A.M. Best Revises Issuer Credit Rating Outlook to Positive for Prudential Financial, Inc. and Its Subsidiaries

Business Wire, Jan 25, 2008

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Superior) and issuer credit ratings (ICR) of "aa-" of Prudential Financial, Inc.'s (PFI) (Newark, NJ) (NYSE: PRU) domestic life/health insurance companies. Concurrently, A.M. Best has affirmed PFI's existing debt ratings and assigned a debt rating of "a-" to PFI's recently issued $600 million 5.15% senior unsecured notes. The outlook for the FSR is stable, and the outlook for the ICRs and debt has been revised to positive from stable. (See link below for a detailed list of the companies and ratings.)

The revised outlooks reflect PFI's favorable trends in operating performance, including strong earnings growth across all lines, enhanced earnings diversification and improved business profile aided by strategic acquisitions over the last few years. The ratings also reflect the considerable diversity in PFI's business mix within its insurance, investment and international divisions along with anticipated improved access to international capital, considerable financial flexibility, sound liquidity and a strong global market presence. The organization's substantial balance sheet strength is supported by its effective asset/liability management, disciplined approach to product pricing and reasonable level of intangible assets relative to shareholders' equity. A.M. Best notes significant progress made in the last year with respect to enterprise risk management (ERM), having established a solid framework and corporate infrastructure. Furthermore, the rating actions incorporate A.M. Best's expectation that statutory capital levels within PFI's U.S. subsidiaries will stabilize as they have declined materially in recent years.

These strengths are partially mitigated by ongoing assertive capital management, including above-average use of operating leverage; higher investment risk relative to peers; and the need to improve its competitive position in its target markets within the retirement segment. Going forward, PFI has acknowledged that it needs to execute its strategy to expand its worksite presence, which is important to achieving above-average domestic earnings growth in this segment. A.M. Best notes that the company faces formidable competition within the retirement plans arena and that it has achieved relatively modest variable annuity net flows. However, PFI has significantly grown sales from its acquisitions of American Skandia and Allstate's variable annuity block and A.M. Best would expect to see net flows improve in the future. Additionally, PFI's increased usage of operating leverage in recent years, which reflects the company's distinctive business mix resulting in higher levels of working capital to support normal operating needs, has resulted in reduced fixed charge coverage (including shareholder dividends).

While PFI's balance sheet is very strong and its credit exposures are well within its risk tolerance standards, A.M. Best believes the company has higher investment risk relative to peers due to considerable holdings in below investment grade bonds, commercial mortgage loans and subprime-related mortgage-backed securities relative to capital. Furthermore, while overall investment risk is above average, it is somewhat mitigated by a large closed block and its seasoned investment management capabilities.

Proceeds from the recent $600 million senior note offering are expected to be used for general corporate purposes, which may include repayment of outstanding commercial paper borrowings and working capital purposes. Although PFI's overall financial leverage has increased, it remains within A.M. Best's expectations for the current ratings.

For a complete list of Prudential Financial, Inc.'s ICRs, FSRs and debt ratings please visit www.ambest.com/press/012502prudential.pdf.> Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.