Prudential (PRU) And Units' Ratings Retained By Moody's

Prudential Financial, Inc. (NYSE:PRU) and its life insurance units’ ratings were reiterated by Moody’s Investors Service. The rating agency affirmed the long-term debt ratings of Prudential (LON:PRU) and the A1 insurance financial strength (IFS) ratings of its lead operating company — Prudential Insurance Company of America — along with other affiliated US life insurance units (together knows as PICA). Also, the outlook for such ratings was changed from stable to positive.

Ratings Representation of Prudential and its Units

The ratings representation of Prudential and its units represent the group’s strong foothold and franchise in the U.S. life and retirement market, boasting top 10 positions in numerous product markets. Additionally, the ratings also signify solid regulatory capital levels coupled with an internal capital protection framework during pressure situations.

The positive outlook denotes the company’s efforts and progress in lowering high levels of debt and leverage.

Notably, consistent decline in leverage and the realization of perpetually stronger, less volatile earnings, can lead to an upgrade of the group’s ratings. This apart, enhanced credit profile of the Japanese operations and increase in cash flow diversity, which is available to the holding company, could also result in the ratings upgrade.

On the flip side, stabilization of PICA’s ratings, owing to substantial one-time charges or other factors, deterioration in the credit portfolio of the Japanese operations and total leverage remaining at 40% are a few of the factors that can change the outlook from positive to stable.

Factors Resulting in PICA's Ratings Upgrade

Some of the factors that can lead to PICA’s ratings upgrade are GAAP return on capital for the U.S. life insurance operations in the high single digits and a continued lowering of earnings volatility along with total consolidated leverage at Prudential moving toward 30%.

Factors Likely to Change PICA's Outlook

However, total consolidated leverage at Prudential remaining at 40% and consolidated GAAP earnings coverage remaining of less than 8x or cash coverage of less than 5x, are a couple of factors that that can change PICA’s outlook from positive to stable.

Rating affirmations or upgrades from credit rating agencies play an important role in retaining investors’ confidence and maintaining a stock’s credit worthiness. On the other hand, rating downgrades not only damage business but also increase the cost of future debt issuances. We believe that such ratings will help Prudential retain investors’ trust and write more businesses going forward.

Zacks Rank and Share Price Movement

Prudential holds a Zacks Rank #2 (Buy). Shares of Prudential have gained 5.9% year to date, underperforming the industry’s 8.6% increase. However, we expect top-line growth, solid asset under management and a robust capital position to turn the stock around in the near term.

Other Stocks to Consider

Some other top-ranked stocks from the insurance industry include Radian Group Inc. (NYSE:RDN) , First American Financial Corporation (NYSE:FAF) and Health Insurance Innovations, Inc. (NASDAQ:HIIQ) , each holding a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Radian Group offers mortgage and real estate products plus services in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 4.52%. Notably, shares of Radian Group have gained 15.4% year to date, outperforming the industry’s increase of 8.6%.

First American Financial offers financial services. The company delivered positive surprises in all of the last four quarters with an average beat of 12.74%. Also, shares of First American have surged 48.3% year to date, significantly outperforming the industry’s increase of 10.8%.

Health Insurance operates as a developer, distributor and administrator of cloud-based individual health and family insurance plans, and supplemental products in the United States. The company delivered positive surprises in all of the last four quarters with an average beat of 40.54%. Shares of Health Insurance have rallied 28.6% year to date, outperforming the industry’s increase of 24.5%.

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