Feb 22 - 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 all of 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 strong and resilient capital position, operational scale and strong business position in each of its key markets, the UK, the US and Asia. Fitch also recognises that Prudential is continuing to expand its market-leading presence in Asia by launching life operations in Cambodia. Prudential has strong cash generation and a strategy focused on high-margin products with short pay-back periods and a profitable asset management business.
Partially offsetting these positive rating factors is the company's relatively high exposure to credit risk, longevity risk and adverse policyholder behaviour risk. This exposure includes the rapid growth in variable annuity business in the US over the past three years. However, Fitch views positively JNL's decision to limit sales of variable annuities with guarantees, announced in November 2012.
In January 2013, Prudential issued USD700m 5.25% of perpetual Innovative Tier 1 under its medium-term notes programme, primarily to Asian retail investors . Fitch views the issuance as neutral to Prudential's rating as it did not lead to a material increase in the insurer's financial leverage.
Key rating triggers for a downgrade of Prudential's ratings include the crystallisation of credit risk, longevity risk and adverse policyholder behaviour, or interest coverage falling below 5x-6x. Also, any structural increase in financial leverage is likely to result in downward pressure on the ratings. An upgrade is unlikely in the near term.
Fitch views JNL as 'core' to the Prudential group (as defined in 'Insurance Rating Methodology', dated 11 January 2013 and available at www.fitchratings.com) and factors group support into JNL's ratings, which would be lower on a standalone basis.
The rating actions are as follows:
Long-term IDR: affirmed at 'A+'; Outlook Stable
Short-term IDR: affirmed at 'F1'
Commercial paper: affirmed at 'F1'
Senior debt affirmed at 'A':
GBP250m 5.875% bonds due 2029 (XS0096874671)
GBP300m 6.875% bonds due 2023 (XS0083544212)
GBP300m 1.25% bonds due 2015 (XS0855527916)
Junior subordinated debt affirmed at 'BBB+':
GBP435m 6.125% subordinated notes due 2031 (XS0140198044)
GBP400m 11.375% subordinated notes due 2039 (XS0431150902)
Perpetual subordinated capital securities affirmed at 'BBB+'
USD1bn 6.5%, undated (XS0170488992)
USD250m 6.75% undated (GB00B02FFZ25)
USD300m 6.5% undated (GB00B0G40271)
USD750m 11.75% undated (XS0439094524)
USD550m 7.75% undated (XS0580467875)
USD700m 5.25% undated (XS0873630742)
Insurer Financial Strength (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';