The disclosure about the provision came as a row broke out between Royal & Sun Alliance, the composite insurer, and the Personal Investment Authority over the company's alleged failure to meet its own compensation deadlines.
A company spokesman said that it had compensated everyone it possibly could, and added that it submitted figures to the PIA yesterday demonstrating that it had achieved its target in accordance with its previously submitted plan. The PIA, however, denied this.
Meanwhile, the Prudential said about pounds 35m of the increase in the mis- selling provisions from the previous figure of pounds 240m had been caused by last month's Budget changes in the tax treatment of dividends. A further part of the increase came from Prudential's decision to offer no-quibble guarantees of compensation to its policyholders.
At the end of May, the Pru had made offers in 3,000 of its 59,000 cases so far identified, a figure that had since risen to 16,000, some 30 per cent of the total.
Sir Peter Davis, group chief executive at Prudential, said: "We have taken the view that this was a situation we were not prepared to duck any longer.
"Clearly, this was a matter of obvious concern to policyholders. But since the provision comes from our life fund, statutory profit will not be affected. Nor will policyholders' bonuses be affected," Sir Peter pledged.
His comments came as profits for Prudential UK grew from pounds 170m 1996 to pounds 197m in the first six months this year. Returns at Jackson National Life, the US arm rose from pounds 153m to pounds 176m.
Sir Peter said: "We have a clear strategy to concentrate our energy and resources in developing our businesses in the United Kingdom, US, Asia, New Zealand and Australia.
"So far this year, we have agreed to purchase Scottish Amicable, bought a strategic stake in St James' Place Capital, acquired NZI Life in New Zealand and arranged to sell our small Italian business."
Prudential Banking, the telephone mortgages and savings operation launched in October last year, has attracted pounds 250m in mortgage applications and pounds 274m in deposits. In July alone the company fielded mortgage applications worth pounds 50m, Sir Peter said.
However, he added that the company's long-term aim of finding a developing a branch network through a suitable building society acquisition has been temporarily placed on the back-burner.
Prudential is not prepared to pay the high prices being demanded in the wake of the Halifax, Woolwich and Alliance & Leicester flotations.
Although he confirmed that the Pru had been in talks with other companies, Sir Peter refused to be drawn on reports that these had included National Westminster Bank.
Dividends were raised yesterday by 10.3 per cent to 6.4p per share.
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