Prudential, the country's No. 1 insurer, warned the European Union's strict Solvency II capital regime for insurers could destroy its lucrative American business if EU regulators do not recognise U.S. capital rules as equally rigorous.

I can tell you, fighting U.S. competitors who don't have to worry about Solvency II, we just won't have a market, we won't be able to sell any products at all, Prudential Chief Executive Tidjane Thiam told reporters on Tuesday.

We think that the U.S. is a reasonable place, and that they have a reasonable solvency regime, and all we want is for the EU to accept that.

Prudential warned last month that it could move its headquarters out of London to escape Solvency II if Europe does not give the U.S. capital regime equivalent status.

The rules, due to come into force in 2014, could oblige European insurers to hold extra capital against operations in countries with more lenient regimes, making it more difficult for those units to compete with local rivals.

No decision has been taken on whether the U.S. rules are on a par with Europe's. European insurers with big U.S. operations, who also include Aegon, Axa, Allianz, and ING, will be allowed to operate as normal for five years from Solvency II's introduction while regulators assess how compatible the two regimes are.

Netherlands-based Aegon has previously warned that Solvency II might force it to quit the EU, while London-based Old Mutual has said the disposal of its U.S. life insurance business last year was partly triggered by the new rules.

Thiam's warning came shortly after Prudential met forecasts with a 7 percent increase in its 2011 profit, helped by continued strong growth at its flagship Asian operation.

Prudential, which gets about 45 percent of its sales in Asia, made an operating profit of 2 billion pounds last year, it said on Tuesday, in line with the consensus forecast of analysts polled by the company.


The improvement was driven by Prudential's Asian division, which was for the first time the biggest contributor to group earnings with a profit of 709 million pounds, up 32 percent.

Prudential's U.S.-based Jackson National Life business made a profit of 694 million pounds.

The 164-year old insurer has prioritised Asia, using cash generated by its mature business to fund expansion across the region, where robust economic growth has fostered a rising middle class with strong appetite for life insurance and savings products.

A positive statement with a healthy focus on Asia. Still a great story, analyst Eamonn Flanagan at stockbroker Shore Capital wrote in a note.

Prudential shares, which were trading about 1 percent higher before publication of the group's results, were up 1.6 percent at 1100 GMT, narrowly outperforming a 1.4 percent rise in the Stoxx 600 European insurance shares index.

The stock has risen 12.7 percent since the beginning of the year, just shy of the index's 13 percent rise.

Thiam, who became Prudential CEO in 2009 and oversaw a failed $35 billion bid for Asian rival AIA the following year, said any decision to redomicile would be driven purely by Solvency II, and would not reflect dissatisfaction with the country.

This is not a debate about London, it's a debate about things that are happening in Brussels, he said.

We love the UK, we're a British company and we've been here for 160 years, and without Solvency II we would not be having this debate.

There has long been speculation that Prudential could move to Hong Kong, irrespective of Solvency II, in recognition of its growing focus on Asia.

A move eastwards could be accompanied by a break-up of the group, advocated by some analysts who reckon the combined standalone value of its units exceeds that of the business as a whole.

However, sector-watchers say splitting the insurer would have to wait until the Asian business is capable of funding its own growth, a milestone Prudential expects to reach by the end of 2013.

(Reporting by Myles Neligan; Editing by Sudip Kar-Gupta and Elaine Hardcastle)