Update from the Chief Executive

Update from the Chief Executive

An increasing number of AFM members are involved in healthcare- as medical insurers, providers of treatment, and to help fund optical and dental cover.  This was the traditional role of friendly societies before the NHS was borne, and its resurgence today is in part explained by the growing demands on the health system in the UK.

In 2015 the Chancellor increased the rate of Insurance Premium Tax, from 6% to 9.5%.  Treasury saw this as a tax on insurers, not their customers; a little like the bankers’ taxes we hear so much about- though in the case of insurance, not to penalise poor behavior or to curb excessive profits, but instead through opportunism.  It was the largest tax raising initiative in the Budget, and aimed firmly at those quasi-compulsory insurances, such as motor and home, which are also taxed in other European countries.

But instead of insurers suffering the cost, most motor and home insurers merely passed on the cost to their customers: in a market where you have to buy cover it is easy to do this.  But healthcare products are also subject to the tax, and of course are not compulsory in the UK; where the customer has the choice to simply cancel the policy, it is not so easy to pass on extra costs.  Health cash plan providers have been particularly badly hit by the increase in the IPT rate; where premium levels are low, and profit are surrendered in favour of charitable donations, it is very difficult to absorb extra costs at short notice.

These providers face a real struggle for survival, and with a number in AFM’s membership, we have written to the Chancellor, and to the All-Party Group for Mutuals, to highlight their plight, and to seek action.  A copy of both notes is attached as a separate article this month: we will continue to press the case after this month’s Budget.

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 [email protected]

Also in this edition:

  • Round up of the latest member news
  • The impact of the IPT increase on mutual healthcare
  • Investment News: Top 10 investment ideas for 2016 from Mercer, and news from Vestra
  • The EU referendum: how it might affect your investments

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

AFM structure and Board

The AFM Board met on 14 March, to review nominations for a new Board and committee structure, in light of changes to our membership on 1 January.

We received many nominations from members to serve on the AFM Board and its committees, in light of a refocused commitment to concentrate on the interests of smaller mutual and not-for-profit insurers.

The following individuals have been appointed by the outgoing Board to serve on the AFM Board:

Marc Bell

Benenden Healthcare Society

Stuart Bell

Metropolitan Police Friendly Society

Andy Chapman

Exeter Friendly Society

Elaine Fairless

Compass Friendly Society

Alan Goddard

Cornish Mutual

Paul Hudson

Cirencester Friendly Society

Jane Nelson

The Oddfellows

Paul Osborn

Foresters Friendly Society

Mike Perry

PG Mutual

Russ Piper

Sovereign Health Care

Kevin Rogers Paycare

In addition, the Board agreed a revised Committee structure, as per the chart below (further details of their responsibilities and membership will be provided on the AFM website soon):

The new structure will enable AFM to focus on a revised set of priorities, as set out in this table:


Training and development support to members through events including the AFM conference, and through effective networking of members


Maintaining regulatory compliance and communication with the Regulators.


Demonstrating a commitment to high standards of governance.


Seeking further opportunities to work together as a sector, to improve efficiency, to spread the adoption of good practice, and to deliver better value for customers


Maintaininga strong focus on the Association’s income, and on delivering value to members.


Working with other parts of the mutual sector to promote the benefits of corporate diversity to policymakers and other stakeholders.

The changes to our operating structure are also reflected in a revised AFM constitution, which you can view on the AFM website: https://financialmutuals.org/about/constitution.

The constitution includes a new mission statement:

“We promote the concept of mutuality by helping our members identify with, remain committed to and contribute significantly to mutuality, through the promotion of best practice and a commitment to working together and in the interest of members, customers and other stakeholders.”

Many thanks to all the members and Associates that have contributed to the development of our revised business approach. 

AFM comments on the impact of a Brexit for UK mutuals

We were asked recently to provide a comment on the forthcoming referendum: AFM is an apolitical organisation, so the following comments do not express a stated position on whether the UK remains within or leaves the EU.

“Mutual insurers in the UK grew rapidly in the industrial revolution to serve local communities and trades, and they continue to work as part of those communities today.  Almost all the members of mutuals live in the UK, and mutuals employ all their staff here, pay their taxes here, and invest their assets predominantly in companies, government gilts and property in the UK.  

"Regardless of the result in the June referendum, with a focus solely on serving UK consumers, mutual insurers are unlikely to change a business model that has enabled them to grow more rapidly in recent years than the British insurance industry as a whole.  AFM research shows people trust mutuals more than PLCs, so during any uncertainty in the aftermath of the referendum mutuals could see a greater surge in business activity.

