Prudential 2015 Annual Report Download - page 85

only. To support the risks they assume, our captives are capitalized to a level we believe is consistent with the “AA” financial strength
rating targets of our insurance subsidiaries. All of our captive reinsurance companies are wholly-owned subsidiaries and are located
domestically, typically in the state of domicile of the direct writing insurance subsidiary that cedes the majority of business to the captive.
In addition to state insurance regulation, our captives are subject to internal policies governing their activities. In the normal course of
business we contribute capital to the captives to support business growth and other needs. Prudential Financial has also entered into support
agreements with the captives in connection with financing arrangements.
Our domestic life insurance subsidiaries are subject to a regulation entitled “Valuation of Life Insurance Policies Model Regulation,”
commonly known as “Regulation XXX,” and a supporting guideline entitled “The Application of the Valuation of Life Insurance Policies
Model Regulation,” 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 at a level that exceeds what our
actuarial assumptions for this business would otherwise require. We use captive reinsurance companies to finance the portion of the
reserves for this business that we consider to be non-economic as described below under “—Financing Activities—Subsidiary
borrowings—Financing of regulatory reserves associated with domestic life insurance products.”
We reinsure living benefit guarantees on certain variable annuity and retirement products from our domestic life insurance companies
to a captive reinsurance company, Pruco Reinsurance, Ltd. (“Pruco Re”). This enables us to aggregate these risks within Pruco Re and
manage them more efficiently through a hedging program. We believe Pruco Re currently maintains an adequate level of capital and access
to 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
ensure we have sufficient sources of capital available to meet these needs as they arise, using on-balance sheet capital and maintaining
committed sources of capital. In 2016, we expect to recapture the risks related to our variable annuity living benefit riders that were
previously reinsured to Pruco Re, and begin managing all of the product risks associated with our variable annuities in our statutory
insurance entities. We expect this recapture to reduce the capital volatility associated with our Individual Annuities business.
Through December 31, 2014, we utilized a captive reinsurance company domiciled in New Jersey to reinsure 90% of the short-term
risks of Prudential Insurance’s former Closed Block Business. Effective January 1, 2015, this reinsurance arrangement was recaptured, and
a related $2.0 billion letter of credit facility was terminated on January 2, 2015. This captive structure is no longer necessary due to the
reinsurance of the Closed Block to Prudential Legacy Insurance Company of New Jersey (“PLIC”), effective January 1, 2015. PLIC is a
wholly-owned subsidiary of Prudential Insurance and is not a captive reinsurance company.
Shareholder Distributions
Share Repurchase Program and Shareholder Dividends
In December 2015, the Board authorized the Company to repurchase at management’s discretion up to $1.5 billion of its outstanding
Common Stock during the period from January 1, 2016 through December 31, 2016. Effective January 1, 2016, this authorization
superseded the Company’s previous $1.0 billion share repurchase authorization that was announced in June 2015, covering the period from
July 1, 2015 through June 30, 2016. The timing and amount of share repurchases will be determined by management based on market
conditions and other considerations, including any increased capital needs of our businesses due to, among other things, changes in
regulatory capital requirements and opportunities for growth and acquisitions. 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.
The following table sets forth information about declarations of Common Stock dividends, as well as repurchases of shares of
Prudential Financial’s Common Stock, for each of the quarterly periods in 2015 and for the prior four years.
Dividend Amount Shares Repurchased
Quarterly period ended: Per Share Aggregate Shares Total Cost
(in millions, except per share data)
December 31, 2015 .................................................................... $0.70 $318 3.1 $250
September 30, 2015 ................................................................... $0.58 $265 3.0 $250
June 30, 2015 ........................................................................ $0.58 $265 2.9 $250
March 31, 2015 ....................................................................... $0.58 $267 3.1 $250
Dividend Amount Shares Repurchased
Year ended: Per Share Aggregate Shares Total Cost
(in millions, except per share data)
December 31, 2014 .................................................................... $2.17 $1,005 11.6 $1,000
December 31, 2013 .................................................................... $1.73 $ 810 10.0 $ 750
December 31, 2012 .................................................................... $1.60 $ 749 11.5 $ 650
December 31, 2011 .................................................................... $1.45 $ 689 19.8 $1,000
In addition, on February 9, 2016, Prudential Financial’s Board of Directors declared a cash dividend of $0.70 per share of Common
Stock, payable on March 17, 2016. As a Designated Financial Company under Dodd-Frank, Prudential Financial expects to be subject to
stricter requirements and limitations regarding capital, leverage and liquidity. Our compliance with these and other requirements under
Dodd-Frank could limit our ability to pay Common Stock dividends and repurchase shares in the future.
Prudential Financial, Inc. 2015 Annual Report 83