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
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%.