April 2011

Update from the Chief Executive

profile-pictures-shawWelcome to the latest edition of Mutually Yours - the online newsletter from the Association of Financial Mutuals. This newsletter is widely dispersed to AFM members and other interested parties - but do feel free to forward to colleagues, and encourage them to write to to be added to the distribution list.

The 2010 results season is in full swing.  The insurance sector as a whole reported another tough year, as consumer belts are tightened and confidence remains muted.  For general insurance extreme weather, ash clouds and earthquakes contributed to very high claims levels and business disruption, whilst in the life market, savings and pensions levels have struggled to recover from the recent recession. 

The mutual insurance sector has not been entirely spared from these industrywide issues, but it is noticeable that business volumes were much more buoyant amongst many AFM members. The investment the sector continues to make in market-leading products, high standards of service and promoting trust amongst policyholders is really paying off.

As a sector there is continued caution about what the future brings, and further consolidation remains inevitable. But maybe, just maybe, the 19% surge in market share we saw in 2009 will continue for a while to come…

I hope you enjoy reading this month’s edition of Mutually Yours-


If you have any comments, please contact

Also in this edition:

  • The fault lies not in the stars, but in ourselves . . .’ - managing people risk
  • Insurance sector faces shortage of skills
  • RDR - Not our problem - oh but it is! 
  • Market-beating investment returns fro mutuals... again.

Please follow the separate links to these fascinating new articles.  

1. AFM Activity

  • AFM Conference 2011 

The AFM conference this year will be held in Manchester on 3rd and 4th November, at the Palace Hotel. This one-time office of Refuge Assurance has been superbly refurbished in recent years and will provide an excellent venue.

Our bookings website will be open in May; look out for further details then. Any suggestions for speakers or content are very welcome in the meantime. 

  • AFM website/common platform

The AFM Board has agreed work to renew the AFM website,  This work will be undertaken over the next few weeks, and promises to provide an exciting and fresh new look.

This is being accompanied by a review of our consumer dedicated site, The Board considered that AFM should invite members to sponsor the consumer site, with sponsors receiving preferential links to their own website. Whilst review is underway, we suggest that firms that have adopted the Common Platform provide a link from here to the following page of the AFM main site, which is more regularly maintained: Click here

  • New AFM member

I'm delighted to confirm that at the April meeting of the AFM Board, Sovereign Healthcare were approved as members of AFM.  We are pleased to welcome another health cash plan provider to AFM, and look forward to seeing them at future meetings.

In the meantime, Schoolteachers Friendly Society has completed its transfer to The Oddfellows.

  • Financial Ombudsman

In last month’s newsletter I mentioned that we were interested in compiling evidence of process issues with the Financial Ombudsman Service.  Many thanks to AFM members that responded.  We have identified a series of concerns, and as well as feeding this into the Ombudsman, our response to Treasury on the consultation on the new regulators (more on this later) suggests:

“We believe independent day-to-day management of the FSCS and FOS will not be compromised by drawing them more closely into the regulatory system.  We conclude that both FSCS and FOS should become subsidiaries of the FCA.  This approach does not compromise their core role, but does ensure that management of the FSCS and FOS align with the regulatory system as a whole.  “We have seen numerous instances where process failure within each of FSCS and FOS has risked undermining the regulatory system, and continued lack of proper accountability will continue to pose a threat.  The benefits of seeing FSCS and FOS as subsidiaries of FCA include:

  • Joined up approach to regulation across all regulatory bodies
  •  More effective information sharing and informed decision making
  •  Improved early warning systems
  •  Better capacity to act quickly on emerging issues
  •  More visible attention to regulatory process
  •  Shared commitment to work with a common but proportionate purpose of consumer protection
  • Less risk of ‘back-door regulation’
  • Cost synergies that result from shared services and single management lines.” 

Whilst it is easy to conclude that the failure today of the Judicial Review brought by the BBA on payment protection insurance reflects mainly on that product, it is another reason to support a review of the approach of FOS.


  • Press interest in the mutual sector

It has been encouraging to see that the media has continued to show interest in the work of mutuals and of AFM.  Our quarterly media report for Q1 2011 indicates a higher volume of press articles than ever.

We continue to meet the press and explain the virtues of the mutual sector, and to work with other mutual bodies to broaden messages about need to maintain diversity in financial services.


