View from City Road: Pru will not pay too high a price

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The Independent Online
Prudential Corporation cheerfully conceded it was persona non grata in the insurance industry yesterday, following its decision to shoulder the cost of the new 3 per cent tax on general insurance premiums rather than pass it on to customers. With his customary brisk decisiveness, Mick Newmarch, the chief executive, only about an hour after the Chancellor sat down, said the Pru would try to absorb the cost.

Yesterday, rivals were muttering darkly that Mr Newmarch had failed to think the issue through. The Pru says its move was discussed by its directors. It is making no commitment to absorb further increases in the tax.

Taking on an additional cost of 3 per cent is no small sacrifice. Insurers have consistently failed to make any insurance underwriting profit over the past 15 years, relying on investment income to bail them out.

For the Pru, though, the pounds 10m-a- year cost is small compared with its life and pensions business. In contrast, Sun Alliance, the largest general insurer, will have to collect pounds 60m. The only company to follow the Newmarch lead so far is Pearl, the Pru's traditional rival in the home service market and, like Prudential, predominantly a life and savings company.

There may, though, be relief at hand. After a good 1993, insurance rates may ease next year. So it may be easy to hide a small additional cost without outsiders being any the wiser.