Fitch Affirms Prudential Financial, Inc.'s Ratings

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed Prudential Financial, Inc.'s (PFI) 'A-' Issuer Default Rating (IDR). In addition, Fitch has affirmed the 'A+' Insurer Financial Strength (IFS) rating assigned to Prudential Insurance Company of America and certain other affiliated insurance companies. The Rating Outlook is Positive. A full list of ratings can be found at the end of this release.

KEY RATING DRIVERS

The affirmations of PFI and its affiliates' (collectively referred to as PFI) ratings reflect the company's strong balance sheet fundamentals, and very strong competitive position in the U.S. and Japan life insurance markets. PFI's strong positions relative to competitors provide significant scale advantages associated with expense efficiencies, spread of risk, and access to distribution.

Primary rating concerns include challenges associated with ongoing low interest rates, weak macroeconomic conditions in Japan that may hinder growth in earnings and revenue, and leverage metrics that have improved over the past year but remain high relative to the positive outlook.

Fitch views the statutory capital adequacy of PFI's insurance subsidiaries as strong. At year-end 2014, PFI reported a combined risk based capital (RBC) ratio for its U.S. insurance subsidiaries of 502%. PFI's two Japanese insurance subsidiaries, Prudential of Japan and Gibraltar, reported solvency margin ratios of 772% and 937%, respectively.

Fitch expects statutory capital will be maintained at current levels over the near term subject to further clarity on pending prudential standards associated with PFI's designation by the Financial Stability Oversight Council (FSOC) as a systemically important financial institution (SIFI).

PFI has maintained a strong liquidity profile at both the holding company and insurance subsidiary levels. Holding company liquidity has benefited from an increasingly diverse stream of cash flows sourced from domestic and international insurance operations, as well as non-insurance operations (namely asset management). PFI targets minimum net holding company cash at $1.3 billion.

PFI's financial leverage has trended down over the past year to approximately 29%, but remains high relative to the positive outlook. Total leverage as measured by total financing and commitments ratio (TFC) is above average at approximately 1.3x.

The Positive Outlook reflects PFI's improved operating and earnings profile in recent years, which has benefited from recent acquisitions and improved market conditions. Recent financial performance has exceeded rating expectations, and has led to a material improvement in key credit metrics associated with interest coverage and cash flow. Fitch expects PFI's ability to sustain recent improvement in financial performance and make further progress on reducing financial leverage could lead to an upgrade within the next 12-18 months.

RATING SENSITIVITIES

Key rating triggers that could result in an upgrade include: sustained reduction in financial leverage to 28% or below; GAAP interest coverage remaining in the 8x - 10x range (based on pre-tax adjusted operating earnings); stated NAIC RBC ratio remaining near current levels; TFC ratio at or below 1.3X; Japan solvency margin ratio remaining above 700%; and no deterioration in the creditworthiness of PFI's Japan business, including a downgrade in Japan's sovereign rating.

Triggers that could result in a downgrade include: financial leverage above 35%; TFC above 1.5x; GAAP interest coverage ratio below 5x; stated NAIC RBC ratio below 400%; and Japan solvency margin ratio below 600%.

The Rating Outlook could be revised to Stable if PFI fails to reduce financial leverage to 28% or below by mid-year 2016.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Positive Outlook:

Prudential Financial, Inc.

--Long-term IDR at 'A-';

--Senior notes at 'BBB+';

--Junior subordinated notes at 'BBB-'.

--Short-term IDR at 'F2';

--CP at 'F2'.

Prudential Insurance Company of America

--IFS at 'A+'

--Long-term IDR at 'A';

--Surplus notes at 'A-';

--Short-term IDR at 'F1'.

Prudential Funding, LLC

--CP at 'F1';

--Senior unsecured at 'A'.

PRICOA Global Funding I

--Secured notes program at 'A+'.

PRUCO Life Insurance Company

Prudential Annuities Life Assurance Corp.

Prudential Retirement Insurance & Annuity Company

PRUCO Life Insurance Company of New Jersey

--IFS at 'A+'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=996744

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996744

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151215006331/en/

Fitch Ratings
Primary Analyst
Douglas L. Meyer, CFA
Managing Director
+1-312-368-2061
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bradley S. Ellis, CFA
Director
+1-312-368-2089
or
Committee Chairperson
James Auden
Managing Director
+1-312-368-3146
or
Media Relations:
Hannah James, +1 646-582-4947
[email protected]

Source: Fitch Ratings

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