View the article online at http://citywire.co.uk/money/article/a646907
Regulator plans bigger role for mutuals in rule shake-up
A change in the rules would allow mutuals to break into new areas of business.
Mutual organisations could bring a competitive edge to financial services if the regulator’s plans to allow them to diversify their businesses go through.
The Financial Services Authority (FSA) has issued a consultation paper on the future of mutual companies that write with-profits business. Mutual companies are financial companies that are owned by their members rather than shareholders so do not pay out dividends.
There is a concern that mutual insurers that run closed with-profits funds could face collapse when the fund is in ‘run off’ – when the last policyholders see their with-profits policies mature.
As there are no new customers coming into the funds many mutuals have a pot of money at their disposal that is not being paid out via new policies and due to stringent rules cannot be used to generate or back other lines of business, such as launching new products.
A change in the rules however, would mean that mutuals could separate the with-profits money and use the rest of the money to generate new business by launching products and attracting new business.
Martin Shaw, chief executive of the Association of Financial Mutuals, said: ‘A change in the rules would allow mutuals to find alternative business, it is an opportunity to [use the money available to] develop new products and a new customer base.
Shaw said mutuals could be a stronger presence in markets like protection and increase competition in the marketplace.
‘We are talking about product areas that are available at the moment but which mutuals do not have participation in. For example protection policies is where mutuals could come into the market.’
Shaw added that the government and regulator were both keen to see mutuals take a bigger stake of the market.
‘The life insurance industry is struggling to grow whereas the mutuals have been growing over the past year. [Changing the rules} would give more opportunity for growth,’ he said.
The Citywire guide to investment trusts
In association with Aberdeen Asset Management
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by Dumb Investor on Mar 12, 2014 at 12:04