Quitting Britain back on the Prudential’s agenda as new capital rules loom

The Prudential, which only generates around 20 per cent of its cashflow in the UK, could be one of the hardest hit by the EU rules

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The Prudential, Britain’s biggest insurer, has dusted off plans to uproot after 167 years and move abroad to combat incoming European Union rules on capital buffers for insurance companies.

An internal report by the group on how to deal with the rules has proposed splitting its British business from its Asian and American operations.

While no decision has been taken by the company, led by US-born chief executive Mike Wells, this would open the door to shifting the company’s domicile to Hong Kong or Singapore from London.

British insurance companies are scrambling to comply with the new EU capital rules, known as Solvency II, which come into force in January.

Splitting the group into UK and non-UK divisions is just one option under consideration by the Prudential. Management are also thought to be considering riding out the new capital rules and keeping the group together.

“It’s not impossible to [relocate overseas] and other companies have done it,” said Panmure Gordon analyst Barrie Cornes said. 

“Whether they’re sabre rattling or determined to leave is a hard one to call, but it’s one they could definitely do.”

City watchdog the Prudential Regulation Authority is working with British insurers including the Prudential, Legal & General, Aviva and Standard Life – as well as a host of smaller companies – to get them ready for the new regime.

The Prudential, which only generates around 20 per cent of its cashflow in the UK, could be one of the hardest hit by the EU rules even though it makes  most of its money outside Europe. “The UK can only drag them down in Asia, especially Solvency II,” said the boss of a another UK insurer, who wanted to remain anonymous. “They can do it and they probably will. Solvency II will give them the impetus to do it.” 

Another insurance chief executive, who also wished to speak off the record, said: “Most of the big UK players are focused domestically but their situation is unique. However, the Prudential Regulation Authority does not have a lot of room to manoeuvre.”

A demerger of the FTSE 100 group, famed for the “Man from the Pru” advertising campaign, would end the group’s historic association with London, home to its  original grand Victorian terracotta offices.

“London, our historic home, remains a very attractive place to be domiciled,” the Prudential said in a statement. “We have always said that, as a large, international group, we regularly look at the structure of our business to ensure it remains optimal.”

Plans to up sticks from London were originally floated three years ago by former chief executive Tidjane Thiam.

Mr Thiam, who recently left to join Credit Suisse, had warned of the “unintended consequences” of Solvency II and cautioned that the rules would make it difficult for the group to invest in assets such as infrastructure.

Solvency II will come into force in January but insurers will be given the results in mid- December, which could spark a range of measures in the sector to respond to the Prudential Regulation Authority’s recommendations on capital.

Companies are still waiting for clarity on so-called transitional deductions on their technical provisions, which will apply over a 16-year period. They are said to be a key focus for the industry.

Whether they’re sabre rattling or determined to leave is hard to call, but they could definitely do it