December 2010

Update from the Chief Executive

Welcome to the final edition of Mutually Yours for 2010. 

Mutually Yours is 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 recent spell of harsh winter weather mirrors that which greeted the launch of AFM - in fact as the photograph taken from our ‘corporate headquarters’ in Lincolnshire illustrates, it has been considerably worse.

It is then still less than a year since the AFM was formed, yet in that time we have made significant steps forward.  We are a trade body that is now regularly consulted by government departments and regulators, widely quoted in the press, and generally agreed by external stakeholders to be a credible and strong voice for the mutual sector. 

And despite the climate- economic this time- membership, both full members and Associates, has remained bouyant through the year and the range of committees, network and support services has expanded to meet the needs and increasing expectations of our members.  AFM might be a virtual organisation, but its increasing reach is a testimony to the support of our members and a renewed interest in mutuality from a broad range of stakeholders.

Mutually Yours contributes to meeting that interest, and it’s been encouraging to see how many people are now reading our newsletter.  Most people also read all articles- do make sure you review all the items this month.

Finally I hope you enjoy reading this month’s edition of Mutually Yours - we’ll be back in 2011, and in the meantime, have a great Christmas.


If you have any comments, please contact

Also in this edition:

Engage Mutual announces new acquisitions

The future of gender discrimination in insurance

• A year in the life of a CTF provider

• Britons risking poverty through lack of pensions knowledge

• Remuneration in the Mutual sector

Please follow the separate links to these fascinating new articles.


1. AFM Activity

  • AFM Conference

Planning for the 2011 conference is underway.  We received lots of useful feedback on the 2010 conference; it was clear that the location and timing of the event suited most people, and we are therefore looking at a similar venue in London in early November 2011.  Further details will be released in the New Year.

At the conference this year we unveiled the AFM corporate brochure, designed to set out the work of AFM and its members.  If you would like a copy of the brochure to help in promoting the work of the sector, please let me know.

  • Savings Squad on a screen/ monitor near you

We’ve been delighted with the positive reception received to the launch of our new educational website, Savings Squad.  Teachers, parents and children alike seem to enjoy it, and pfeg was very complimentary in awarding it their Quality Mark. 

As well as some good press coverage at launch, I’m encouraged by how a number of members are actively promoting the site as part of their own educational work and with local press contacts.  We were also delighted that Reuters has filmed an item on it that has been broadcast globally on Reuters TV and picked up by other channels; follow the link for more: Click here

  • Looking for a NED?

With intensified regulatory focus on corporate governance, it is now more important than ever to make sure that the Board is functioning well, and has the right blend of skills and experience.

The AFM website contains an impressive array of CVs from quality NED candidates.  These have proved useful to many members in locating suitable Board members.  So before embarking on expensive recruitment activity, do remember to look at the AFM resource: Click here


2. Regulatory Issues

  • Mutuals and With profits

Throughout the first 12 months of AFM’s existence, we’ve reported on FSA’s work on mutuals with a with profits fund.  It is now a year since those AFM members affected provided detailed responses, at short notice, to FSA.  It is therefore disappointing that around half our members are still awaiting a formal reply.  I am assured by FSA though that it is their intention to issue firm's letters by the year end.

Members that have received responses so far report differing experiences, but little softening of the FSA’s strident line on the issue.  This remains the most significant issue on the AFM Board’s agenda, and recently AFM had a meeting with the Financial Secretary, to set out our concerns and to highlight how FSA’s approach runs contrary to the coalition government’s commitment to support and strengthen mutuals.  We spelt out clearly and bleakly the consequences of FSA’s approach, which is at odds with every legal advice obtained by AFM members.

In addition, FSA is due to publish a consultation before Christmas on with profits more generally.  This follows up on its summer with profits review paper.  The AFM Regulation Committee will be carefully reviewing the paper’s implications for the sector.

  • Retail Distribution Review

FSA is continuing to work towards the implementation of the Retail Distribution Review over a relatively short timescale.  There is still an enormous amount of policy to be finalised, and this means there will be limited time for providers to get ready.  FSA is due to consult on a broad range of issues in early 2011; AFM members will be most interested in:

  • the final qualification requirements and its likely impact of the supply of independent advice in the future;
  • the shape of the simplified advice range and its applicability to mutuals;
  • changes to product and charges disclosure; and
  • possible exemptions for certain Holloway contracts.

