September 2010

Update from the Chief Executive

profile-pictures-shawWelcome to the September 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 second anniversary of the collapse of Lehman Brothers passed mid-September. Is it my imagination or has the financial world all but returned to pre-recession business as usual? Certainly it is hard to see how more intrusive regulation and government intervention have had much effect on some of the underlying challenges facing the financial services industry.

Take remuneration: in many firms there is a clear and unambiguous link between outstanding performance and the amount of bonus. But overall the stockmarket remains below the level it was 10 years ago, so it isn’t abundantly clear how managers in all large banks and plc insurers are adding value. And whilst premiums paid into the life industry have shrunk steadily over recent years, dividends paid to shareholders have remained resilient. Meanwhile unit trust companies happily pay themselves performance bonus whilst underperforming the FTSE, or where overall returns are negative, but they’ve produced a positive return one quarter in four.

So it’s the customer who suffers. And evidence is that to make matters worse, poor performance is being compounded by cuts in customer service functions, stricter underwriting, higher margins and a continued focus on the wealthy at the expense of the needy. Little wonder there are increasing volumes of complaints at the Ombudsman, and more people stacking up financial problems for the future.

What’s the solution? Structural changes in regulation will certainly help align the industry’s interests with those of their customers. However that alignment already exists where the customers are the owners of the business, and the interests of managers are the same as the interests of customers. So AFM is delighted to see that the recent report by Professor Michie of Oxford University calls on the coalition government to promote mutuals in order to aid economic stability in the financial system and to deliver a better deal for consumers.

Reassuringly, consumers are beginning to appreciate the benefit of placing their hard earned money with a mutual. In 2009 there was a marked contraction in the UK insurance market. Mutuals in contrast enjoyed increased premiums and a marked increase in market share. See the separate report on sector statistics for more.

I hope you enjoy this month’s newsletter; as ever I welcome any comments, and suggestions of topics for the future.


If you have any comments, please contact .

Also in this edition:

• key statistics for the mutual insurance sector, 2009

• NFU Mutuals’ approach to rehabilitation

• AFM Associate member Xafinity Paymaster considers the Treasury’s proposals on annuities.


1. AFM Conference

The first AFM conference and AGM will be held at the Merchant Taylors’ Hall, London on 18 and 19 October.

During the conference we will be launching a series of new AFM initiatives, and hearing from senior politicians, regulators and industry thinkers about the role of mutuals in the sector.

Places for the conference are being taken up quickly, so don’t delay in making a reservation. Further details of the conference as well as information on how to reserve a place are available on the dedicated website:

2. New AFM members

The AFM Board has approved the following new members and Associate members in the last month:

Full members:

  • Foresters Life: Forester Life is part of Foresters, the international financial services organisation with over 675,000 members and over £4 bn funds under management, which has operated in the UK, USA and Canada for over 135 years. As well as providing financial advice, and products with flexible terms, low charges and clear and simple conditions, Foresters help communities across the country by raising funds for charities and local projects and by helping members who need support. We measure our success not only by financial strength, but also by positive impact we have on our members' communities.
  • Paycare: a provider of healthcare cash plans, with around 40,000 policyholders, Paycare has no shareholders and pays no dividend payment is made to its Members. Surplus funds are used for the benefit of all Policyholders, with some surplus funds donated to the Paycare charity trust. Over £1.5 million has been given to the Charity trust since its formation in 1964.

Associate members:

  • Baker Tilly: Baker Tilly is a leading national provider of accounting and business services, with 1,600 employees and 28 offices in the UK. As an associate member of AFM we would be delighted to use our experience and invest time and contribute to the development of the special interest groups. We provide a range of services and have experience in a number of areas which we believe will help AFM achieve its objective of developing good practices within the sector. Contact for more information.
  • Barnet Waddingham: the UK’s leading independent provider of actuarial and consultancy services. The firm has seven offices throughout the UK. The business is based on a culture which aims to provide all of our clients with a high quality professional service through strong personal relationships and tailored solutions whilst remaining competitive on fees. Our values can best be summarised as “Doing it the Right Way” and we take the long term view to all of our services and relationships. For more information, contact

We are delighted to welcome them all to AFM.

3. Saving Squad - the new way to learn about money matters

To follow the success of fun to save, our educational website for the youngest school children, AFM has now launched a sister site for children aged between 7 and 11, called Saving Squad.

The new site continues to focus on helping young children learn about money and the value of saving, and extends the concept to include using a bank account, as well as making savings in the home, and contributing to environmental saving. As before the site was developed by our partner D2 Digital and in consultation with pfeg, to ensure it meets the needs of the curriculum, and can be used effectively not just by children, but also their teachers as well as parents and guardians.

The site will be formally launched in October, but is now available to view at And don’t forget

The AFM Communications Committee is developing a full marketing plan to raise awareness of fun to save and to launch the new site. Any members who would like to participate in this should contact .

4. Regulatory Issues

  • Dear CEO letter to Mutuals with a with profits fund

FSA has begun to issue letters to mutual with profits providers. All AFM members that responded to FSA last December should expect feedback from their supervisor over the next few weeks.

This correspondence will undoubtedly focus on firm specific issues, and we understand a further Dear CEO letter will follow to pull together common threads. There is also a consultation paper due out this year on with profits, following FSA’s wider review. AFM members will need to consider their response to both and the implications for their business.

If any AFM member has any concerns, particularly about general issues raised by FSA correspondence, please contact

  • Retail Distribution Review

There are still some fundamental questions to be answered in relation to the Retail Distribution Review. For providers, these include significant work items such as the impact on charges disclosure, treatment of top ups, taxation implications, data collection, and the role of platforms.

