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Announcement:

Moody's assigns Baa1 rating to the USD550 million perpetual subordinated Tier 1 securities to be issued by Prudential plc

Global Credit Research - 18 Jan 2011

London, 18 January 2011 -- Moody's has today assigned a Baa1 rating to the USD550 million perpetual subordinated tier one securities to be issued by Prudential plc (Prudential; senior debt A2, negative) under its GBP5.0 billion Medium Term Note Programme. The rating is in line with existing junior subordinated debt issued by Prudential. The outlook is negative.

The following rating has been assigned:

USD 550 million Perpetual Subordinated Tier I Baa1

RATINGS RATIONALE

The Baa1 rating reflects Moody's A2 senior debt rating of Prudential and Moody's standard notching practice for such instruments. The perpetual subordinated instrument ranks alongside similar securities issued by Prudential.

Moody's commented that the transaction will boost the capital available to Prudential for regulatory solvency purposes, due to the instrument qualifying as Tier 1 capital under Solvency I. According to the terms contained in the securities, the company has an option to redeem them in case they will not be classified as Tier 1 under the forthcoming Solvency II regime. However, were the grandfathering criteria outlined in the fifth Quantitative Impact Study (QIS 5) for Solvency II to be confirmed as the text of the final implementing measures, Prudential expects these securities would be grandfathered.

The hybrid features of the instrument will also result in some equity credit under Moody's debt equity continuum based on its subordination, limited interest deferral characteristics and maturity.

Prudential's adjusted financial leverage was 27.1% as at YE 2009, which is within the 15-30% range for 'Aa' financial flexibility in Moody's scorecard and is expected to have improved during 2010 due to increased retained earnings. The new hybrid, unless fully utilised to buy-back existing debt, will increase the financial leverage calculation but only by 1%. Fixed charge coverage remains weak for the rating level at 4.3x in 2009, as the current weak economic environment has impacted most insurers globally. Nevertheless, this issuance and the company's access to capital markets during the crisis reinforces our view of the Aa score for financial flexibility.

The principal methodology used in this rating was Moody's Global Rating Methodology for Life Insurers published in May 2010.

The last rating action was on June 02, 2010 when Moody's affirmed Prudential's long-term ratings with a negative outlook. The action followed the Group's decision to abandon its acquisition of AIA. Moody's maintained a negative outlook on Prudential's ratings, reflecting the potential reputational damage Prudential may face, including any possible impact on market position and franchise, following the ultimately unsuccessful pursuit of AIA.

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
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
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London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns Baa1 rating to the USD550 million perpetual subordinated Tier 1 securities to be issued by Prudential plc
No Related Data.
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