"If there is a decision to leave the EU, the most apparent impact on most mutuals will be the effect on the wider economy; for example, how it affects the investment climate, interest rates and general prosperity.  Regulation is another key issue: in recent years the majority of insurance regulation has emanated from Europe, particularly via Solvency 2, and this has coincided with a time of closer scrutiny and much higher compliance costs.  Much of the UK rulebook will need to be rewritten, though as the UK regulators have actively embraced European rules, and as issues such as consumer protection and effective stewardship are now universally accepted, it is unlikely that the tone of regulation would change significantly.

“More generally, the nature of mutuality is about people coming together to create shared solutions to common problems, and we expect to continue working with and learning from the experiences of other mutuals, both in the UK and abroad, whatever happens."

Solvency 2: Rating agency licenses

When, in 2017, insurers provide a detailed Solvency 2 return to the regulator each year (and for some quarterly), they will be expected to provide data on the ratings of relevant investments used in the SCR (Solvency Capital Requirement), to demonstrate that they understand the risks inherent in their investment portfolio.  Fund managers already purchase licenses from rating agencies, and in recent months EIOPA and PRA have reinforced the importance of this data, and rating agencies have duly explored how to configure their products for use by insurers.

AFM Associate member Investec recently hosted a meeting for AFM, to discuss with the three main rating agencies (Fitch, Moody’s and S&P) their position on licenses for ratings agency data.  A number of the members and actuaries also attended.

All three agencies confirmed that they expect the following licenses as a minimum under Solvency 2, where fund management is outsourced:

1.    The fund manager retains a license for the rating of their funds;

2.    The fund manager takes a license to allow them to redistribute this data to their insurance clients; and

3.    The insurer will require a license to present the ratings data as part of their regulatory return.

(In some cases, where the actuarial function is outsourced a license may also be required by the actuary, though each of the agencies accepted this might be done at zero cost as long as the use of the data was restricted.  This may also be the case for the external auditor, if they store data relating to investments on their systems.)

We explained the small scale of AFM members, and the very restricted use they would make of the ratings data, which other than for regulatory reporting has no commercial value.  

Having broadly conceded that the need for insurers to obtain a license would be unavoidable, we wanted to gauge to what extent we could negotiate a better deal for members, either to pay individually or collectively through AFM.   The agencies have responded very positively to this, and we anticipate providing attractive options for members to consider soon.

We have involved actuaries in the process too, and are waiting to hear from other fund managers what arrangements they have in place.  Members will need to take into account any costs passed on by their fund manager(s), how many licenses they require and from what date they need them.

I will cover this shortly in a more detailed note to members: hopefully members will recognise this as a valuable solution from AFM enabled by the more co-ordinated approach we can take under our revised working priorities.

New inquiry by the All-Party Parliamentary Group for Mutuals

The All Party Parliamentary Group for Mutuals provided some significant support to the sector in the last parliament, including its inquiry into mutual capital, which in turn helped shape the regulators response to Project Chrysalis, as well as the development of the Mutuals' Deferred Shares Act.

The new Chairman of the Group, Gareth Thomas MP, confirmed that in 2016 the group would undertake a new inquiry into “financial services and the contribution that mutuals could make to help build a robust and competitive economy”. 

The inquiry will look into what action is needed to increase corporate diversity in financial services, focusing on legislation, regulation and government policy.  It will consider the areas of policy that mutuals are best placed to help address, as well as any barriers to their success.  Evidence sessions are being planned for representatives of the mutual insurance sector, from building societies, and from Treasury and the regulators.

The resulting report should provide an effective basis by which to lobby for more active engagement between the government and the sector, and in recognising how mutuals can help solve key challenges facing society today.

Measuring the sector’s contribution to health and welfare savings

Every time a policyholder makes a claim on their healthcare or income protection policy, they benefit from knowing that this will help them no get back to work more quickly, more healthily and more financially robust that they would have been otherwise. The insurance will also help to reduce costs to the NHS or the welfare state, and improve their employer’s productivity.

These are a very tangible and very valuable set of benefits, and AFM has commenced a piece of work to better measure the savings that accrue, to the NHS, to DWP and to employers, via the mutual insurance sector.

As well as contributing some hard evidence to the APPG inquiry work highlighted above, it will also demonstrate the importance to society as a whole of encouraging people to take more responsibility for their finances, and for ensuring the workforce remains fit and healthy.

A number of members are providing helpful advice to this project, and we are very grateful that AFM Associate OAC is undertaken the detailed analysis.  To help identify the savings the sector provides to the NHS and DWP we will be contacting relevant members soon.  In the meantime, if you’d like more information please let me know.

