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Rating Action:

Moody’s upgrades Prudential Insurance Company’s IFS rating to Aa3; outlook stable

09 May 2019

New York , May 9, 2019 – Moody's Investors Service has upgraded to Aa3 from A1 the insurance financial strength (IFS) ratings of The Prudential Insurance Company of America and its affiliated US life insurance subsidiaries (collectively, PICA – see complete ratings list, below). PICA is the lead life insurance operating company of Prudential Financial, Inc. ("Prudential"; PFI; NYSE: PRU), whose senior unsecured debt was also upgraded to A3 from Baa1. Other affiliated ratings were also upgraded (see complete listing, below). The outlook for Prudential and its subsidiaries is 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 upgrades reflect PICA's leading and growing position and strong franchise in the US life and retirement market, with top-10 positions in a number of product markets (e.g. pension risk transfer, universal and term life, and group life). They also reflect healthy capital adequacy at PICA and Prudential Annuities Life Assurance Corporation (PALAC), its variable annuity (VA) affiliate, with 2018 NAIC Risk-Based Capital ratios of 385% and of 511%, respectively, supported by an enterprise capital protection framework, which supports the company's capital and liquidity in an extreme downside scenario.

Additional reasons for the upgrades were substantial and consistent GAAP earnings contributions and cash remittances to the holding company from Prudential's International and Asset Management segments. Prudential owns a top-ranking life and retirement insurance operation in Japan, as well as a top-ten global asset manager in PGIM, as measured by 2017 assets under management. In 2018, these businesses generated over 50% of adjusted operating earnings.

Rating drivers for PICA

The following factors could result in an upgrade for PICA: 1) a sustained reduction in product risk and higher-risk liability concentrations; 2) 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; and 4) RBC (Company Action Level) of at least 425% at PICA and the other life insurance subsidiaries, with CTE 98 capital at PALAC (post VA reform) and adequate capital at XXX/AXXX captives.

The following factors could lead to a downgrade of PICA's ratings: 1) a material increase in one-time product charges and significant economic earnings volatility at PICA; 2) less than CTE 98 capital (i.e., 400% RBC, post VA reform) at PALAC with RBC of less than 375% capital at PICA and the other life insurance subsidiaries; 3) adjusted financial leverage (excluding AOCI) at PFI of over 30%, with consolidated GAAP earnings coverage consistently less than 7x or cash coverage of less 4x (including International and PGIM, with deteriorating ordinary statutory dividend capacity at PICA).

Additional rating drivers for the PFI

In addition to the factors above (and an upgrade of PICA's ratings), the following factors could result in an upgrade of PFI's ratings: 1) improvement in the stand-alone credit profile of the Japanese operation; and 2) 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 contribution from PGIM.

Conversely, the following factors could lead to a downgrade of PFI's outlook: 1) a downgrade of PICA's ratings; 2) deterioration in the credit profile of the Japanese operations and PGIM.

The following ratings have been upgraded:

Prudential Financial, Inc. - issuer rating to A3 from Baa1; junior subordinated debt to Baa1 (hyb) from Baa2 (hyb); senior unsecured shelf to (P)A3 from (P)Baa1; subordinate shelf to (P)Baa1 from (P)Baa2; preferred shelf to (P) Baa2 from (P)Baa3; preferred non-cumulative shelf to (P) Baa2 from (P)Baa3; senior unsecured MTN program to (P)A3 from (P)Baa1; senior unsecured debt to A3 from Baa1;

Prudential Funding, LLC: backed senior unsecured MTN program to (P)A1 from (P)A2; backed senior unsecured debt to A1 from A2;

PRICOA Global Funding I - backed senior secured MTN program to (P)Aa3 from (P)A1; senior secured debt to Aa3 from A1;

Prudential Insurance Company of America - insurance financial strength rating to Aa3 from A1; surplus notes to A2(hyb) from A3(hyb);

Pruco Life Insurance Company - insurance financial strength rating to Aa3 from A1;

Prudential Retirement Insurance and Annuity Company - insurance financial strength rating to Aa3 from A1;

Five Corners Funding Trust: senior unsecured debt to A3 from Baa1;

The following ratings were affirmed:

Prudential Financial, Inc.: short-term issuer rating at P-2; commercial paper at P-2.

Prudential Funding, LLC – backed commercial paper at P-1; backed senior unsecured MTN program at (P) P-1;

Prudential Insurance Company of America: short-term insurance financial strength rating at P-1

Outlook Actions:

Issuer: Prudential Financial, Inc.

...Outlook Changed to Stable from Positive

Outlook Actions:

Issuer: Prudential Funding, LLC

...Outlook Changed to Stable from Positive

Outlook Actions:

Issuer: PRICOA Global Funding I

...Outlook Changed to Stable from Positive

Outlook Actions:

Issuers: Prudential Insurance Company of America, Pruco Life Insurance Company and Prudential Retirement Insurance and Annuity Company

...Outlook Changed to Stable from Positive

Outlook Actions:

Issuer: Five Corners Funding Trust

...Outlook Changed to Stable from Positive

Prudential Financial, Inc. is an insurance and investment management organization headquartered in Newark, New Jersey. As of March 31, 2019, the company had total GAAP assets of $849 billion and total shareholders' equity of approximately $55 billion.

The principal methodology used in these ratings was Life Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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

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

Marc R. Pinto, CFA
MD-Financial Institutions
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

© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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