KEY RATING DRIVERS
The Positive Rating Outlook reflect PFI's improved operating and earnings profile, 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. Fitch expects PFI's ability to sustain recent improvement in financial performance and progress on reducing leverage could lead to an upgrade within the next 12 - 24 months.
The ratings assigned to PFI and its subsidiaries continue to reflect the company's strong balance sheet fundamentals and very strong competitive position in the U.S. and Japanese life insurance markets. While the Star/Edison acquisition completed in 2011 has improved the PFI's competitive position in the
Fitch views the statutory capital adequacy of PFI's insurance subsidiaries as very strong, with regulatory capital ratios in excess of rating expectations. At year-end 2013, PFI reported a combined RBC ratio for its U.S. insurance subsidiaries of 456%. PFI's two Japanese insurance subsidiaries, Prudential of
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
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 cash at the holding company at
PFI's financial leverage remains above rating expectations, and was approximately 34% at
Recent acquisitions, improved capital markets, and incremental changes in financial/risk management strategies have led to a material improvement in the diversification, stability, and level of earnings. Moreover, Fitch views the recent improvement in the company's financial performance to be sustainable with run-rate ROE in the 13 - 14% range over a cycle. Growth in
As a result of recent improvement in financial performance, PFI's interest coverage metrics have improved materially. GAAP interest coverage has improved to 9.5x in 2013 compared to 6.1x in 2012. Further, adjusted statutory interest coverage has improved to the 4x - 5x range.
Key rating triggers that could result in an upgrade include: 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;
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
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-'.
Prudential Financial, Inc.
--Short-term IDR at 'F2';
--CP at 'F2'.
--IFS at 'A+'
--Long-term IDR at 'A';
--Surplus notes at 'A-';
--Short-term IDR at 'F1'.
--CP at 'F1';
--Senior unsecured at 'A'.
PRICOA Global Funding I
--Secured notes program at 'A+'.
PRUCO Life Insurance Company of
--IFS at 'A+'.
Additional information is available at 'www.fitchratings.com'.
--'Insurance Rating Methodology' (
Insurance Rating Methodology
Source: Fitch Ratings
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