OLDWICK, N.J.--(BUSINESS WIRE)--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-Term IR; Short-Term IR) 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 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.
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