OREANDA-NEWS. S&P Global Ratings today affirmed its 'A+/A-1' long - and short-term counterparty credit ratings on U. K.-based multiline insurer Prudential PLC. We also affirmed the 'AA' long-term counterparty credit and insurer financial strength ratings on its core operating subsidiaries.

The outlook on all the long-term ratings is stable.

At the same time, we discontinued the 'AA' ratings on Prudential Annuities Ltd. (PAL), following the transfer of all its assets and liabilities to Prudential Assurance Co. Ltd. (PAC).

The ratings on Prudential and its core operating entities continue to reflect the insurer's excellent business risk profile and very strong financial risk profile. We view Prudential's operating outperformance against its peer group of global multiline insurers to be sustainable, owing to its profitable positions in chosen global markets where we see highly favorable business conditions. Resilience against financial headwinds is also another differentiating factor for Prudential: We expect a healthy return on equity of greater than 13% and a life new business margin of above 5% in 2016-2018. Prudential's extremely strong, albeit declining, capital redundancy sustains the ratings, in our view, although we have some concerns about risks not accounted for in our capital model, including interest-rate volatility and quality of capital. Under our base-case scenario, we expect Prudential will safeguard its extremely strong capital adequacy in 2016-2017. Another strength of the financial profile is the insurer's flexibility: We assume financial leverage of below 20% and fixed-charge coverage of above 8x, continuing to underline ongoing prudent leverage.

We have reassessed enterprise risk management (ERM) at Prudential and believe that some of the components around strategic risk management are undergoing further development to centralize risk reward frameworks in the context of capital and asset allocation. Subsequently, we revised our ERM score to adequate with strong risk controls from strong. However, the score change for the rating modifier does not have any negative rating implications as it is counterbalanced by our assessment of strong management and governance.

Since all of PAL's assets and liabilities have been transferred to PAC, we have discontinued our 'AA' ratings on PAL. The financial strength and counterparty credit ratings on PAC (AA/Stable/--) are unaffected.

The stable outlook reflects our expectations that Prudential's management will safeguard the insurer's extremely strong capital adequacy and healthy balance sheet, despite challenges from ongoing low interest rates and a potential U. K. business environment slowdown.

Though unlikely at this stage, we could consider lowering the ratings on Prudential and its core operating entities over the next two years if:Capital adequacy weakened to or below the 'AA' level on a prolonged basis, which might occur if financial discipline is not maintained or capital generation does not keep pace with ongoing business growth; Prudential's operating performance is protractedly below the level we would expect for an extremely strong competitive position; orBusiness conditions in the U. K. deteriorated, against our expectation of stability, over the next two years.

We see any positive rating action as a remote scenario over the next one to two years.