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 Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 15.

    Let me get this right, regulators state that a percentage of pensions are invested in AAA rated bonds, some of these go through the floor as a consequence of poor regulation and the regulators state now that more capital is held as a safeguard?

  • rate this

    Comment number 14.

    The Pru started off selling “industrial branch” insurance policies to the working class, door to door.

    It outsourced 3,000 jobs in 2008, lost the Manchester united shirt sponsorship in 2011 and sold Egg to Citibank.

    As matter of interest anyone know who actually owns this company… is it the US?

    Looks to me like a bit a Sabre rattling.

  • rate this

    Comment number 13.

    How many people commenting have actually READ the article? The Pru wants to be able to make long term investmenbts but Solvency II makes that more difficult because of the increased capital requirements. EU rules are requiring companies to hold less debt. It looks like a classic case of making rules for one size fits all. Actually an EU proposal we should be arguing against.

  • rate this

    Comment number 12.

    Robert, you blogged this 2 weeks ago already? What's changed - are they formally about to make the decision?

  • rate this

    Comment number 11.

    I do love these boards a source of constant amusement with posters that have not got a clue what they are talking about (not all ) making inane comments or statements. I have no connection with the Pru but if you do the slightest bit of research you will find that of all the UK institutions it is one the the strongest and best performing/consistent. GB's pension raid initiated the pensions rot.

  • rate this

    Comment number 10.

    The UK has a different pension market to Europe and this is a "problem" for the EU that must be eliminated in the name of uniformity and equality. Pensions can only be provided by the EU state or their debt at 2% rather than debt with companies like Vodafone at 4-6%. The rules force more gov debt to be held to finance EU deficits. Result = future pensioners get less.

  • rate this

    Comment number 9.

    What was your blog about the other day Robert? "How many cheers for British companies?"... well, hip, hip, hooray for the blackmailers of the UK Financial Services Industry. Perhaps they should think about paying their fund managers a little less and getting rid of performance related bonuses for little or no performance. The face of MNCs, beholden to no-one, only director's pockets.

  • rate this

    Comment number 8.

    If it wants to take risks then it should go wherever someone else is prepared to support a too big to fail pensions industry.

    Not many countries willing to take that one on any more.

  • rate this

    Comment number 7.

    Our pensions are being decimated anyway no matter what we do.

    So what do the Pru want preferential treatment ? I'll bet if they get into trouble in Indonesia they will come screaming for help from the British tax payer.
    Left unregulated the financial services have proven themselves quite adept at not telling how much exposure they Actually have.

    And the stress testing as we have seen is a joke.

  • rate this

    Comment number 6.

    Robert, please discuss the alternative view that there would be protection for British savers, whose pensions would be safeguarded by the Brussels rules.

  • 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...

  • 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 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 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 1.

    Pru's an anti-British foreigniser!


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