Prudential Can’t Compete in U.S. With Euro Rules, CEO Say

Prudential Full-Year Profit Rises 7%
The Prudential Plc company headquarters are seen in London. Photographer: Chris Ratcliffe/Bloomberg

Prudential Plc won’t be able to compete in the U.S. under the current draft of Europe’s Solvency II regulations, which may force the U.K.’s biggest insurer to leave Britain, Chief Executive Officer Tidjane Thiam said.

“The U.S. is a reasonable place, with a reasonable solvency regime and we all want the EU to accept that,” Thiam, 49, said on a conference call with reporters today. “If it doesn’t, then it will ask us to run our businesses in the U.S. on a Solvency II basis, and I can tell you fighting U.S. competitors who don’t have to do that -- we just won’t have a market. We won’t be able to sell any products at all.”

European Union insurers may have to hold more capital within their U.S. divisions under Solvency II. Prudential, which gets 35 percent of its revenue from the U.S., is threatening to move its headquarters outside the U.K. to avoid the new rules, which will be adopted next year ahead of full implementation in 2014. Competitors with American business such as Allianz SE, Axa SA, and Aegon NV are also lobbying the EU to change the rules to exempt insurers’ operations in the U.S., Thiam said.

The company’s board is reviewing Prudential’s domicile as a precautionary measure, the insurer said today in a statement. Due to the uncertainty around Solvency II, the insurer can’t say when it will reach a decision, Thiam said.

Prime Minister David Cameron and London Mayor Boris Johnson support Prudential staying U.K.-based. Cameron said last week that the rules are “ill thought-out,” and he would pressure the EU to change tack.

British Company

“This is not a debate about London at all,” Thiam said. “It’s a debate about things that are happening in Brussels. We love the U.K. We’re a British company. We’ve been here for 150 years. Without Solvency II we would not be having this debate.”

Prudential also reported earnings today. The insurer’s shares rose 4.8 percent in London trading after 2011 profit beat analysts’ estimates, with the company’s Asian business becoming the largest contributor to earnings for the first time.

Operating profit rose 7 percent to 2.07 billion pounds ($3.2 billion) in the 12 months to Dec. 31, surpassing the 2.02 billion-pound median estimate of 13 analysts surveyed by Bloomberg. Net income increased 4 percent to 1.49 billion pounds for the year, Prudential said.

“The numbers look good due to high growth in Asia,” said Marcus Barnard, a London-based analyst at Oriel Securities Ltd. with a “buy” rating on the stock. “The shares continue to offer good value.”

‘Optionality’ Stock Boost

Prudential is “on track” to meet its self-imposed cash and capital generation targets for 2013, Thiam said. Once those targets are achieved, there will be the “optionality” to break up the insurer, whose divisions include the U.K., U.S., and Asian arms and the fund-management unit, he told analysts at a presentation in Kuala Lumpur in November.

“When you have an option, the market recognizes that and puts it in your price,” Thiam said today. “To jump from that to say the group will be broken up is a mistake. We cannot predict what we will do in two or three years. We’ll do whatever creates the most value.”

Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc.

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