November 2015

Update from the Chief Executive

Does the government’s championing of the “Northern Powerhouse” open up new opportunities for a resurgent mutual sector? The Chancellor seems to think so, judging by a response during a Treasury Select Committee hearing last month, to a question from John Mann MP (Bassetlaw).

The Chancellor accepted that historically the creation of mutual societies in the north was fundamental to the industrial development of the region in the nineteenth century, and that more work was needed now to explore how corporate diversity and local finance can support people more meaningfully for the future. 

The Chancellor indicated he would welcome suggestions for how this might be achieved, and in the context of the Bank of England and Financial Services Bill, on which he was giving evidence, it is encouraging to see amendments being posted that would encourage regulators to better facilitate diversity- more on this later.  And the sector itself should seek to actively explore how it can rise to the challenge further.

We explore these themes further in this month’s articles: I hope you enjoy reading this month’s edition of Mutually Yours -


If you have any comments, or would like to be added to the regular distribution for this newsletter, please contact

Also in this edition:

  • How can collaboration be successfully developed in the UK Financial Mutual sector?
  • “Improving accountability to consumers” James Daley
  •  AFM member news
  • IoD Top Honour for British Friendly Society’s Finance Director
  • 2015 Conference report

Please follow the separate links to these fascinating new articles, or visit the website.  

AFM news in brief

This year’s AFM conference and AGM took place on Monday 12 October, at the Lancaster London hotel. Many thanks to everyone that attended the event, which took the theme of “the future of mutual insurance” to explore a wide range of forward-looking issues.

A full report is provided in a separate article this month, and a copy of the minutes of the Annual General Meeting have been circulated to Chief Executives of member companies.

A few days before our own conference, our sister international association, ICMIF, held its own biennial eventin Minneapolis, USA.  Although AFM was unable to attend, it was clear that the wide ranging agenda presented the mutual sector positively, and as a growing and crucial part of the insurance industry globally.

Amongst some of the main outputs from the conference were a new ‘practical guide to mutuals’ prepared for presentation to stakeholders and key international policymakers and regulators: AFM helped review this document which should soon be able to view on the ICMIF website.  The conference also launched the ICMIF global manifesto 2015; adopting the formula of our UK mutual manifestos, and produced with the support of Mutuo.  Not surprisingly therefore the manifesto echoes many of the proposals in our own ‘Manifesto for Financial Mutuals’, by seeking to ensure an appropriate business environment for the sector, and for policymakers to work with mutuals to ‘protect lives and livelihoods’.  With nearly one billion customers of mutual and cooperative insurers globally, the document sets out the range of international policy fora ICMIF seeks to influence, from the G20 to EIOPA to the OECD. 

Back at home, AFM’s work with policymakers and politicians currently focuses on some significant areas:  

  • The work on the Mutuals' Deferred Shares Act has continued over the last few months, with effective engagement with the Treasury and the regulators on the form of mutual shares.  In the next few weeks the Treasury plans to issue a consultation setting out the draft secondary legislation, which will establish a detailed description of what mutual deferred shares will look like, how they can be used and what regulatory expectations will need to be met. 
  • The All Party Parliamentary Group for Mutuals provided some significant support to the sector before the general election, not least with its 2014  inquiry into mutual capital which paved the way for the successful passing of the Mutuals’ Deferred Shares Act.  With the retirement of Jonathan Evans, the Group has appointed a new Chairman: Gareth Thomas MP.  AFM and the Building Societies Association recently met Gareth, to discuss a workplan for the Group, including plans for an ambitious new inquiry into the role of mutuals, building on the proposals in our manifesto document.
  • In a recent debate on the Bank of England and Financial Services Bill, Lord Naseby, echoing comments from the Bishop of Portsmouth, called for the Bill to “solidify the Government’s commitment to promoting real diversity in the financial services sector”.  The intervention received positive support from a number of peers, including the Minister sponsoring the Bill.  Lord Naseby has duly posted two amendments to the Bill, to highlight the importance to consumers of corporate diversity, and for regulators to take full account of that in formulating policy.

Speaking of regulators, the necessary focus of the PRA at the moment remains the imminent introduction of Solvency 2.  There has been an increased focus in recent months on smaller insurers, and this has proved helpful in final preparations.  At the AFM conference last month, Andrew Bulley stressed that the PRA will give firms ‘plenty of time to adjust to the new regime’, though he also stressed the need for NEDs to be more active in planning, and in particular in the preparation of the ORSA.  AFM continues to engage with both regulators on a regular basis on implementation of the Directive, and its equivalent for non-directives.

In addition, both the PRA and FCA are finalising plans for the new Senior Insurance Managers Regime and the revisions to the Approved Persons Regime. We provided a number of consultation responses to the regulators on these changes, and attended a meeting with PRA on implementation.  Recently our Regulation and Governance Committee met with FCA and this produced a useful Q&A sheet, subsequently circulated to members.

And this is part of a stronger focus on corporate governance by the regulators; take for example a recent speech by Andrew Bailey, Chief Executive of the PRA on the role of Boards, and on the separate responsibilities of the Executive and non-executives.

Corporate governance remains a key part of AFM’s work, and in recent weeks we have published our annual report on governance standards, as well as the latest report on board remuneration.  This year the latter was produced by Associate members Keystone Law and First Flight, and included a helpful examination of pay trends for 2016, which for NEDs in particular reflect the extra workload resulting from Solvency 2.

Looking ahead, in their 2015 report and accounts, and in the annual compliance exercise, members should be taking account of changes made to the Annotated Corporate Governance Code in 2014, as well as additional auditor requirements.  Amongst the changes to the Code include strengthening the content of the Strategic Report, to provide a clearer statement on the future viability of the organisation, as well as the principal risks it faces and how the Board monitors them. (See the Code document as per link above, and in particular Appendix 2 for what the annual report should include, and the note on auditor requirements above for the expanded set of code provisions that the auditor should review, which in summary are C1.1, C2.1, C2.3 and C3.1 to C3.8.)

The Annotated Code is of course derived primarily from the standards expected of listed companies.  AFM recently met with the Financial Reporting Council to highlight the areas where mutuals are less able to comply.  FRC duly agreed to host a meeting involving mutual trade bodies and some of their members, to explore the possible scope and interest in developing standards that better fit the mutual sector.

That meeting took place in the last few days, and included a wide range of mutuals, relevant trade bodies, regulators and academics.  The meeting found there is a significant amount in common between governance codes in different mutual sectors, and this led to general agreement that more work to explore a common code, that addressed the gaps in the PLC Code, would be worthwhile.

One of the areas that the listed companies’ Code necessarily omits is member engagement.  This is of course crucial to mutuals, and it was encouraging to see, in our corporate governance report, an increase in the proportion of members voting at the AGM again this year.  AFM recently undertook some consumer research, following up on survey work in 2012 and 2013, to see how people’s perceptions of mutuals have changed now that the economy is returning to a near normal state.  The summary shows that whilst a significant proportion of the population is still unclear on what a mutual is, those that are readily appreciate how the model serves their best interests.  As a result, trust in mutuals is significantly higher, particularly amongst existing customers, and mutual insurers and building societies are perceived as providing better service, more customer orientated products, more responsible leadership, and supporting local communities.

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