The parliamentary debate on the RDR on 29 November included a passionate defence by the local MP of the business model of Kensington Friendly Society, and the role of it as well as similar friendly societies in enabling financial inclusion.  For coverage of the debate click here.

The Treasury Select Committee is seeking written evidence for its own inquiry on the RDR, to consider how well it is likely to achieve its aims.  AFM intends to respond, and highlights implications such as those put forward for Kensington Friendly.  I welcome comments from members, and if you would like to provide your own evidence direct (deadline is 17 January), follow this link.

  • Solvency II

Even with the QIS 5 exercise now complete, there is still much to do to prepare for the implementation of the new capital regime for insurers.  Indeed, in their Business Plan for 2010/11, Hector Sants described Solvency II as “the largest single project undertaken by the FSA”.

Many AFM members are no doubt discovering that they now share a similar view.  On the whole though, the QIS 5 exercise appears to have provided some comfort to many mutuals- that the strong capital base they have created to meet current solvency rules will persist under the new regime.  Such is the resilience of the current ICA regime in the UK that we have not seen as many concerns as other European countries, where for example, French mutuals are predicting capital requirements ten times greater than their current level.  There are however exceptions even in the UK, and mutuals who find themselves moving from non-Directive status as a result of different thresholds for Solvency II, will in particular find the new capital requirements are significantly greater.

Solvency II brings with it a host of actuarial challenges, but these are matched by new ways of working in other areas: tax planning, accounting and risk management to name but three.  In addition, Solvency II has major implications for the approach to investment, and our planned workshop on 27 January will seek to address this (more details below).

  • Preparing for the new regulators

The break up of FSA into a new regulatory landscape is now progressing quickly.  In a recent speech, FSA Chief Executive set out the work that is being undertaken now, as well as his vision for the future of the PRA (Prudential Regulatory Authority) and the CPMA (Consumer Protection and Markets Authority).  All AFM members will be regulated by the PRA from its introduction, though as the following extract shows, this will lead to changes from next April in FSA’s supervisory approach:

“The FSA has already started to evolve towards this new structure.  In April 2011 we will replace our current Risk and Supervision business units with a Prudential business unit and a Consumer Protection and Markets business unit.  From this point we will then take a progressive approach to changing those regulatory processes that can be changed within our existing statutory remit so that the FSA can begin to operate a more ‘twin peaks’ style of regulation.”

 For more information click here.

In another sign of the more intrusive and rigorous nature of supervision, Scottish Equitable, now part of Aegon, is today faced with a bill of £60 million in redress for policyholders who have not been treated fairly in the years since demutualisation, as well as a hefty fine from FSA.  I cite this not as an exmaple of the difference in customer centricity between mutuals and non-mutuals, but for the need to remain vigilent and focused on delivering good customer outcomes throughout the business.

3. Political issues

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

The All party group for financial mutuals recently launched an inquiry into diversity in financial services.  This followed the report by Professor Michie of Oxford University released at the time of the party conferences and available to download from the AFM website.

At the first meeting of the inquiry Adrian Coles of the Building Societies Association and I were asked to provide evidence of the value of the mutual sector.  Much of the questioning was on regulatory barriers, and the MPs had a clear knowledge of the detrimental implications of recent announcements on with profits, the compensation scheme, the Financial Ombudsman and the Child Trust Fund.

The inquiry invites mutual firms to provide evidence of their own practices and the way their organisation secures value for its members and benefits for the community at large.  In the meantime, the inquiry had an off the record meeting with FSA recently (covering Project Chrysalis) and will be inviting FSA and others to its next meeting in January.

Alongside this inquiry, the AFM Board is exploring options for a significant project on “Modern Mutuality”, to explore ways in which mutuals can play a prominent part in the Big Society and other elements of government policy.  More details will follow.