2. Regulatory Issues

  • Mutuals and With profits

FSA issued CP11/5 on with profits in late February.  The general consensus is that this marks a watershed for the with profits sector (mutual and non-mutual), and that FSA’s approach- if enacted as currently proposed- will make it very difficult for with-profits funds to act effectively.

AFM will be responding to the consultation with a detailed response.  We are also looking at a range of activity in support of our response and we will be highlighting these in more detail at our CEO forum on 20 May in London, and via direct engagement with our with-profits members.

We encourage all AFM members to make their views heard, and will be sharing our draft response early next month.  As ever, Money Management’s survey of with-profits once again provides the perverse, but reassuring news that policyholders in a mutual with-profits fund enjoy significantly better returns (see the separate article on this).

  • Solvency II

The countdown to the implementation of Solvency II seems to be accelerating, and there is an enormous amount of work for firms still to do to be ready for 1 January 2013.

But where has the leadership for the UK side of the project gone?  I expected this week’s FSA Solvency II conference to provide forthright and positive encouragement from the regulator.  Instead we heard an-at best- neutral message from Hector Sants and others that “we wouldn’t have done it this way”, “we have no choice over whether to implement the Directive or what it will look like”, and “firms will not be able to identify benefits to outweigh the costs”.  There was even an implied indication that the implementation date of 1 January 2013 would be set back again.

This defensive language from FSA seems to illustrate that they are someway off the mark with their own implementation programme. This is best illustrated by FSA’s Business Plan: last year they collected over £13 million in special project fees, but only spent half that amount. We can but hope that this year, with £20 million budgeted in special fees, there is a clearer plan on what needs to be delivered. FSA’s approach sets the tone for Solvency II, and if they show lacklustre support and a lack of delivery, then that is likely to spill over into regulated firms. 

Recently Mark Hoban, Financial Secretary to the Treasury, has offered the clearest senior level support for Solvency II. I don’t think he expected to take over a leadership role from FSA, but it is gratifying that he has - as the principles around Solvency II and the component parts are absolutely right for today’s more prudent world. AFM will continue to press for a proportionate and pragmatic route to implementation, and is keen to help FSA build back its confidence that there are positive benefits from successfully delivery of, in their own words, the “largest project ever delivered by FSA”.

Meanwhile, a recent meeting of smaller AFM members indicate that whilst most firms have an implementation plan in place, the delay in providing some of the detailed requirements, and of defining what simplification will be available to smaller firms, is causing development work to backlog.

We are establishing a new working group to help firms with implementation of Solvency II, and have written to smaller AFM members to invite them to join. The first part of the process will be to issue a questionnaire, to verify how advanced plans are so far, and what gaps might usefully be resolved through collective work. For more information, please contact .

  • Retail Distribution Review

Just as AFM members have a lot to plan to prepare for Solvency II, so the RDR is looming in the not too distant future for investment firms.  Changes brought forward in the RDR are accompanied by new or revised European Directives, including the review of the IMD (Insurance Mediation Directive), along with PRIPs (Packaged Retail Investment Products) and MiFID (Markets in Financial Instruments Directive).  These Directives have a similar and overlapping impact to the RDR, but also affect the general insurance sector.

At a recent meeting with FSA, it was clear that the regulator remains concerned that some firms have not fully assessed the implications of the Review, and are not preparing effectively for its implementation.  Whilst some elements of the RDR are still to be unveiled, firms should have a clear strategy in place, and a plan for implementation in construction.

To help this, AFM members will shortly be invited to join in a survey, designed to assess preparedness, and to help members benchmark their plans against their peers.  Please support this worthwhile project.  Meanwhile, there is an article elsewhere in this newsletter on the broader implications of the RDR. 

  • Other regulatory issues in brief 
  • FSA’s discussion paper on product intervention indicates a more intrusive approach to reviewing products at the development stage. AFM is responding to the paper, and joins a roundtable to explore key issues.
  • FSA has consulted on a definition for Holloway income protection to accompany its consultation earlier this year on a possible exemption to the RDR.
  • AFM recently met FSA on simplified advice and the RDR.
  • The Financial Reporting Council has issued a consultation on the audit of friendly societies: AFM’s response will be on our website this week.
  • The Committee on Employment and Social Affairs of the European Parliament is conducting a study on “The role of Mutual societies in the 21st century”; AFM has been interviewed at part of the process.

