A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of the domestic life/health insurance subsidiaries of Prudential Financial (PFI).
The affirmation of the ratings reflects Prudential's continued strong market positions in its diversified businesses, demonstrated holding company financial flexibility and liquidity, good risk-adjusted capitalisation and positive operating performance in most of its business segments.
A.M. Best notes the successfully completed integrations of sizeable transactions, including the Star/Edison transaction and two sizeable pension risk transfer transactions.
With respect to the pension risk transfer deals done with General Motors and Verizon, Prudential added approximately $32 billion in liabilities.
A.M. Best claims that PFI continues to be viewed as an attractive counterparty for large transactions due to its ability to finance them and its reputation of successfully and quickly integrating large transactions. The company's financial flexibility is augmented by its strong liquidity profile.
Partially offsetting these positive rating factors are Prudential's above average holdings of below investment grade fixed income securities relative to capital and surplus and its overall exposure to commercial real estate through commercial mortgage-backed securities and its direct commercial loan portfolio.
A.M. Best also notes that given the breadth and scale of Prudential's diverse organisation, capital management remains a key focus. PFI utilises significant amounts of operating leverage at levels exceeding most of its peers.
Although the company has reduced overall leverage in recent years, the use of total leverage remains relatively high. However, financial leverage and interest coverage both remain within the guidelines for the company's current rating level.
A.M. Best has commented that it expects Prudential to carefully manage its overall leverage and remains cautious with regard to the business rationale for future issuances, as well as to the amounts and types of structures utilised. The company also continues to rely on captive insurers to help manage both capital and the volatility of statutory earnings. A.M. Best continues to “look through” these structures in its assessment of capital adequacy.
