Prudential 2012 Annual Report Download - page 89

Shareholder Distributions
Share Repurchase Program
In June 2012, our Board of Directors authorized the Company to repurchase at management’s discretion up to $1.0 billion of its
outstanding Common Stock during the period from July 1, 2012 through June 30, 2013. As of December 31, 2012, 2.7 million shares of our
Common Stock were repurchased under this authorization for a total cost of $150 million. The Company exhausted the Board’s previous
$1.5 billion repurchase authority which covered the prior twelve-month period. During 2012, 11.5 million shares of our Common Stock
were repurchased, for a total cost of $650 million. The timing and amount of any future share repurchases will be determined by
management based on market conditions and other considerations. Repurchases may be effected in the open market, through derivative,
accelerated repurchase and other negotiated transactions and through plans designed to comply with Rule 10b5-1(c) under the Exchange
Act. Numerous factors could affect the timing and amount of any future repurchases under the share repurchase program, including
increased capital needs of our businesses due to opportunities for growth and acquisitions, as well as adverse market conditions.
Shareholder Dividends
On November 7, 2012, Prudential Financial declared an annual dividend for 2012 of $1.60 per share of Common Stock, representing
an increase of approximately 10% from the 2011 Common Stock dividend. On February 12, 2013, Prudential Financial declared a dividend
for the first quarter of 2013 of $0.40 per share of Common Stock reflecting our plan to move to a quarterly Common Stock dividend
schedule in 2013. The table below presents declaration, record, and payment dates, as well as per share and aggregate dividend amounts,
for the Common Stock dividend for the last five years.
Dividend Amount
Declaration Date Record Date Payment Date Per Share Aggregate
(in millions, except per share data)
November 7, 2012 November 20, 2012 December 14, 2012 $1.60 $749
November 8, 2011 November 22, 2011 December 16, 2011 $1.45 $689
November 9, 2010 November 23, 2010 December 17, 2010 $1.15 $564
November 10, 2009 November 24, 2009 December 18, 2009 $0.70 $327
November 11, 2008 November 24, 2008 December 19, 2008 $0.58 $246
Captive Reinsurance Companies
We use captive reinsurance companies in our domestic insurance operations to more effectively manage our capital on an economic
basis and to enable the aggregation and transfer of risks. To support the risks they assume, our captives are capitalized to a level consistent
with the “AA” financial strength rating targets of our issuing insurance entities. All of our captive reinsurance companies are wholly-owned
subsidiaries and are located domestically, typically in the state of domicile of our direct writing entity that cedes business to the captive. In
addition to governance by U.S. regulators, our captives are subject to internal policies governing their activities. In the normal course of
business, Prudential Financial provides support to these captives through net worth maintenance agreements and/or guarantees of certain of
the captives’ obligations.
Our domestic life insurance subsidiaries are subject to a regulation entitled “Valuation of Life Insurance Policies,” commonly known
as “Regulation XXX,” and a supporting guideline entitled “The Application of the Valuation of Life Insurance Policies,” commonly known
as “Guideline AXXX.” The regulation and supporting guideline require insurers to establish statutory reserves for term and universal life
insurance policies with long-term premium guarantees that are consistent with the statutory reserves required for other individual life
insurance policies with similar guarantees. Many market participants believe that these levels of reserves are non-economic. We use captive
reinsurance companies to implement reinsurance and capital management actions to satisfy these reserves requirements, including
financing the non-economic reserves through internal and external solutions. See “—Financing Activities—Subsidiary borrowings—
Financing of regulatory reserves associated with domestic life insurance products” below for additional information on our financing
activities related to Regulation XXX and Guideline AXXX.
We reinsure living benefit guarantees on certain variable annuity and retirement products from our domestic life insurance companies
to a domestic captive reinsurance company, Pruco Reinsurance, Ltd., or Pruco Re. This enables us to execute our living benefit hedging
program primarily within one legal entity, Pruco Re. As part of the living benefit hedging program, we enter into a range of exchange-
traded and over the counter equity and interest rate derivatives to hedge certain optional living benefit features accounted for as embedded
derivatives against changes in certain capital market conditions such as interest rate and equity market exposures. For a full discussion of
our living benefits hedging program, see “—Results of Operations for Financial Services Businesses by Segment—U.S. Retirement
Solutions and Investment Management Division—Individual Annuities.” We believe Pruco Re maintains an adequate level of capital and
liquidity to support this hedging program. However, as discussed below under “Liquidity associated with other activities—Hedging
activities associated with living benefit guarantees,” Pruco Re’s capital and liquidity needs can vary significantly due to, among other
things, changes in equity markets, interest rates, mortality and policyholder behavior. Through our Capital Protection Framework, we
maintain access to on-balance sheet and contingent sources of capital and liquidity that are available to meet any needs as they arise.
We reinsure 90% of the short-term risks of Prudential Insurance’s Closed Block Business to a captive reinsurance company domiciled
in New Jersey. These short-term risks represent the impact of variations in experience of the Closed Block that are expected to be
recovered over time as a result of corresponding adjustments to policyholder dividends. The reinsurance arrangement is intended to
alleviate the short-term surplus volatility within Prudential Insurance resulting from the Closed Block Business, including volatility caused
by the impact of any unrealized mark-to-market losses and realized credit losses within the investment portfolio. In October 2011, in
connection with the Closed Block reinsurance arrangement, we entered into a $2 billion letter of credit facility with certain financial
institutions, pursuant to which the New Jersey captive can obtain a letter of credit during a 3-year availability period to support its funding
obligations under the reinsurance arrangement. Prudential Financial guarantees all obligations of the New Jersey captive under the facility,
including its obligation to reimburse any draws made under a letter of credit. Because experience of the Closed Block is ultimately passed
along to policyholders over time through the annual policyholder dividend, we believe that any draw under a letter of credit is unlikely. Our
ability to obtain a letter of credit under the facility is subject to the continued satisfaction of customary conditions similar to those described
under “Credit Facilities” below.
Prudential Financial, Inc. 2012 Annual Report 87