  • Treasury work on CTFs/ Junior ISAs/ simple products

The “Savings Accounts and Health in pregnancy grant bill” working committee has been charged with verifying the appropriateness of legislation designed to formally end government contributions to the Child Trust Fund, to abandon the Saving Gateway and to cease grants to pregnant women.

In November the working committee held a series of evidence sessions, including one for trade bodies, of which I was a member.  The committee recognised the mutual sector as leading providers of the CTF and was keen to understand how the product had performed, as well as the consequences of its loss.  Armed with useful data from members I was able to give strong evidence of the positive impact of the CTF on savings behaviour.

Allied to this the Treasury announced plans to launch a “Junior ISA” from July next year, to replace the CTF.  AFM and members have been involved in working groups that are looking at the design of the new product.  Some of the big ISA providers clearly see the new product as another chance for wealthy clients to shelter more assets from tax, but AFM members have been working hard to bring evidence to bear of their experience on child savings- both via the CTF and TESP.  You will find an amusing account of some of these discussions in a separate article in this month’s newsletter.  In the meantime, we will continue to campaign for a product that best meets the needs of consumers, and to provide evidence from our wide experience of this market.

This week the Treasury launched a consultation on ‘simple financial products, which will explore beyond the proposed Junior ISA to seek views on the scope for other stakeholder-type/ CAT-marked products.  This is likely to be of interest to many AFM members; as the paper states:

“The Government believes that, to help consumers take responsibility for their finances, there is a role for “simple” financial products which can be easily understood and compared. These products would “do what they say on the tin”, so that consumers can compare products across a set of standard features to simplify decision making.” For more information click here

  • Electronic Communications 

AFM and its predecessor, the Association of Friendly Societies has been pressing for a few years now for legislation for the mutual sector to be brought into line with the Companies Act.  A clear example of the disparity is in electronic communications, where companies have enjoyed the ability for nearly ten years to make use of electronic communications, including for AGM voting.

Treasury has now issued a consultation which will enable friendly societies and other mutual societies to enjoy similar powers to companies.  Assuming the consultation is successful, the relevant legislative order will be introduced by April 2011- allowing mutuals to incorporate the new powers into voting for 2012.  If you have any comments on the proposals, please contact .

  • Other government activity

As well as all the political engagement covered above, AFM is also involved in other working groups sponsored by government departments- a real opportunity for the sector to influence future policy.  Amongst those we are involved in are: 

  • HMT Insurance Forum- a new group set up to liaise with Treasury and discuss key issues for the insurance sector;
  • HMRC’s project on insurance company taxation post-Solvency II: this will have a major impact on the way mutuals are taxed from 2013 and the AFM Taxation Committee is actively involved in HMRC’s working groups;
  • Treasury in conjunction with FSA have set up a working group to provide input to the government’s response to changes to the Insurance Mediation Directive, on which AFM is represented.

4. AFM Events

  • CFO network: the network was due to meet on 24 November at the offices of NFU Mutual in Stratford-upon-Avon.  Unfortunately the meeting was cancelled and will be re-set for early 2011, to include the agenda carried over on IFRS, Solvency II and financial fraud.
  • COO network: the network met on 10th November at Royal London’s offices in Wilmslow.  The well attended meeting included stimulating discussions on Information Security, Solvency II, regulatory issues and risk management.
  • Corporate Secretaries/Compliance Officers Network: the next meeting of this network will take place in early 2011.  Details of the venue and agenda will be circulated in due course.
  • Internal Audit Network: heavy snow postponed the first meeting of the new Internal Audit network due, to take place on 1 December at the offices of Mutual One in Leicester.  A revised date in early 2011 will be announced shortly.
  • Smaller societies and mutuals Forum: the next meeting of this forum is likely to be in late January/ early February.  Suggestions for content are welcome and more details will be issued soon.
  • Other events for AFM members: On 27 January, AFM in association with BNP Paribas, Ernst & Young and JP Morgan is running a workshop on “Solvency II implications for investment”.  This event is likely to be well-attended; further details are available from .


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 new office number, 0844 879 7863, and new address, 7 Castle Hill, Caistor, Lincolnshire, LN7 6QL.

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