A.M. Best Affirms Financial Strength Rating of Prudential Insurance Co.; Assigns Debt Ratings to Prudential Financial, Inc.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Dec. 13, 2001

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and maintains the positive outlook for The Prudential Insurance Company of America, Newark, New Jersey, and also affirmed the ratings of its wholly owned subsidiaries, Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey.

In addition, A.M. Best has assigned an "a-" debt rating to the $600 million in equity security units issued by Prudential's new parent company, Prudential Financial, Inc. (PFI) (NYSE: PRU), and an indicative "a-" debt rating to this entity's senior unsecured obligations.

A.M. Best has affirmed the financial strength ratings in connection with PFI's $3.03 billion initial public offering of 110 million common shares at $27.5 per share, which represents 19% of the total expected number of outstanding shares. As part of the insurance company's conversion from a mutual to a stock company, the balance of approximately 456 million common shares will be distributed to eligible policyholders. Also in connection with its demutualization, the company established a closed block book of business to separate the participating products issued as a mutual company to assure their future dividend payments. All other ongoing operations will become part of PFI's financial services businesses including its securities brokerage, international, asset management, domestic banking, real estate and relocation operations. This corporate restructuring will be effective December 18, 2001, the date that PFI becomes Prudential's ultimate parent company.

The financial strength rating reflects Prudential's diverse and substantial sources of revenues and earnings, excellent risk-adjusted capitalization, sound liquidity position and the prominent market position of its core life insurance, annuity and retirement services businesses. The rating also reflects the enhanced financial flexibility obtained through its new parent, PFI. A.M. Best views this structure favorably since the removal of several businesses should reduce the insurance company's exposure to earnings volatility and potential funding obligations.

A.M. Best has also assigned an "a-" debt rating to the senior unsecured obligations to be issued by PFI. This rating is supported by moderate proforma financial leverage, with estimated consolidated total debt to total capital of approximately 30%, a ratio that declines significantly when debt is reduced by cash on hand. The rating is supported by strong dividend capacity from subsidiaries and, as a new publicly traded company, from the availability and diversity of funding sources in the capital markets. Furthermore, interest coverage on debt obligations is anticipated to measure in the mid-single digits, commensurate with this rating level. PFI's liquidity position is also viewed favorably given its extensive cash management capabilities, available bank lines and high quality short-term investment portfolio.

A.M. Best has assigned an "a-" debt rating on $600 million of 6.75% equity security units issued by PFI. These units are comprised of a purchase contract for a certain number of shares of PFI common stock in 2004 and a beneficial ownership interest in a redeemable capital market security (RCM) of Prudential Financial Capital Trust I. The underlying assets supporting the distribution and $50 liquidation amount on the RCMs will be 6.75% senior debentures maturing in 2006 issued by PFI to the Trust. The rating reflects the debentures' pari-passu ranking with all other senior unsecured debt of PFI and is supported by covenants that protect their structural position.

Although management has achieved a great deal of progress in reducing the risk in the organization and in positioning its ongoing business activities for future growth, A.M. Best believes a key challenge for PFI will be to produce returns commensurate with other public company peers. Such performance will need to significantly exceed its historical results, which have been negatively impacted by operating losses from divested operations including health care and capital markets restructurings as well as charges related to market conduct issues. The company continues to maintain a relatively high expense infrastructure in its agency operations, which could also constrain its ability to achieve profit objectives as a publicly traded company. Despite these challenges, Prudential has maintained a strong market position and commenced strategic initiatives to improve its competitive position both domestically and internationally. These support a positive outlook on the rating for the medium-term.

Prudential is one of the largest life insurance companies in the United States, with $373 billion of insurance assets under management (GAAP) and 15 million customers worldwide.

The financial strength rating of A (Excellent) was affirmed with a positive outlook over the medium-term for the following entities:

-- The Prudential Insurance Company of America

-- Pruco Life Insurance Company

-- Pruco Life Insurance Company of New Jersey

The financial strength rating of A- (Excellent) was affirmed for the following companies:

-- Prudential Property & Casualty Group -- The Prudential Property & Casualty New Jersey Group -- THI Holdings Group

The following debt ratings for Prudential Financial, Inc. have been assigned:

-- "a-" indicative senior unsecured debt -- "a-" on $600 million 6.75% equity security units

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.