Pru's fears for British investment


New rules 'may force Pru from UK'

You might think the Arsenal-supporting chief executive of the Prudential has nothing much to complain about.

Arsenal snatched victory last night in the 95th minute. And the 160 year-old insurer, that specialises in savings, has announced a sharp increase in profits and the value of assets, its share price is up and the group has none of the post-crisis structural challenges of its City colleagues the banks.

But Tidjane Thiam is a worried man: he fears that new rules emanating from Brussels, that go by the unappetising name of Solvency ll, will damage the value of millions of British people's pension savings and make it prohibitively expensive for the Pru to keep its home in Britain.

The problem with these rules, he says, is that they force the Pru, other life insurers and pension schemes to make sure they have enough capital to protect themselves against sharp falls in the market value of their assets, even though their liabilities stretch out over 25 years.

Tidjane Thiam, Prudential chief executive: "It's a problem we wish we didn't have"

The rules would both force the Pru to hold more expensive capital and discourage it and other institutions like the Pru from making long-term investments. So they would make fewer long-term loans to big companies (they would cut their holdings of corporate bonds) and would invest less in British infrastructure.

If this doesn't sound good for the UK, Mr Thiam would agree.

But the Pru does not have to lie down and take it.

Its most profitable business is now in Asia (where Indonesia is doing particularly well for the Pru). And the Pru could escape the worst effects of Solvency ll by relocating to Asia - which Mr Thiam confirms that the board is actively considering.

Were the Pru to move abroad, that would protect their substantial US business from becoming seriously uncompetitive as a consequence of Solvency ll. Which is probably the main spur to this symbolically significant potential break with a country where the Pru has been a pillar of the financial establishment since the last time there was a British queen who celebrated a diamond jubilee.

But there would be no protecting British savers, whose pensions would be damaged by the Brussels rules, wherever the Pru ends up - unless those rules are reformed before implementation in 2014.

Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 1.

    Pru's an anti-British foreigniser!

  • rate this

    Comment number 2.

    I do wish companies like the Pru would stop whining and get on with their business. It would be very sad to see them go elsewhere and they seem intent on doing it. We can do without unpatriotic companies like these. Everyone should start taking their money out and reinvesting it in a British equivalent.

  • rate this

    Comment number 3.

    Pension fund managers at Pension Providers work on an investment horizon of months, maybe 1 or 2 years, since their most important motivation is to get big bonuses (in the broken UK system, pension providers need not worry about loosing customers).

    Their customers have investment horizons of 10, 20, 30 years.

    Without EU regulations, customers would be even more blantantly ripped-off.

  • rate this

    Comment number 4.

    I'm astounded that there is only one irrelevant comment. Could it be that the gov. know what to do to thwart the ill effects of this proposed rule which as it stands is aimed directly at the UK with a view to weakening its financial position. What do we need in the UK long term investment this new law would rule out any chance of the pension/insurance funds contributing much to this .

  • rate this

    Comment number 5.

    If I understand the situation The Prudential used to be a good upstanding pillar of the UK business community.
    A few decades ago it got smart.
    It saw the way to make money was to take risks.
    Fast forward to the present day. Now the EU is doing the work of the gutless UK government and banning those investment strategies.

    So The Prudential is off to where it can take those risks.
    With our money...


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