3. Political Issues

  • All party group for financial mutuals’ inquiry into diversity in financial services

The final evidence session for this inquiry will take place on 11 May.  Mark Hoban MP, Financial Secretary to the Treasury will be giving evidence, and can expect MPs to quiz him on the government’s approach to strengthening mutuals, as well as to FSA’s approach to with-profits and mutual capital, which risks undermining that.

The final report from the inquiry will be produced in late May/ early June.  We expect this to highlight a range of opportunities for the coalition government to consider in showing it support for a stronger mutual sector.  All MPs will be receiving a copy and this presents another very good platform for the mutual sector to lobby for fair legislation and regulation, and the chance to compete on equal terms with shareholder-owned organisations.

  • Treasury consultation on the new regulatory system

Treasury’s latest consultation on the new regulatory system has now closed.  Bank of England and FSA are hosted a series of conferences to outlines plans for how regulatio is evolving.

AFM responded in detail, and amongst our comments we stated:

“We responded to last year’s consultation on the development of a new regulatory system, and we pleased to see that some of our comments had been taken into account in the latest consultation.  There is significantly more detail in the new consultation which provides much more assurance as to the way financial regulation will be conducted in future.  We are broadly supportive on the approach proposed.

“In the recent past we have seen regulators respond in what we often regard to be a cavalier manner to political criticism of their contribution to the bank-inspired financial crisis.  This has resulted in sometimes poorly designed, reactive regulation, both in the UK and in Europe, which has placed new and disproportionate burdens on many firms which do not pose the same systemic risk.  We believe that the new architecture proposed will make this less likely, so long as supervisors properly understand the markets they are regulating, and act in a manner that is balanced and proportionate, both to the likelihood and the impact of any risks they seek to address.

“The received wisdom in regulation and legislation is that the shareholder owned model is superior, or else that the time spent regulating different business models in a more appropriate manner is not worthwhile.  We are grateful therefore that the coalition Government is seeking to promote diversity of ownership and seeks way to ensure that regulation is more aligned with this ambition.”

A full copy of our response is on the AFM website: Click here

  • Other government activity in brief
  • Junior ISA: detailed proposals for the new Junior ISA have now been released, which will be available to every child that does not have a Child Trust Fund.  With an annual investment limit of £3,000, a number of AFM members have already indicated they are keen to issue the new product on its launch in the Autumn.
  • In the past few weeks, AFM has had meetings with government departments on issues including: the new regulators; with-profits; taxation; insurance VAT; and the Junior ISA.

4. AFM events

  • CFO network: The latest meeting of this network was held on 16th March at the offices of NFU Mutual in Stratford-upon-Avon. The next meeting will be scheduled for later this year.
  • COO network: the next meeting of the network is planned for 11th May at the offices of Oddfellows Friendly Society in Manchester.  
  • Corporate Secretaries/Compliance Officers Network: the latest meeting of this network took place on 14th April, at the offices of Moore Stephens in London, covering risk management and transfers of engagement.
  •   Internal Audit Network: the first meeting of the new Internal Audit network took place on 3 March.  We are planning the next meeting for September/ October.
  • Smaller societies and mutuals Forum: the forum met on 4 April in London. The agenda includes Solvency II; the RDR; working together and employment matters. The next forum meeting will take place during the November conference, though we are in the process of setting up a Solvency II working group for smaller mutuals to identify shared solutions.
  • CEO Forum: our first CEO forum is being held on 20 May at the offices of Pinsent Masons in London.  The CEO or deputy from each member company is invited, and the agenda includes a mid-year update on our work, but also to cover key issues for the mutual sector at this time, including corporate governance and a presentation from HM Treasury.


  • Other events of interest to AFM members:
    • The BSA conference is on 4th and 5th May in Birmingham; BSA has kindly offered AFM members the opportunity to join at their member rate: for more information: BSA conference
    • AMICE, the European trade body for mutuals is running an event for smaller mutuals in Barcelona on 14 September, covering proportionality for Solvency II; contact me for more details
    • ICMIF, the international trade body for mutuals has moved its conference from Japan, to Manchester, and has offered AFM members the opportunity to join at their normal member rate: see their site for more.


For more information on the work of AFM, visit our websites: for members and all professional contacts. for consumers. for the youngest children, their parents and teachers. for 8 to 11 year olds, their parents and teachers

Please make a note of our office number, 0844 879 7863, and address, 7 Castle Hill, Caistor, Lincolnshire, LN7 6QL.

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