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Rating Action:

Moody’s affirms Prudential Financial’s ratings (senior at A3); outlook stable

22 November 2021


New York , November 22, 2021 – Moody's Investors Service affirmed the A3 senior unsecured debt rating of Prudential Financial, Inc. ("Prudential"; PFI; NYSE: PRU), a global life insurer and investment manager. It also affirmed the Aa3 insurance financial strength (IFS) ratings of Prudential Insurance Company of America (PICA), PRU's leading US life insurance subsidiary, its Prudential Retirement Insurance and Annuity Company (PRIAC) subsidiary, and certain other affiliates (see complete ratings list, below). Moody's also affirmed the Aa3 IFS rating of Pruco Life Insurance Company (PLAZ), a life insurance subsidiary domiciled in Arizona, which will continue to house PICA's remaining guaranteed legacy variable annuity (VA) liabilities, following PRU's announcement of its partial sale of the business to Fortitude Re this September, in conjunction with a previously-announced corporate transformation initiative. The outlook for all of Prudential's ratings, including the outlooks of PLAZ and PRIAC, remains stable.

The ratings of Prudential Seguros Mexico, S.A. de C. V. are not affected by this rating action.

RATINGS RATIONALE

Moody's said that the affirmation of PRU and PICA's ratings reflect PICA's leading positions in the US pension risk transfer (PRT) market, particularly in jumbo transactions, and in the life insurance and certain other product markets, as well as healthy capital adequacy at PICA. PRU's rating also reflects the leading positions of its life insurance and retirement operation in Japan, as part of its International segment, and of its top-ten global asset manager, PGIM, with approximately $1.5 trillion in assets under management as of Q32021. The pending partial sale of PICA's legacy VA business should incrementally reduce earnings volatility, interest rate, and VA hedging risks and complexity.

In February 2021, PRU announced a business transformation whose goal is to become a higher- growth, less market sensitive company, doubling the earnings of its PGIM Asset Management operation and its emerging markets business, and halving the earnings of its volatile guaranteed variable annuity (VA) business over the next three years. Moody's would expect additional VA, and possibly other legacy business transactions (e.g., guaranteed universal life) to be announced in the coming quarters (no such transactions have been announced by PRU).

Mitigating these strengths are the expected reduction of business and earnings diversity and market share at PICA, given both the VA transaction, and a previously-announced sale of PICA's full service retirement business – if, and until, they can be replaced other core businesses and earnings. For the first nine months of 2021, PRU's Individual Annuities segment (mostly VAs) generated between 40% and 50% of total US pre-tax adjusted operating income (AOI), and 20% of PRU's AOI (excluding corporate). Uncertainties regarding PICA's ultimate business and financial profile once the transformation has been completed, also temper corporate strengths.

Separately, the affirmation and stable outlook on the rating of PRIAC, PICA's retirement subsidiary, whose sale to Great-West Life & Annuity (GWLA)/Empower was announced in July 2021, is linked with the rating and outlook of GWLA, given the high probability that the transaction will close in 1H2022 as expected.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Rating drivers for PICA, PFI and PLAZ

The following factors could put upward pressure on the ratings of PICA and PRU: successful execution of a balanced business transformation strategy that reduces product risk, but maintains strong business/earnings growth and diversity at PICA; increase in cash flow diversity available to the holding company, with ordinary dividends from the company's non-US life insurance subsidiaries accounting for a significantly higher percentage of holding company cash flows; stronger annual earnings from PGIM; adjusted financial leverage at PFI of below 20% (excluding AOCI), with consolidated GAAP earnings coverage of at least 10x and cash coverage of at least 6x (including International and PGIM) of on a consistent basis, and with continuing growth in ordinary statutory dividend capacity at PICA.

The following factors could result in a downgrade of PICA and PFI: further material and permanent loss of US business diversification and market share; persistent continuing earnings volatility and inability to grow earnings from lower-risk businesses in relation to the business transformation; RBC of less than 375% capital at PICA and the other life insurance subsidiaries, with less than CTE 98 capital (i.e., 400% RBC) at PLAZ; adjusted financial leverage (excluding AOCI) at PFI of over 30%, with consolidated GAAP earnings coverage (including PGIM and International earnings) less than 7x or cash coverage of less 4x, with deteriorating ordinary statutory dividend capacity at PICA.

Failure to close on the GWLA sale could lead to a downgrade of PRIAC's rating, although this is not expected.

The following ratings were affirmed:

Prudential Financial, Inc. - senior unsecured debt (local and foreign currency) at A3; commercial paper at P-2; junior subordinated debt at Baa1 (hyb); long-term issuer rating at A3; short-term issuer rating at P-2; senior unsecured MTN program at (P)A3;

Five Corners Funding Trust and Five Corners Funding Trust II: senior unsecured debt at A3;

Prudential Insurance Company of America - insurance financial strength rating at Aa3; surplus notes at A2 (hyb); short-term insurance financial strength rating at P-1

PRICOA Global Funding I - senior secured MTN program (funding agreement-backed notes) at (P)Aa3; senior secured debt at Aa3;

Prudential Funding, LLC: backed commercial paper at P-1; backed senior unsecured MTN program at (P)A1; backed senior unsecured debt at A1; backed other short-term rating (P)P-1; commercial paper P-1.

Prudential Retirement Insurance and Annuity Company - insurance financial strength rating at Aa3;

Pruco Life Insurance Company - insurance financial strength rating at Aa3.

The outlook on all of PRU's ratings remains stable.

Prudential Financial, Inc. is an insurance and investment management organization headquartered in Newark, New Jersey. As of September 30, 2021, the company had total GAAP assets of $932 billion and total shareholders' equity of approximately $63 billion.

The principal methodology used in these ratings was Life Insurers Methodology published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1254133 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Laura Bazer
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Scott Robinson, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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