Prudential Signals Cut Back in U.K. Annuity Business on Returns

  • Prudential CFO says capital better deployed elsewhere
  • Prudential says strategy, dividend unchanged from Solvency II

Prudential Plc signaled it may start to cut back its annuities business in the U.K., saying the extra capital required under new European insurance regulations may be better deployed elsewhere.

New laws require insurers to hold more reserves than previously against certain risks such as annuities. Britain’s largest insurer reported a Solvency II ratio of 190 percent on Tuesday, meaning it has almost double the amount of capital required by the regulator to withstand a one-in-200 year shock.

“I don’t see us sustaining these levels” in U.K. annuities, Chief Financial Officer Nic Nicandrou told investors at a conference in London. “It’s a lot of work when we can deploy that capital elsewhere” and get a much higher return.

Prudential is the first of Britain’s insurers to disclose its capital strength under Solvency II which came into force in the European Union this month and has cost the U.K. industry at least 3 billion pounds to be compliant. Most firms including Aviva Plc and Legal & General Group Plc, which also sell annuities, will disclose their ratios when they report full-year earnings.

Solvency II has a “modest impact” on capital in the U.K. while the U.S., Asia and its asset management businesses were unaffected, Nicandrou said. Prudential’s strategy and dividend policy are unaffected by the new regulations, he added.

Sales of individual annuities in the U.K. have slumped since the government changes to the pension system gave retirees greater freedom with their savings in its 2014 budget. Insurers responded by ramping up their corporate pensions business to offset declines of more than 50 percent.

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