Prudential: Announces $2 Billion Capital Return to Shareholders; Shares Undervalued

On June 23, Prudential answered some investor concerns around excess capital with the announcement of a $2 billion capital return to shareholders. The buyback takes advantage of what management considers to be an undervalued share price with $700 million in share repurchases to be completed by the end of this year and the remainder completed over the course of 2025 and to mid-2026. The capital return comes with the announcement of a new metric for monitoring the capital available to distribute to shareholders, the free surplus ratio, which stood at 242% at the end of 2023. This free surplus ratio was made up of $8.5 billion of free surplus, excluding distribution rights and other intangibles, and $6.0 billion of European embedded value required for the life business. In deducting around $389.5 million for the 2023 second interim dividend, and June 23's announced $2.0 billion buyback, we think that the free surplus ratio would stand at around 202%—at the top end of a newly announced 175%-200% preferred range. Free surplus ratio above this range over the medium return, taking into account opportunities for reinvestment, should indicate further capital returns to shareholders.