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Prudential rides high on Asian profits

Insurer keeps relocation option open to sidestep Solvency II norms

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New business profits at insurer Prudential went up by 13 percent to £1.74 billion for the first nine months of the year with an implied margin of 56.5 percent, according to a trading statement issued on Wednesday.

Overall, new sales came in at £3.01 billion for the stated period as profit from Prudential's Asian markets was up 15 percent. Its UK and US businesses saw increases of 17 percent and 10 percent respectively.

Prudential reiterated its commitment to expanding in Asia and added that it was on track to achieve ambitious earnings growth targets set two years ago, including a doubling of its 2009 Asian operating profit by 2013.

Recommending a buy rating for Prudential’s shares, Société Générale analyst William Elderkin felt the headlines looked good for the FTSE100 insurer.

“New sales and particularly new business profits were just ahead of market expectation. Furthermore, Prudential’s asset management businesses appear to be doing very well with record net inflows at M&G Investments (acquired by Prudential in 1999), and its capital position is still very solid with a £4.1 billion insurance group directive (IGD) surplus,” Elderkin told CFOWorld.

Following the trading statement, Prudential’s chief executive Tidjane Thiam said the insurer was keeping its options open with regard to quitting the UK and relocating its business outside the European Union to sidestep new capital requirement rules that are currently being considered. Prudential first warned in February that EU's proposed Solvency II norms might force it to move its base from the UK.

In call to analysts, Thiam said, “There were versions of Solvency II that would potentially be very damaging for our shareholders. We have said we needed as contingency planning to consider a re-domicile, and we have to keep our contingency planning going until we have clarity.”

The insurer noted that Solvency II could prove to be a burden on its Jackson National Life unit in the US putting it at a disadvantage against local rivals. Hong Kong is strongly being touted as an alternative base for Prudential but the insurer described the conjecture as “premature.”

Solvency II, originally scheduled to come into force in October, has so far been marred by disagreements between European governments over how it should be applied to life insurers such as Prudential.


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