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.
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. Prudential has strong cash generation and a strategy focussed 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 rapidly increasing variable annuity business in the US.
“Sales on JNL’s variable annuity book have increased 25% during the first three quarters of 2011 compared to the same period in 2010,” said Clara Hughes, Senior Director in Fitch’s insurance team. “Fitch recognises JNL’s track record of pricing discipline and effective risk hedging on this business through economic cycles, but nevertheless views such rapid growth as negative from a credit perspective. Prudential has recently increased guarantee charges to reduce sales figures so Fitch expects growth to slow in 2012.”
The key rating factors that could result in 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 leverage is likely to result in downward pressure on the rating. An upgrade is unlikely in the near term.
Fitch views JNL as ‘core’ to the Prudential group (as defined in “Insurance Rating Methodology”, dated 22 September 2011 and available at www.fitchratings.com) and is factoring group support into JNL’s ratings, which would be lower on a standalone basis.
Prudential has the joint-highest IFS rating among European insurance groups. Its ratings continue to reflect its excellent capitalisation and profitability, and its geographical diversification with particularly strong market positions across Asia.
Source : Fitch Ratings Press Release
