of its balance sheet as measured by its strong ratio of cash and cash equivalents to equity. A.M. Best believes the group's leverage and interest coverage ratios remain within expectations for the current ratings.

Partly offsetting these strengths is Prudential's challenge to maintain strong compound growth in its operating margins, revenue and assets under management - especially within its domestic market segments; its continued assertive emphasis on capital management; and the uncertainty surrounding the ultimate settlement costs for market timing issues related to the businesses contributed to Prudential's retail securities brokerage joint venture with Wachovia.

For a complete list of Prudential Financial, Inc.'s FSRs, ICRs and debt ratings, visit Prudential.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.

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