AM Besthas 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, de-risking initiatives and strong liquidity. De-risking initiatives include discontinuing all sales of variable annuities with guaranteed living benefits. In addition, there have been solid sales of the company's new FlexGuard indexed variable annuity product. During 2020, the company has generated solid adjusted operating returns despite dampening from the low interest rate environment. 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 deals, and outside of the United States, the International businesses also demonstrated solid growth.
Partially offsetting these positive rating factors is the large concentration of annuity reserves, which include legacy blocks that have more generous guarantees than those offered today. 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 and margin compression. 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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