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Announcement:

Moody's affirms Prudential Plc ratings; the outlook remains negative

02 Mar 2010

London, 02 March 2010 -- Moody's Investors Service affirmed the Aa2 insurance financial strength ratings (IFSRs) for Prudential Assurance Company (PAC) and its UK insurance subsidiaries (see list below), the A1 IFSR of Jackson National Life Insurance Company (Jackson) and the group holding company ratings of Prudential plc (Prudential, A2 senior debt). A complete list of ratings follows below. All long-term ratings have a negative outlook.

The rating affirmation follows the company's announcement yesterday concerning the proposed purchase of AIA Group Limited (AIA Group), including American International Assurance Company (Bermuda) Ltd. (AIAB), rated Aa3 (IFSR) by Moody's, from American International Group, Inc. (AIG) for a total consideration of USD35.5 billion. The transaction remains subject to regulatory and shareholder approval.

The affirmation reflects both the very strong business presence that such an acquisition would generate in the Asian markets and the relatively conservative mix of funding for the purchase. The acquisition is in line with management's previously stated growth strategy, albeit accelerating its pace. The affirmation also reflects Prudential's solid performance in 2009 based on unaudited preliminary results.

The negative outlook reflects the execution risk arising in implementing such a large transaction relative to the size of Prudential; the purchase amount represents c. 1.5x the pre-announcement market capitalisation of Prudential. Execution risk arises from integrating the various operations of AIA Group and Prudential in thirteen diverse Asian markets and in respect of regulatory approval. The integration will demand considerable management time and will require significant effort in securing operational efficiency of a group with operations in Asia, UK and US. The combination of the entities would also require regulatory approval across a variety of regulators in Asia. Moody's will also monitor the extent of the holding company's ability to continue to source dividends from its several operating entities while still maintaining strong regulatory capitalization, especially in the fast-growing Asian region. Moody's will also evaluate the degree of diversification of the new group and any implications for the ratings of the holding company.

The combined group of Prudential and AIA Group would achieve a leading position in seven markets in Asia including Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines with complementary products and business presence across the region. On a pro-forma basis Asia would generate almost two third of the group's embedded value in 2009 from the current 38% and 58% of the IFRS pre-tax operating earnings from the current 22%. This business presence would generate significant growth potential for the group in the future relative to the more mature markets of the UK and US. Management expects to generate cost synergies of c. USD340 million before tax by year three arising from the rationalisation of regional offices and reduction in management related expenses.

The acquisition would be financed via (i) a fully underwritten USD20.0 billion right issue, (ii) a USD5.5 billion equity stake in the new combined entity placed with AIG, resulting in a c. 11% stake, (iii) a USD3.0 billion mandatory convertible with a 3 year maturity, (iv) USD2.0 billion preferred securities and USD 5.0 billion fully underwritten senior debt issuance. Moody's views the proposed funding as relatively conservative and does not expect a materially negative impact on the leverage ratio for the combined group.

Prudential also released yesterday good preliminary financial results for 2009. The group's new business APE sales were flat year-on-year at GBP2.9 billion despite the challenging economic environment; the group reported growth in operating profit by 8% on an embedded value basis and by 10% under IFRS (based on a long-term investment return). Average group new business profit as a percentage of APE was 56%, up from 42% in 2008. The company also reported a bottom line profit of GBP676 million from a loss of GBP396 million in 2008. Management actions in the course of 2009 strengthened capital surplus under Solvency I which increased to an estimated GBP3.4 billion, GBP1.9 billion higher than at the end of 2008.

Moody's added that the debt and financial strength ratings could be downgraded if the integration of the two insurers' businesses encounters material difficulties, as evidenced, for example by market shares in key markets falling from their current leading positions, or profit margins falling from their current strong levels. Conversely, the Group's rating outlook could return to stable in the event that the anticipated integration benefits are realized and capital levels are maintained at a conservative level.

The following ratings were affirmed with a negative outlook:

Prudential Assurance Company- insurance financial strength rating at Aa2;

Scottish Amicable Insurance Fund- insurance financial strength rating at Aa2;

Scottish Amicable Finance plc- subordinated debt rating at A1;

Prudential Annuities Limited- insurance financial strength rating at Aa2;

Prudential plc- senior debt at A2;

Prudential plc- subordinated debt at A3;

Prudential plc- junior subordinated debt at Baa1;

Prudential Capital- guaranteed Euro MTN senior debt at A2;

Jackson National Life Insurance Company- insurance financial strength rating at A1;

Jackson National Life Insurance Company of New York: insurance financial strength rating at A1;

Jackson National Life Insurance Company- Surplus Notes at A3;

Jackson National Life Funding, L.L.C.- Note Issuance Program at A1

Jackson National Life Global Funding- Note Issuance Program at A1

Prudential Retirement Income Limited; insurance financial strength rating at Aa2.

The following ratings were affirmed:

Prudential plc- commercial paper at P-1

Jackson National Life Insurance Company- Short-term Insurance Financial Strength (STIFS) at Prime-1 (P-1)

The last rating action was on 30 March 2009, when Moody's downgraded to Aa2 from Aa1 the IFSRs of Prudential Assurance Company and of Scottish Amicable Insurance Fund. With regard to the other UK operating entities, Moody's affirmed the Aa2 IFSR of Prudential Annuities Limited, and upgraded Prudential Retirement Income Limited to Aa2 from Aa3. Moody's also affirmed the A1 IFSR of Jackson National Life Insurance Company and affirmed the group holding company ratings of Prudential plc.

The principal methodology used in rating the issuers covered by this press release is "Moody's Global Rating Methodology for Life Insurers", published in September 2006, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Prudential plc is an international retail financial services group headquartered in London with total assets of GBP216bn at year end 2008.

London
Antonello Aquino
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Simon Harris
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Prudential Plc ratings; the outlook remains negative
No Related Data.
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