Fitch Affirms Prudential Plc's IDR at 'A+'; Outlook Stable

Wed Aug 13, 2014 12:31pm EDT

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(The following statement was released by the rating agency) LONDON/CHICAGO, August 13 (Fitch) Fitch Ratings has affirmed Prudential Plc's (Prudential) Long-term Issuer Default Rating (IDR) at 'A+' and senior unsecured debt at 'A'. The agency has also affirmed Prudential Assurance Company Ltd's (PAC) Insurer Financial Strength (IFS) rating at 'AA'. At the same time, Fitch has affirmed Prudential's US subsidiaries Jackson National Life Insurance Company and Jackson National Life Insurance Company of New York's (collectively, JNL) IFS ratings at 'AA'. The Outlooks on the group's Long-term IDRs and IFS ratings are Stable. A full list of ratings actions is at the end of this comment. KEY RATING DRIVERS The affirmation reflects Prudential's continued robust and resilient capital position, operational scale and strong business position in each of its key markets, the UK, the US and Asia. Prudential has strong cash generation and a strategy focused on high-margin products with short pay-back periods and a profitable asset management business. Prudential's ratings also benefit from the group's geographical diversification across the UK, US and 12 countries in Asia. At end-1H14, the group's Insurance Groups Directive (IGD) regulatory solvency ratio was estimated at 230% and its UK with-profits fund had working capital of GBP7.5bn. The group's US operations have a strong regulatory risk-based-capital ratio (end-2013: 450%). In the UK, it also maintains a large credit default reserve (end-1H14: GBP1.9bn). The group's leading position and strong brand in its core markets is a positive rating factor. In the UK, Prudential is a leading company in the retirement market while in the US, under the banner of JNL, it is one of the main sellers of fixed and variable annuities. In Asia, the group has established one of the strongest franchises achieved by a Western company. Prudential's in-house asset manager, M&G, is the largest asset manager in the UK retail market and its Asian asset-management arm is growing. Partially offsetting these positive rating factors is the company's relatively high exposure to credit risk, longevity risk and adverse policyholder behaviour risk. This includes the considerable variable annuity (VA) business in the US. Sales on JNL's VA book have been at significantly elevated levels in recent years. However, Fitch recognises JNL's track record of pricing discipline and effective risk hedging on this business through economic cycles, and the rebalancing of VA sales from traditional VAs to its new, lower-risk Elite Access product. Prudential continues to grow strongly in Asia, which now contributes more than half of the group's new business value (2013: 51%). Fitch believes that Prudential is in a strong position to benefit from the rising personal wealth across Asia and to exploit the low penetration of the Asian insurance markets. RATING SENSITIVITIES Key rating triggers that could result in a downgrade of Prudential's ratings include: a sustained fall in the group's IGD regulatory solvency ratio to below 200% or in the US operations' regulatory risk-based capital ratio to below 400%; an increase in Fitch-calculated financial leverage to over 25% (end-2013: 20%); interest coverage falling below 5x; or material crystallisation of credit risk, longevity risk or adverse policyholder behaviour. Prudential has the joint-highest IFS rating among European insurance groups and an upgrade is unlikely in the near term. Fitch views JNL and PAC as Core to the Prudential group (as defined in "Insurance Rating Methodology", dated 13 November 2013 at www.fitchratings.com). A downgrade of Prudential would trigger a downgrade of JNL and PAC. As Fitch factors group support into JNL's rating, which would be lower on a standalone basis, JNL's ratings could also be downgraded if, in Fitch's view, there were a decline in the strategic importance of JNL to Prudential. The rating actions are as follows: Prudential Long-term IDR: affirmed at 'A+'; Outlook Stable Short-term IDR: affirmed at 'F1' Commercial paper: affirmed at 'F1' Senior debt affirmed at 'A' Junior subordinated debt and perpetual subordinated capital securities affirmed at 'BBB+' PAC IFS rating: affirmed at 'AA'; Outlook Stable Jackson National Life Insurance Company Long-term IDR affirmed at 'AA-'; Outlook Stable IFS rating affirmed at 'AA'; Outlook Stable Surplus notes affirmed at 'A+' Short-term IFS affirmed at 'F1+' Jackson National Life Insurance Company of New York IFS rating affirmed at 'AA'; Outlook Stable Jackson National Life Global Funding Medium-term notes affirmed at 'AA' Jackson National Life Funding, LLC Medium-term notes affirmed at 'AA' Contact: Primary Analyst (Prudential group) Clara Hughes Senior Director +44 20 3530 1249 Fitch Ratings Limited 30 North Colonnade London E14 5GN Primary Analyst (JNL) Bradley S. Ellis, CFA Director +1 312 368 2089 Fitch Ratings Limited 70 W. Madison St. 13th Floor, Chicago, IL 60602 Secondary Analyst (Prudential group) David Prowse Senior Director +44 20 3530 1250 Secondary Analyst (JNL) Julie A. Burke, CPA, CFA Managing Director +1 312 368 3158 Committee Chairperson Harish Gohil Managing Director +44 20 3530 1257 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria "Insurance Rating Methodology", dated 13 November 2013 are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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.

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