TEXT - S&P comments on Prudential Financial
Nov 8 - Standard & Poor's Ratings Services said today that its ratings on Prudential Financial Inc. (PRU; A/Stable/A-1) and its subsidiaries are unchanged following the company's release of its third-quarter results. The company announced a net loss in its financial services businesses attributable to Prudential Financial Inc. of $661 million for third-quarter 2012 despite pretax adjusted operating income of $982 million--an increase of $168 million from the second quarter. Pretax adjusted operating income was in line with our expectations and reflected strong underlying business performance. The net loss included a $685 million pretax loss from divested businesses, primarily related to long-term care insurance, driven by the impact of low interest rates on reserve requirements. This reserve strengthening highlights the challenges posed by low interest rates for the profitability of long-tail insurance products. Changes in the valuation of embedded derivatives and related hedges, as well as foreign exchange re-measurement, were also significant contributors to the net loss. The loss due to re-measurement primarily relates to non-yen-denominated liabilities of PRU's Japanese operations that are generally supported by assets in the same denomination as the liabilities. The increased liability arising from a weakening yen is reflected in the company's income statement, while the offsetting increase in supporting asset values is reflected in equity. In 2012, we expect interest coverage, on a pretax adjusted operating income basis, of about 8.5x (6.5x including hybrids), with further improvement in 2013. We expect the company's debt leverage to decline to near 20% and its total financial leverage, including hybrids, to remain under 30%.