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.
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.
Source: Bloomberg