Prudential may move outside EU to avoid new capital rules

http://www.guardian.co.uk/business/2012/may/09/prudential-move-eu-capital-rules

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Prudential says it may relocate outside the EU to escape tough capital rules.

Britain's biggest insurer, which made 88% of its profit outside Europe last year, warned in February that it might move because the solvency rules would force its US business, Jackson National Life, to hold more capital than local rivals, making it uncompetitive.

"We cannot say the issue is behind us," the company's chief executive, Tidjane Thiam, said as he reported a 9% increase in sales from strong growth in Asia. "We hope for the best but we do have to have some contingency planning in place. He added that Prudential would probably move to Asia if it did not win concessions.

"What we want them to say is that the US has a good solvency regime so that we don't have to change the way we run our business," Thiam said. "They can resolve this with the stroke of a pen."

The Solvency II rules, due to come into force in January 2014, pose a similar threat to other European insurers with major US operations such as Allianz and Axa.

No decision has yet been taken on whether US regulations are compatible with Solvency II, and companies affected are expected to get a five-year grace period if the issue has not been settled by the implementation deadline.

The new regime is designed to make insurers hold capital reserves in strict proportion to the risks they underwrite, and is expected to usher in stricter requirements for much of the industry.

Prudential also reported a better-than-expected 9% increase in its first quarter sales, with continued strong growth at its flagship Asian business offsetting a downturn in its home market.

Prudential, which generates half its sales in south-east Asia and wants more growth in the booming region, had total sales of £964m ($1.56bn) in the three months to March, ahead of the £934m pencilled in by analysts in a company poll.

The company's first quarter new business profit – the present value of expected future earnings from sales achieved during the period – was £536m, up 8% compared with last year, and ahead of the £514m expected by analysts.