Prudential warns EU solvency regime could destroy its US business

Britain’s largest insurer, Prudential, has warned that the EU’s strict Solvency II capital regime for insurers could destroy its lucrative US business if EU regulators do not recognise US capital rules as equally rigorous.

Prudential chief executive Tidjane Thiam said: “I can tell you, fighting US competitors who don’t have to worry about Solvency II, we just won’t have a market, we won’t be able to sell any products at all. We think that the US is a reasonable place, and that they have a reasonable solvency regime, and all we want is for the EU to accept that.”

Prudential warned last month that it could move its headquarters out of London to escape Solvency II.

The rules, due to come into force in 2014, could oblige European insurers to hold extra capital against operations in countries with more lenient regimes, making it more difficult for those units to compete with local rivals.

No decision has been taken on whether the US rules are on a par with Europe’s. European insurers with big US operations, includeAegon, Axa, Allianz, and ING, will be allowed to operate as normal for five years from Solvency II’s introduction while regulators assess how compatible the two regimes are.

Netherlands-based Aegon has previously warned that Solvency II might force it to quit the EU, while London-based Old Mutual has said the disposal of its US life insurance business last year was partly triggered by the new rules.

Prudential, which gets about 45% of its sales in Asia, made an operating profit of €2.38bn.

The improvement was driven by Prudential’s Asian division, which was for the first time the biggest contributor to group earnings with their profit up 32%.

The 164-year-old insurer has prioritised Asia, using cash generated by its mature British business to fund expansion across the region, where robust economic growth has fostered a rising middle class with strong appetite for life insurance and savings products.