For AFM members there is the specific issue of the treatment of Holloway contracts, on which we are actively engaging with FSA. Despite this range of uncertainty there is no suggestion from FSA that there is any threat to the 2012 deadline or that it will modify its expectations.

  • Solvency II

There has been some speculation over the deadline for Solvency II, and even some suggestions that other parts of Europe are having misgivings about the approach overall.

The UK of course benefits from a strong solvency regime already with the annual ICA assessment. This means that the risk management techniques and capital requirements envisaged by Solvency II are already familiar to UK mutual insurers- so whilst the change to a new capital regime may not be as onerous, the cost benefit case may not be as strong.

That said the QIS 5 exercise is now live, and most AFM members appear to be taking part in the survey- this will certainly provide a very useful insight from UK mutuals, and help to ensure that assuming Solvency II does go live, it takes proper account of the sector.

Meanwhile, the AFM Solvency II working group continues to have productive discussions with FSA about what the capital regime will look like post-Solvency II for members whose size means they will not need to comply with every aspect of the Directive.

5. Political Issues

  • Diversity in financial services

A report titled “Promoting corporate diversity in the financial services sector”, with a foreword from AFM and the BSA, is being launched at the party conferences. The report is written by Professor Michie of the Kellogg College, Oxford University.

The report draws on compelling evidence of the merits of mutuals in order to argue that a stronger mutual sector will “promote effective competition and mitigate against systemic risk”. Key recommendations from the report include:

On Financial Regulation:

• Making a binding requirement for the new Regulator to promote diversity of ownership

• Appointing a new Head of Mutuals Policy, to co-ordinate the Regulator’s work with mutuals

On HM Treasury policy:

• Appointing a Minister for Mutuals, with a suitably senior support team to work across Government departments

AFM will continue to develop some of these ideas, and to engage with relevant policymakers. A full copy of the report is available on the AFM website: Click here

  • Child Trust Fund

HMRC has invited Child Trust Fund providers to comment on proposals to change some of the administrative terms of the CTF, intended to encourage providers to remain in the market for the period during which vouchers are issued at £50. Most AFM members appear keen to reinforce their commitment to the sector. This includes The Children’s Mutual, despite being closed temporarily to almost all new business and not withstanding the departure of Chief Executive David White. David has of course been an outstanding champion of child savings, and will no doubt continue to look with interest at how government and industry together find solutions to the need to get people saving for their future financial well-being.

Meanwhile discussion continues on a successor to the CTF, with the Government committed to finding ways to encourage people so save more.  AFM and other members of the Save Child Savings Alliance continue to press for the continuation of the product with or without government vouchers. The significance of the product in encouraging savings and in boosting equality is reinforced in a new report by think-tank ResPublica which proposes a new type of Asset Building for Children (ABC) account based on retaining the infrastructure of the Child Trust Funds. As the report states:

“If we are to create a genuinely free and fair society, then the language of equality and opportunity has to be matched by some chance of economic equity and some way that ordinary people can build a real stake in the world.” Source

  • Other public affairs issues

AFM is part sponsoring a series of fringe meetings at the main party conferences this autumn, along with the BSA and Cooperatives UK. The meetings are being arranged by Mutuo, and follow up on the collaborative work of the Mutual Manifesto published ahead of the general election. The fringe meetings will be held in late September/ early October and will focus on encouraging diversity in financial services.

Yesterday (21 September) we held our first fringe meeting at the Lib Dems conference.  The Chair, Baroness Maddocks, agreed to write to the Business Secretary, Vince Cable to draw out some of the discussion and to summraise our views on how mutuals can take a more prominent role in the future.

6. AFM events

  • AFM Conference: preparations for the annual conference and AGM are progressing, and full joining instructions will be available soon. In the meantime, please make a note of the dates in your diary: 18 and 19 October. The conference is being held this year at the Merchant Taylors’ Hall in Central London.
  • CFO network: the most recent meeting of the network was held at the offices of NFU Mutual in Stratford on Avon on 1 July, with an agenda including Solvency II, IFRS, Financial Crime, Arrow II and the Mutual Transfers. The next meeting is in planning and is likely to take place in November.
  • COO network: the next meeting of the network will be on 10th November, at Royal London’s offices in Wilmslow. The agenda will draw on suggestions from our recent survey of past COO attendees; further information will follow.
  • Corporate Secretaries/Compliance Officers Network: the first meeting of this network is now set for the afternoon of 23 September in London at the offices of Mazars. Further details will be sent to members that indicated an interest in attending. The agenda is dominated by feedback of issues we received from members, which largely concentrated on corporate governance issues.
  • Internal Audit Network: the AFM Board has approved the formation of a new Internal Audit network. This will be chaired by Andrew Gold of Mutual One, and we will shortly be canvassing views on relevant topics for the first meeting.
  • Smaller societies and mutuals committee: the first meeting of this group was held on 26th May; copies of the presentations are available on the AFM website. The next meeting will be held on 18th October as part of the AFM conference.

7. Other events:

You may interested in the following;

  • Mutual Insurers - IFRS conversion in light of Solvency II: AFM Associate member Mazars is providing a very topical seminar on the implications of new accounting principles, at their London offices on 8 October.
  • Mutuals’ Forum 2010: This year’s Mutuals’ Forum will be held on Thursday, November 4 at the British Library Conference Centre. The Forum is an opportunity to join other mutual organisations for interactive and informative discussions on the future of mutuality and to listen to keynote speakers outline their views on the future of the sector. Click here


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

Please remember our new office number: 0844 879 7863.

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