Corporate governance

As we covered in the February “Governance News”, new requirements were introduced this year, to help ensure the report and accounts are more readable, and better help owners of firms understand the risks and viability of the company.

These changes are reflected in the Annotated Corporate Governance Code, as well as in enhanced auditor requirements.  Amongst the changes to the Code that were introduced in 2014 are the strengthening the content of the Strategic Report, to provide a clearer statement on the future viability of the organisation, the principal risks it faces and how the Board monitors those risks.

So far around a third of AFM members have completed the annual review exercise, and responses to those questions devoted to the revised elements of the Code indicate members have been able to adopt the enhanced reporting requirements effectively.  The deadline for reporting is 30 June, and we will look more closely at the results, and the quality of reporting, afterwards.

Other news in brief:

  • This year’s budget will be held on 16 March: we will alert members to any relevant issues soon after.

  • FCA’s long-awaited paper covering its thematic review of legacy life insurance products has now been published.  All life insurers will need to consider the findings carefully, and some of the good practice will also apply to non-life companies.  AFM will be responding with a range of activies.

  • Flexible ISAs: the savings industry has put together a leaflet explaining the changes to the product, which AFM members are welcome to download or print off.

  • ABI suggests UK is gold-plating Solvency 2 audit requirements: in a welcome echoing of AFM's position, a recent article shows broader concern on the disproportionate costs for small insurers and mutuals as a result of PRA’s decision to make audit of public disclosure documents mandatory: link (subscription service).

  • ICMIF Chief Shaun Tarbuck contributed to a global summit on “Insurers investing in climate solutions” at the UN in New York.  This was a vital opportunity to explain how mutuals are leading insurer work on climate risk across the world: link.

  • AFM has produced a draft statement providing guidance to members on competition law compliance, which members should consider when taking part in sector activity.

AFM Events

  • Our annual NED conference takes place this year on 10 May in London.  The event is tailored to NEDs, though member staff are of course welcome.  The full agenda is being prepared for release shortly.
  • We are planning a Solvency 2 post-implementation seminar with AFM Associate Moore Stephens, to be held at their London offices on 19 May.  Full details will be released soon, and the seminar will focus on regulatory and Pillar 3 reporting, and early experiences of the new regime.
  • The AFM Tax Training Day will take place on 14 June, at the office of AFM Associate Deloitte in London.  These events are always well-attended, and provide a snapshot of topical tax issues.
  • This year’s AFM conference and AGM will be held on 10th and 11th October, at the Holiday Inn, Stratford upon Avon.  Situated in central Stratford on the banks of the River Avon, the hotel will have completed a full refurbishment before our visit.

More details on how to book will follow over the coming weeks; in the meantime, if you have suggestions for content or would like to take part, please contact me.

As a reminder, last year’s eventtook place on Monday 12 October, at the Lancaster London hotel.  The event took the theme of “the future of mutual insurance” and a copy of the slides are available to view.

Associate members:

  • A number of AFM Associates are holding events targeted at members.  Our thanks to them for supporting the sector: in particular to Investec, OAC and Quilter Cheviot who have all run or scheduled events in the first half of 2016.

Other trade body events:

  • International mutuals trade body ICMIF, of which AFM is a member, is holding a special two-day event in York from 24 to 26 May, which is free for AFM members to attend.  The conference focus title is “Why Gen Y? Challenges and opportunities for mutuals”, with a plenary session on the first day and the chance to focus on the second day on a more specific topic in an ICMIF forum:

o   The Communications Leaders Forum – Gen Y marketing and communications

o   The Regulatory Issues Leaders Forum– Aligning the interests of policymakers/ politicians with those of regulators/ supervisors

o   The Leadership Development Forum – Leading in a Gen Y world

AFM member Benenden Healthcare is hosting the event, and AFM will be involved in one or more of the sessions.  Places are limited, and to book a place follow this link.

  • AFM is always pleased to alert members to the forthcoming congress of the European mutuals trade body, AMICE.  This event will be held 1-3 June, in Ghent, Belgium, with a focus on “Mutual Values” and how they can help secure the future of the sector. 

More details are available on the AMICE website: http://www.amicegent2016.eu/?q=21.

There’s more to AFM…

For more information on the work of AFM, visit our websites:

for members and all professional contacts

for the youngest children, their parents and teachers

for 7 to 11 year olds, their parents and teachers

for corporate governance compliance

You can contact us by:

·      Phone: 01472 852800,

·      E-mail: [email protected], and 

·      In writing: 7 Castle Hill, Caistor, Lincolnshire, LN7 6QL. 

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