NEW YORK (S&P Global Ratings) Sept. 11, 2023--S&P Global Ratings views Prudential Financial Inc.'s (A/Stable/A-1) recently announced launch of Bermuda-based reinsurance company Prismic Life Re (not rated) as consistent with Prudential's long-term strategic goals. Prudential will invest $200 million in Prismic, alongside Warburg Pincus (not rated), which will invest $150 million, and other private investors. The combined investments will bring Prismic's equity to $1 billion. Prudential also intends to reinsure a $10 billion block of structured settlements to Prismic, which will be the reinsurer's inaugural transaction.
Prudential has transformed itself in recent years into a less market-sensitive company by focusing more on businesses such as asset management, emerging markets, and online distribution, as well as pivoting its retirement services businesses into less capital-intensive products, such as registered index-linked annuities. As part of this transformation, Prudential has executed a series of multibillion-dollar divestitures of legacy blocks of business, including two large blocks of variable annuities, its full-service retirement business, and a block of guaranteed universal life, in addition to the anticipated reinsurance of structured settlements to Prismic.
These divestitures leave the company less diversified than it was in previous years, and with a smaller footprint in the U.S.--both in balance-sheet size and earnings. But to be sure, even after these transactions, Prudential still has one of the larger balance sheets in the industry, with a sizable amount of legacy business.
We view the company as having strong risk management capabilities, and it remains fairly well diversified among its remaining U.S. businesses in individual life and annuity, group benefits, retirement solutions, and asset management, as well as among its large life and retirement business in Japan and smaller operations in Brazil and other countries.
We view the launch of Prismic as part of a wider trend in recent years where U.S. life insurers are increasingly making use of offshore reinsurance. These offshore vehicles allow insurers to gain access to third-party equity capital without issuing new shares outright and optimize capital efficiency, as well as offering other possible benefits.
This trend does increase insurers' counterparty exposure to unrated reinsurers, and Prismic is an example of such a case. Nonetheless, we view Prudential's initial counterparty exposure to Prismic, as well as other unrated reinsurers, as manageable. We will continue to monitor these relationships and assess what impact, if any, they have on Prudential's creditworthiness and our ratings.
This report does not constitute a rating action.
| Primary Credit Analyst: | Carmi Margalit, CFA, New York + 1 (212) 438 2281; carmi.margalit@spglobal.com |
| Secondary Contact: | Neil R Stein, New York + 1 (212) 438 5906; neil.stein@spglobal.com |
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