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September 2016

In This Issue

  •          Brexit: how might it affect UK mutuals?
  •          AFM Conference
  •          Mutual Deferred Shares
  •          Member News
  •          Corporate governance in mutuals
  •          Mutual insurance in the 21st century

 

Out on a limb: how might Brexit affect UK mutuals?

The UK's exit from the European Union continues to dominate the news, and the constant speculation about how and when it will be delivered, and whether that leaves the UK exposed and out on a limb, are better left to others.  

Our natural inclination as mutuals is to keep our heads down and continue business as usual: there is more than enough on the agenda already.  And, as organisations that do not generally trade directly outside the UK, the major business impacts are the consequences for the wider economy- such as on prosperity, employment, interest rates and the NHS, and on the future shape of regulation. 

But Brexit also means thinking about the opportunities presented to Uk consumers and firms; in particular, what scope it presents for a stronger UK mutual insurance sector, taking our queue from the Prime Minister.

"I want an economy that works for all, and that means working with... smaller firms... I also want those firms, across all sectors of our economy, to be able to take advantage of the opportunities presented by Brexit" Rt Hon Teresa May MP, 4 August

We have been exploring whether the nature of financial regulation might begin to evolve once Article 50 has been served.  After all, most financial services companies- and nearly all mutuals- only serve UK customers, so the need for the rulebook to mirror that in Europe is important only where that serves to achieve the highest levels of consumer protection, as well as efficient and competitive markets.  AFM is writing to Treasury to explore this further.

Coincidentally, the Treasury Select Committee has launched a new inquiry into EU insurance regulation, and Solvency 2 in particular.

"Brexit provides an opportunity for the UK to assume greater control of insurance regulation.

‘The Solvency II Directive came into force in January, only after a heap of concerns had been expressed about it. Among its manifest shortcomings was the failure to secure value for money over its implementation.

‘The Treasury Committee will now take a look at the Brexit inheritance on insurance to see what improvements can be made in the interests of the consumer." Rt Hon Andrew Tyrie MP, Chairman of the Treasury Committee, 13 September

Our Associate member Hogan Lovells held a webinar for AFM members on the implications of Brexit for insurers.  For those that missed it, a recording of the webinar will be available soon, and the subject will be explored  in greater detail in the opening session of this year's AFM conference...

 

AFM Conference and AGM

The AFM Conference and AGM will this year be held in Stratford upon Avon on 10 and 11 October.  Full details of the event can be found on our dedicated website.

The conference venue has just completed an extensive refurbishment, and in recognition from this month it will be upgraded to the Crowne Plaza Stratford upon Avon.  I can't claim that is entirely to reflect our event, though with high levels of registration for the event, attendees should take care not to be confused by the new branding and more sumptuous decor!

I can though promise a programme to match the elevated status ofthe venue, with our fullest and most vibrant agenda yet.

 

New developments in the creation of Mutual Deferred Shares

Since the Mutual Deferred Shares Act was passed in March 2015, we have been looking forward to the launch of a consultation and draft secondary legislation from Treasury.  That consultation has now emerged, along with accompanying proposals from the Financial Conduct Authority, on selling deferred shares to retail customers.

This new momentum is very welcome, and the tone of the consultations provide reassuring comfort that Treasury and FCA are holding close to Parliament's will, to see Mutual Deferred Shares become a reality.

The deadline for responding to the Treasury consultation is 30 September, and we've been taking careful soundings on this.  Our response as a result will welcome the progress made, explore some areas for further clarification, but also highlight some potential showstoppers that need resolution, including the tax consequences for a mutual issuing deferred shares.

Treasury is organising a meeting in the near future with all the interested parties to help pave the way for parliamentary approval of the legislation, with the possibility that the first issue of mutual deferred shares could happen in 2017.

 

AFM member news

As always, there's lots of news from amongst our members, with stories this month from British Friendly, PG Mutual, The Exeter, Scottish Friendly and Foresters Friendly Society. 

To read all the stories, click here.

And to view the latest sector statistics, follow this link​.

 

Corporate governance in mutuals

Earlier this month AFM completed its annual Corporate Governance Report.  The report relies on the compliance exercise undertaken by members with the Annotated Corporate Governance Code (the Code).  Results again this year showed a high commitment from members to embracing good practice in governance.

Looking at the report and accounts more generally, the median length of report has grown to 67 pages, with many companies make great efforts to make their accounts more engaging and informative.  Others have been slower to modernise reporting standards, and with a greater focus on audit and accountability, more work will be needed in the future.

Meanwhile, we know this is an area the regulators continue to focus on, and PRA has recently started an exercise to explore differences in approach amongst smaller insurers.  In particularly the PRA has indicated it is interested to witness how mutuals ensure their AGM is effectively run and productive, and how this helps ensure the board is fully accountable for the way it operates.

AFM is committed to helping members maintain high standards of governance, and we will be unveiling at this year's AFM conference a number of new initiatives to support NEDs.

 

Mutual insurance in the 21st century: back to the future?

This is the title of a new Sigma report by Swiss Re, which AFM was pleased to support.  The report charts the recent growth of the sector in many countries and considers what may be needed to build on that success.  Amongst its conclusions are:

"Following a period of decline, the mutual sector has embarked on a modest revival in recent years. It would be unfortunate if new post-crisis prudential and governance regulations were to place some mutuals at a competitive disadvantage. 

Some countries are looking at ways to foster mutuality through proportionality in applying regulations as well as allowing innovative mutual-specific capital instruments. 

Digitialisation is fundamentally changing insurance and while some mutuals are actively gearing up, others have been slow to adapt. Exploiting digital technology should be a natural fit for mutuals focused on meeting the long-term needs of their members." 


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