Prudential 2011 Annual Report Download - page 136

Best to “A-” for our domestic life insurance companies would require Prudential Insurance to post a letter of credit in the amount of
approximately $1.8 billion, based on the level of statutory reserves related to the variable annuity business acquired from Allstate, that we
estimate would result in annual cash outflows of approximately $28 million, or collateral posting in the form of cash or securities to be held
in a trust. We believe that the posting of such collateral would not be a material liquidity event for Prudential Insurance.
Rating agencies use an “outlook” statement for both industry sectors and individual companies. For an industry sector, a stable
outlook generally implies that over the next 12-18 months the rating agency expects ratings to remain unchanged among companies in the
sector. Currently, A.M. Best, S&P, Moody’s and Fitch all have the U.S. life insurance industry on stable outlook. For a particular company,
an outlook generally indicates a medium- or long-term trend (generally six months to two years) in credit fundamentals, which if continued,
may lead to a rating change. These indicators are not necessarily a precursor of a rating change nor do they preclude a rating agency from
changing a rating at any time without notice. Moody’s currently has all of the Company’s ratings on positive outlook. Except as noted
below, A.M. Best, S&P, and Fitch currently have the Company’s ratings on stable outlook.
In view of the difficulties experienced recently by many financial institutions, the rating agencies have heightened the level of scrutiny
that they apply to such institutions, have increased the frequency and scope of their credit reviews, have requested additional information
from the companies that they rate, and may adjust upward the capital and other requirements employed in the rating agency models for
maintenance of certain ratings levels, such as the financial strength ratings currently held by our life insurance subsidiaries. In addition,
actions we might take to access third party financing or to realign our capital structure may in turn cause rating agencies to reevaluate our
ratings.
The following is a summary of the significant changes in our ratings and rating outlooks that have occurred from the beginning of
2011 through February 24, 2012.
On April 27, 2011, S&P assigned a negative outlook to the ratings of The Prudential Life Insurance Company Ltd. and Gibraltar Life
Insurance Company, Ltd. as part of its decision to put the sovereign debt ratings of Japan on negative outlook.
On June 8, 2011, A.M. Best affirmed the long-term senior debt rating of Prudential Financial at “a-” and the financial strength ratings
of our life insurance subsidiaries at “A+.”
On June 23, 2011, Moody’s affirmed the long-term senior debt rating of Prudential Financial at “Baa2” and the financial strength
ratings of our life insurance subsidiaries at “A2,” and revised the outlook from stable to positive.
In July 2011, S&P affirmed the long-term senior debt rating of Prudential Financial at “A” and the financial strength ratings of our life
insurance subsidiaries at “AA-.”
On October 13, 2011, S&P upgraded the financial strength and long-term counterparty ratings of AIG Edison Life Insurance Company
from “A” to “AA-” with a negative outlook. The negative outlook reflects S&P’s outlook on the sovereign debt ratings of Japan.
On December 19, 2011, Fitch affirmed the long-term senior debt rating of Prudential Financial at “BBB+” and the financial strength
ratings of our life insurance subsidiaries at “A+.”
On January 4, 2012, Moody’s affirmed the financial strength rating of Gibraltar Life Insurance Company, Ltd at “A2.” At the same
time, Moody’s withdrew the “A2” financial strength rating of AIG Edison Life Insurance Company due to its merger with Gibraltar Life
Insurance Company, Ltd.
On January 5, 2012, S&P withdrew the financial strength and long-term counterparty ratings of AIG Edison Life Insurance Company
due to its merger with Gibraltar Life Insurance Company, Ltd.
Contractual Obligations
The table below summarizes the future estimated cash payments related to certain contractual obligations as of December 31, 2011.
The estimated payments reflected in this table are based on management’s estimates and assumptions about these obligations. Because
these estimates and assumptions are necessarily subjective, the actual cash outflows in future periods will vary, possibly materially, from
those reflected in the table. In addition, we do not believe that our cash flow requirements can be adequately assessed based solely upon an
analysis of these obligations, as the table below does not contemplate all aspects of our cash inflows, such as the level of cash flow
generated by certain of our investments, nor all aspects of our cash outflows.
Estimated Payments Due by Period
Total 2012 2013-2014 2015-2016
2017 and
thereafter
(in millions)
Short-term and long-term debt obligations(1) .................................... $ 41,048 $ 3,616 $ 6,223 $ 6,619 $ 24,590
Operating lease obligations(2) ............................................... 686 152 257 134 143
Purchase obligations: .......................................................
Commitments to purchase or fund investments(3) ............................ 5,573 4,562 927 47 37
Commercial mortgage loan commitments(4) ................................ 2,139 1,565 459 0 115
Other liabilities:
Insurance liabilities(5) .................................................. 1,136,044 43,690 69,525 72,471 950,358
Other(6) ............................................................. 11,563 10,662 249 51 601
Total ........................................................... $1,197,053 $64,247 $77,640 $79,322 $975,844
134 Prudential Financial, Inc. 2011 Annual Report