Consolidation essential for mutual survival

Consolidation essential for mutual survival

Consolidation has to happen at a faster pace for the mutual market to thrive, according to Family Investments chief executive Simon Markey, with his firm ready to acquire again after its recent merger with Engage Mutual.

At the end of last year members of Engage voted in favour of a proposed merger with Family Investments, forming one of the UK’s largest mutual insurers with over 2m customers.

Mr Markey told FTAdviser that the final sign off from regulators is expected within the next few weeks and the deal will officially complete later in the first half of this year.

Integration planning will continue for the next couple of months, with full completion expected within the next couple of years, while he added that the group was keen to broaden its product range during 2015.

“We’re looking at specialised lending - things like first-time buyers and equity release - and the annuity markets, where we can take advantage of the current turmoil. I can’t give any details but expect announcements later in the first half,” explained Mr Markey.

As for consolidation in the market, he cited a Deloitte report on the market which found that the top five insurance mutuals have around 80 per cent of the sector’s total funds under management and over 90 per cent of mutuals have assets of less than £1bn, adding there is a “long tail” of smaller mutuals that will increasingly struggle with the burden of regulation and capital adequacy requirements.

Martin Shaw, chief executive of the Association of Financial Mutuals, told FTAdviser that while the industry has assets under management of around £110bn and about 20m policyholders, it has been typified by de-mutualisations.

“Some have thrived, with popular products and clearly defined affinity bases, but for others growth has stalled as products have become less niche, or in the case of child trust funds, withdrawn altogether at the stroke of a pen.

“We have 52 members and I can see that falling below 50 in a few months. Within five years time the stronger will have gotten stronger and market share will increase, but the overall number of players will shrink rapidly.”

Mr Markey commented that if mutuals can merge and improve efficiency, then they will be more able to offer products and prices that differentiate them from the big banks.

One of the main reasons for its merger was to help improve efficiency and cost effectiveness, seeing a shared strategy with Engage, along with complementary product lines. Where Family are big in cash Isas, Engage have life insurance, and the former is also looking to utilise the latter’s circa 500 strong adviser distribution network.