UK's Prudential May Move to Hong Kong

Prudential, Britain's biggest insurer, is considering moving its headquarters from London to Hong Kong to escape tough new capital rules for European insurers, the Sunday Times reported.

Prudential is concerned a conflict between Europe's Solvency II regime and U.S. insurance regulations could force it to hold billions of pounds of extra capital against its U.S.-based Jackson National Life unit if it remains domiciled in Europe, the paper said.

A Prudential spokesman declined to comment.

Solvency II, due to come into force in 2014, could force European insurers to hold extra cash reserves against subsidiaries operating in countries that have less exacting capital standards.

This extra capital requirement would be waived for countries whose insurance regulations are deemed by European regulators to be equivalent to Solvency II. No decision has yet been taken on whether U.S. capital rules for insurers are compatible.

There has been long-running speculation that Prudential could shift its headquarters to Asia in recognition of the region's large and growing contribution to its growth.

Prudential generates 45 percent of its sales in Asia, and has secondary stock market listings in Hong Kong and Singapore.

The company uses cash from its mature UK business to fund expansion in the booming economies of south east Asia, and in 2010 launched an abortive $35 billion bid to buy local rival AIA, a deal which would have doubled its size in the region.

Prudential will confirm it is reviewing its domicile in its 2011 annual report, the Sunday Times said.

Solvency II is designed to make insurers hold capital reserves in strict proportion to the risks they underwrite, and is expected to lead to an increase in capital requirements for many insurers.

(Reporting by Myles Neligan; Editing by Elaine Hardcastle)