Strong balance sheet

Prudential Financial (PRU) estimates its balance sheet capital capacity to be $757 billion as of December 31, 2015. The company’s cash and short-term investments, excluding outstanding commercial paper, stood at $3.8 billion.

The company has maintained $1.3 billion in excess liquidity to repay maturing operating debt, to fund operating needs, and to deploy overtime for strategic and capital management purposes.

Why Prudential’s Deleveraging Is Beneficial in Weaker Markets

AIG (AIG) has a price-to-book value ratio of 0.8x, and ACE (ACE) has a price-to-book value ratio of 1.1x. AIG, ACE, Allstate (ALL), and Chubb (CB) form 0.63% of the iShares MSCI ACWI ETF (ACWI).

Deleveraging

Prudential Financial’s operations fell in 4Q15 due to lower insurance business in the US market and an unfavorable exchange rate. In 2015, the company deployed more than $2 billion in dividends and share repurchases. The capital generated by its core operations expanded in 4Q15, backed by positive impact from interest rates and lower benefits and expenses.

Prudential’s long-term debt-to-equity ratio fell to 33% as of December 31, 2015, compared to 35% as of December 31, 2014.

Capital requirements

An insurance company’s capital requirements are stipulated by regulatory bodies. Insurance companies must maintain capital in the form of liquid assets to pay unexpected large claims. In the United States, insurers are required to maintain risk-based capital.

The risk-based capital ratio is calculated as the ratio of capital available to an insurer to the required capital. Prudential Financial’s balance sheet and strong risk management have led to a smooth expansion of its global operations. Its risk-based capital ratio as of December 31, 2015, was 5x, above the target of 4x.

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