Prudential’s share buyback programme could narrow capital buffer

The buyback accounts for 11.2% of Prudential's 2023 reported shareholders' equity, 

S&P Global Ratings believes that “Prudential will continue to leverage its strong position in key markets to support profitable growth and value generation.”

However, its recent news of the share buyback could narrow Prudential's capital buffer. 

Prudential PLC has announced a $2.0b share buyback programme on 23 June along with additional guidance on free surplus deployment. 

Despite a potential dilution of its capital buffer, the insurance group is expected to maintain a robust financial profile.

The stable outlook labelled by S&P Global on the insurer reflects the expectation that Prudential will sustain its competitive advantage and very strong financial risk profile as it expands in Asia and Africa over the next two years. 

The ratings could be downgraded if the group's capital and earnings significantly deteriorate due to aggressive business expansion or declining profitability. 

Conversely, an upgrade could occur if Prudential's risk-adjusted returns consistently surpass those of its regional and global peers.

Following the completion of the share buyback, Prudential aims to maintain a free surplus ratio between 175% and 200%, down from 242% as of 31 December 2023. 

The buyback, which accounts for 11.2% of Prudential's 2023 reported shareholders' equity, might narrow its capital buffer. 

However, Prudential is expected to leverage its strong market position to support profitable growth and value generation, as evidenced by a 43.1% increase in new business profits in 2023. 

Prudential's expansion in developing markets across Asia and Africa may introduce some uncertainties regarding capital utilisation.