The FSA has proposed relaxing with-profits rules in a move designed to allow mutual insurers which run a single fund to continue to write new business.
At the moment, mutuals which are not writing a “material volume” of new with-profits business must consider closing to new business in order to go into an “orderly run-off” that is fair to policyholders.
This had led to fears that mutuals which do not write a large amount of new with-profits business but offer other financial products, such as protection, could be forced to stop offering these products altogether.
Under the regulator’s proposal, mutuals would be allowed to separate a single common with-profits fund into two parts; a “mutual members’ fund” and a with-profits fund.
The FSA says this would allow with-profits mutuals to continue to provide financial services to new and existing customers using the mutual members’ fund, even if the with-profits fund were to go into run-off.
Any mutual wanting to make this change would need to seek approval from the Prudential Regulation Authority and the Financial Conduct Authority.
FSA head of retail investment policy David Geale says: “We have worked extensively with the mutual with-profits sector to develop these proposals.
“They recognise the need for some mutuals to develop new areas of business, while continuing to protect with-profits policyholders.”
Royal London head of corporate affairs Gareth Evans says: “We are glad the FSA has taken a pragmatic approach here. It is clearly not the intention of policymakers in Government or at the regulator to prevent mutuals from offering financial products.”