Mutuals’ Deferred Shares Bill: ready for Royal Assent
Mutuals' Deferred Shares Bill completes third and final reading in the House of Commons
The Mutuals’ Deferred Shares Bill is an important milestone for the mutual insurers: it is the first piece of legislation dedicated to the sector since 1995. Back then, mutuals accounted for over half the UK insurance industry; today the mutual insurance industry is one of the smallest in Europe, so this legislation cannot come too soon.
Hence we are very grateful that the Private Members’ Bill enjoyed swifter than usual progress, both in the House of Lords, where it originated under the wise guidance of Lord Naseby, and since December where Jonathan Evans MP took it forward in the Commons. They are two long-term supporters of mutuals, and are very familiar with the difficulties of raising capital in member-owned organisations, so we are very appreciative of their hard work in taking forward the vision of a new form of mutual share. We also fully appreciate the cross-party support the Bill benefited from, as well as strong Treasury support for the Bill, which have given it the best chance possible of completing its passage before the end of the parliamentary term.
The effect of the Bill will be to allow mutual insurers and friendly societies to raise capital via a new form of mutual deferred share. This matters because at present mutuals can only increase their capital slowly and by retaining profits. This has stifled the growth of the sector, and prevented them from competing effectively with PLCs even when, during the financial crisis, there was renewed demand for products from mutuals who are seen as trustworthy providers working in the best interest of their customers. These shares will enable mutuals to develop new products, to achieve economies of scale, and widen mutual ownership. They provide a critical alternative to the widescale demutualisation that has blighted the sector. This will help ensure that in any future financial crisis, there is a lower risk of discontinuity of supply for consumers.
Holders of the shares will be a member of the society, though irrespective of their holding will only have one vote. Regulation will set out in future how mutual shares might be issued, but we would hope that they would be available to existing customers of mutual organisations. As many mutuals are small organisations, we might also see groups of mutuals working together to issue shares.
Speaking in the report stage of the Bill in the Commons today, Shadow Chief Secretary to the Treasury, Chris Leslie MP highlighted the work of the AFM, the BSA and Mutuo, on raising the need for action on capital in mutuals, and to safeguard ownership and integrity of mutual organisations. The Economic Secretary to the Treasury, Andrea Leadsom MP highlighted the importance of the Bill and the value of cross party support. She indicated the sector had demonstrated a clear need and demand for this Bill. Tony Baldry MP (Conservative) highlighted the dramatic effect that demutualisation had had, using AFM data on with-profits investments, to highlight the importance of retaining a strong mutual sector.
The Bill moved onto its third reading, during which Jonathan Evans MP highlighted the role of the sector over hundreds of years in supporting local communities. He summarised his own commitment to navigating the Bill through the Commons by saying: “If there is any better way to draw an end to my service in this house, it is I think in doing something which ensures the mutual principle that my grandfather contributed to, is carried forward by this measure.” (Mr Evans’ grandfather was an active member of the Tredegar Medical Aid Society, that Aneurin Bevan adopted as the inspiration for the NHS. Mr Evans is standing down as an MP at the general election.)
The Economic Secretary paid tribute to both Mr Evans and Lord Naseby, and confirmed the government’s support for the Bill. Treasury will consult with the PRA and FCA as soon as the Bill receives Royal Assent, to ensure the procedures are right, and will work this through as quickly as possible. In the Economic Secretary’s opinion “it’s a short Bill but one that provides a huge opportunity for the mutual sector”. The Bill was passed with unanimous support.
This is further good news for the mutual insurance sector, in a week that saw the launch of the first new retail mutual for 20 years when The Military Mutual opened for new business.