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
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    Comment number 95.

    At least in the UK you have some access to the political process

  • rate this
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    Comment number 94.

    93.fTP

    Sounds not entirely dissimilar to the UK, US, ...

  • rate this
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    Comment number 93.

    The EU plays lip service to the democratic process. Its institutions are not representative and they represent the basic tyranny of Europe's educated bureaucratic classes e.g grads of Institut d'études politiques de Paris. Indeed, no matter how citizens vote, EU bodies have a vested interest in centralising power bec, in doing so , they incr their power, prestige and ultimately their futures

  • rate this
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    Comment number 92.

    It is quite obvious that we have zero influence in a Europe who's strategy seems increasingly aimed at destroying UK financial strength, as it polarises around German political ambition and French centralist protectionism. The benefits of being in this insular grouping have long been outweighed by the costs of this increasingly third-world organisation. Time to cut loose, I think?

  • rate this
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    Comment number 91.

    "The Commission has produced proposals to meet what people asked for"

    It has not. Who are the "people" & how on earth did the Commission know what they wanted. There is no process in EU for them to find out. This is a typical defence of actions of Eu institutions who largely act in the self-interest of its institutions or Comm's power brokers.

 

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