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
    +1

    Comment number 35.

    32.Nan

    If businesses themselves are not "good, fair and balanced" then they may be driven off. And good radiance.

    Businesses will prefer less regulation. Natural enough, but not reason enough to forego regulation here.

  • rate this
    0

    Comment number 34.

    22 Comrade O, that is the thrust of the Pru's point - that subject to the EUs rules their operations in the US or elsewhere with different capital requirements would be at a disadvantage to local competitors not subject to these rules. It is the challenge of globalisation , does this lead to mercantilism or dictatorship - the post democratic challenge.

  • rate this
    +1

    Comment number 33.

    I'm an ISA and haven't used Pru in donkeys years. They have very little product coverage in the UK retail market. What they have is dated and uncompetitive. The is a distinct lack of interest in the UK by them.

    Perhaps the larger concern is whether the Pru have the money to satisfy solvency II, make the required investment to their lesser markets as well as their emerging ones.

  • rate this
    +1

    Comment number 32.

    Good, fair and balanced legislation should not drive any business out of any country.

    The more legislation, the more cost - and the more the number of companies that will leave the EU.

    No more rules from the EuroDisney Zone. Please just give us a Referendum.

  • rate this
    +1

    Comment number 31.

    What worries me more about the insurance cos are not the required capital ratios but what they are invested in and what many will depend on for their pensions.

    Following dismal returns for equities they are now heavily overwieght in sovereign debt - prices in this market is a bubble just waiting to burst.

  • rate this
    +1

    Comment number 30.

    29. How would it rip off Asia?
    Asia and the US wont have Solvency II rules therefore Insurers there wont need to hold Solvency II capital, unless their head office is based in the EU as the Pru is. Holding extra capital will push the cost of annuities up making it more expensive for consumers.
    Solvency II is going to cause annuities in the EU to become much more expensive.

  • rate this
    +2

    Comment number 29.

    25. Nut, Are you an auditor? I think not. You constantly parade this 'unaudited' nonsense. Was it in the Sun? UKIP perhaps? The big four fixing the market in the UK have nothing to do with transparency or auditing for that matter. Think of them as ratings agencies who can be wined and dined before publication and revert to 'we weren't told' when it all goes south.

    27, okay to rip off Asia then?

  • rate this
    +1

    Comment number 28.

    Solvency II may reduce the returns but at the same time it is likely to reduce risks to the security of pensions. What we have seen is that many pensions investment perform badly with companies taking obscenely punitive administration and so called management charges. That is what regulation should be looking at.

  • rate this
    +1

    Comment number 27.

    Solvency II only applies to Insurers in the EU. Aviva etc don't write business outside the EU so there is no beneift for them from moving outside the EU.

    The Pru UK business wont move only the Group Head Office. The UK business still needs to hold Solvency II capital. The US and Asia businesses would need to hold Solvency II capital if the Group stayed in the EU making them uncompetitive.

  • rate this
    -1

    Comment number 26.

    23. Balls. Now is exactly the time.

    'The EU taxes everything'... unlike giving away taxpayers money to the City you mean? What nonsense. Fine idea the carbon tax, we need to do something, why not lead the way? I know that is an anathema to the UK politicos, if the US does it, then okay. Schengen debate is part of Sarko's electioneering by the way, it has something to do with Le Pen...

  • rate this
    +1

    Comment number 25.

    There are other types of city institutions impacted by this new set of EU rules - not just the Pru.

    We have all seen how the EU handles finance - which is incompetently.

    The EU should apply Solvency II regulations to all (currently insolvent) EuroDisney Zone banks and itself first. When are those 17 years of unaudited accounts going to be audited?

    Why can't these EU rule makers just faff off?

  • rate this
    +3

    Comment number 24.

    23.CB

    Appreciate what you're saying but this isn't about retribution. The pru isn't a bank.

    This regulation is intended to make the business safer, and hence the wider economy too. Here in the UK with our finance-heavy economy that matters even more than the rest of Europe.

    We have seen the effect of financial deregulation. To keep those jobs/taxes means for those companies to not go bust!

  • rate this
    -3

    Comment number 23.

    Problem is job and tax losses incurred for the UK. These are serious numbers and this is not the time to experiment with "let's punish the b*****ds" ideology!
    The EU taxes everything. Carbon tax has set Europe on a collision course with the rest of the world. France wants to dump the EU's Schengen zone. Spain stuck up two fingers over it's budget and Greece never goes away.
    Not exactly success!

  • rate this
    +3

    Comment number 22.

    Whilst you're in my house, you'll live by my rules. If you don't like it, leave.

    The UK provides a massive market for this and many other businesses of all types. I'm sick of the 'anti-business' rhetoric that keeps coming out every time regulations/taxes go the wrong way.

    A decent business should not depend on government. It should be able to survive in the same environment as its competitors.

  • rate this
    +1

    Comment number 21.

    How many start-ups, spin-outs or early stage companies have the Pru funded?

  • rate this
    +2

    Comment number 20.

    Solvency II has been discussed and adapted and delayed a number of times and only now the Pru have decided to put their head above the parapet.
    The Pru are being disingenuous. The sad fact is that Mr Thian and much of his board are not British and have no real ties to the UK. They just need an excuse to make the jump.
    I don't see Aviva, Zurich, Axa or Allianz making the same noises.

  • rate this
    +1

    Comment number 19.

    Prudential! Not prurient? You live and you learn, eh?

    Now I know that, not sure I still want to do business with them anymore. So they may as well leave.

  • rate this
    -1

    Comment number 18.

    I am sick of the financial community believe they can bully the government to get their own way. If they want to move then let them. I think they would find BRIC countries would pose their own challenges.

  • rate this
    +5

    Comment number 17.

    13.... You may have READ it but you don't seem to have grasped it...

    "EU rules are requiring companies to hold less debt"...

    differs in a very important way from

    "EU rules make sure they (companies) have enough capital to protect themselves against sharp falls in the market value of their assets"

  • rate this
    0

    Comment number 16.

    Is there room on the Isle of Man for the Pru?

 

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