A.M. Best Assigns Financial Strength Rating to The Prudential Assurance Company Limited; Assigns Issuer Credit Rating to Prudential Plc.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Oct. 6, 2003

A.M. Best Co. has assigned an initial financial strength rating of A++ (Superior) to The Prudential Assurance Company Limited, United Kingdom, and an issuer credit rating of "aa-" to its non-operating parent company, Prudential Plc. A.M. Best has also assigned ratings on several debt securities issued by Prudential Plc. (See list below.) The outlook on all ratings is negative.

These ratings reflect Prudential's superior business profile and financial performance and its excellent financial flexibility. The main offsetting factor is the deterioration in the company's consolidated risk-based capital.

Excellent but deteriorating capitalisation--Prudential's risk-based consolidated capitalisation continues to be maintained at an excellent level, factoring the company's substantial, albeit reduced, funds for future appropriations (FFA) and resilience reserves. However, the overall capital position has deteriorated mainly as a result of the declining equity markets. Prudential has initiated some actions (i.e., cuts in dividend and annual bonuses for the U.K. with-profits policies and a long-term cost saving programme) to offset this capital decline.

Superior business position--Prudential has a superior business position in the markets in which it operates (mainly United Kingdom, United States and Asia). Prudential is the largest life insurer in the United Kingdom, and one of the largest providers of fixed annuities in the United States. Life premiums grew by an excellent 10% in 2002, with particularly strong new business growth in the United States (23%) and Asian markets (18%). M&G, Prudential's asset management division, and Egg, the company's digital bank, are also experiencing strong new business growth and have begun to expand into continental European markets. In the current volatile investment environment, A.M. Best believes that the reduced attractiveness of some key U.K. products (i.e., some with profits bonds) will lead to a reduction in new life premium for 2003. However, this will be partially offset by individual annuity sales.

Superior operating performance--Overall statutory profits after tax and minority interest increased by 15% to GBP 449 million (USD 720 million) at year-end 2002. This is due to the improvement in the negative adjustment for short-term fluctuations arising out of the U.S. life business. The U.K. operation remains the key contributor to Prudential's profits with an increase of 64% of 2002 operating profits to GBP 405 million (USD 650 million). The company is focused on reducing expenses in the U.K. insurance operations and is currently executing a cost reduction programme that yielded a saving of GBP 155 million (USD 249 million) in 2002. Prospectively, A.M. Best believes that the volatility experienced in the equity markets and the unlikelihood of a speedy recovery is likely to lead to lower consolidated profitability at year-end 2003. This would be partially offset by further reductions in the U.K. bonuses and the positive impact of the cost-savings initiatives.

A.M. Best has assigned the following ratings to debt instruments guaranteed by Prudential Plc:

-- GBP 5 billion Medium Term Note Programme issued and guaranteed

by Prudential Plc

-- "a" rating on GBP 435 million junior subordinated notes

-- "a" rating on EUR 500 million junior subordinated notes

Further issues under this programme will be rated as follows:

-- "aa-" rating on senior notes

-- "a+" rating on subordinated notes

-- "a" rating on junior subordinated notes

A.M. Best has assigned a debt rating of "a" to the following issues by Prudential Plc:

-- USD 1 billion perpetual junior subordinated capital securities

A.M. Best has assigned a rating of "aa-" to the following debt issued and guaranteed by Prudential Plc:

-- USD 250 million 7.125% bonds due 2005

-- GBP 250 million 5.5% bonds due 2009

-- GBP 300 million 6.875% bonds due 2023

-- GBP 250 million 5.875% bonds due 2029

A.M. Best has assigned a rating of AMB-1+ to Prudential's global commercial paper programme.

A.M. Best has assigned a rating of "aa-" to the following debt issued by Prudential Finance B.V. and guaranteed by Prudential Plc:

-- GBP 150 million 9.375% guaranteed bonds due 2007

For further information concerning issuer credit ratings, refer to A.M. Best's "Ratings & Treatment of Debt," which can be found at: www.ambest.com/ratings/debtrating/debtmethod.pdf?l=1&Menu=Rating+ Servives,Debt+Ratings,Rating+Methodology. (Due to the length of this URL, it may be necessary to copy and paste  this hyperlink into your Internet browser's URL address field.)

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.