FT: Insurers weigh benefits of headquarters switch

27 February 2012

For groups based outside the EU, only their operations inside the Union would fall under Solvency II. By contrast, the entire global operations of insurers that have their headquarters in the EU could be caught by Solvency II.

Prudential, the UK’s biggest insurer with a market capitalisation of £18.4 billion, said it might consider relocating in the event of an “adverse outcome” from the Solvency II regime. The statement follows a warning from Aegon’s chief executive, who has previously said the Netherlands-based insurer could re-domicile.

Prudential’s US life arm, Jackson, is an example. Meanwhile, Aegon’s US-based Transamerica arm accounts for 60 per cent of the group’s capital. The worry is such insurers would have to hold extra capital for their international units. “This could leave them at a competitive disadvantage and could even threaten ongoing ownership by a European parent”, says Sonja Zinner, a director at Fitch’s insurance group.

The risk is acute for US operations, as analysts believe European regulators are more likely to consider other important regulatory regimes are equivalent.

By switching its HQ to another continent, an EU insurer’s international operations could in theory escape the rules. But there remains uncertainty about Solvency II. As the plans stand, European regulators will assume international operations are “equivalent” for several years.

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