The UK Parliament has today approved radical legislation to enable friendly societies and mutual insurers in the UK to raise new capital from their members.
The Mutuals Deferred Shares Bill today completed its final stage in the House of Commons and will now receive Royal Assent.
This is the culmination of two and a half years work of researching, drafting, negotiating and finally legislating for this landmark new law for mutual insurers and friendly societies.
The Act permits the creation of member investment shares for the first time in insurance mutuals. Up to now, these firms can only raise capital through retained earnings and debt.
The new shares will qualify as restricted tier one capital for regulatory purposes and provide mutual insurers and friendly societies with the opportunity to raise additional working capital for business growth and new products.
The Mutuals’ Deferred Shares Bill is a successful Private Members Bill that was piloted through the House of Lords by Rt. Hon. Lord Naseby and completed in the Commons by Jonathan Evans MP. Both worked with Government and Opposition to build all-party support for the Bill.
The Bill was devised by Mutuo, the cross sector think tank and consultancy, and is the team’s fifth consecutive Bill to modernise mutuals law. Expert legal advice was provided by John Gilbert of Hogan Lovells International LLP.
Jonathan Evans said, ‘The important contribution made by mutuals to both innovation and corporate diversity has been significantly undermined by their inability to raise regulatory capital other than by retaining past profits, without losing their mutuality. I have no doubt that many more mutual companies would still be around today if these measures had been passed three decades ago.’
Lord Naseby said, ‘Our challenge was to amend the capital regime in mutuals to permit the injection of external capital, whilst safeguarding both the core purpose and mutual integrity of the business. I believe we have achieved that objective.’
Mutuo thanked the coalition of mutual insurers and friendly societies that supported this effort: LV=, Royal London, Wesleyan, Family Assurance, Engage Mutual and the Association of Financial Mutuals (the last two of these are ICMIF member organizations).
The provisions in this new law are inspired by a number of internationally renowned mutuals, including ICMIF member Desjardins in Quebec, Canada, which has an excellent tradition of raising investment capital from its members whilst ensuring the cooperative ownership of their business.
The next step is for detailed regulations to be prepared by HM Treasury and agreed with Regulatory Authorities. Once adopted by Parliament, the new regime will permit firms to begin issuing shares.