A.M. Best retained the issuer credit ratings (ICR) of "a" of Prudential Financial, Inc . PRU . Concurrently, the rating giant reiterated the financial strength rating (FSR) of A+ (Superior) and the ICR of "aa-" of the domestic life/health insurance subsidiaries of the insurer. The outlook for the ratings is stable.
The insurer's dominant market presence and diversified business have been supporting its favorable earnings growth, substantial risk-adjusted capitalization and favorable long-term operating performance as well as sustained solid operating performance across most of its segments. Prudential is also growing its pension risk transfer business and has more than $75 billion in pension account values. These factors have been reflected by the aforesaid ratings affirmations.
The ratings also account for Prudential's financial flexibility and strong liquidity profile. According to A.M. Best, Prudential's ability to finance large transactions and prudently manage the same makes it an attractive choice as counterparty for large transactions. The rating agency noted that Prudential's international operations have not only grown earnings but also diversified market risk for the overall liability profile.
However, the large concentration of annuity reserves and exposure to low interest rate have been weighing on net investment yields. Also, Prudential deploys a considerable portion of operating leverage to fund domestic individual life redundant reserve requirements as well as for securities lending and other spread-based borrowings at higher levels than most peers. Nonetheless, the company's financial leverage and interest coverage remains within the rating agency's criteria for maintaining the ratings. Also, Prudential has been effectively managing its leverage over the past several years.
PRUDENTIAL FINL Price
Rating affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence as well as in maintaining credit worthiness of a stock. On the other hand, rating downgrades not only damage business but also increase the cost of future debt issuances. We believe that the ratings will help Prudential to retain investor confidence and in writing more businesses, going forward.
Prudential presently carries Zacks Rank #3 (Hold).
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