At the end of last year, the Bank of England, the PRA and the FCA jointly published the Mutuals Landscape Report.
Following the government’s decision to scrap the proposed Audit and Corporate Governance Reform Bill – which would have significantly reshaped the UK’s corporate governance and audit framework in response to several major corporate failures, the regulators’ proactive approach to the mutual sector is a welcomed development. In this article, we consider whether the proposed measures are sufficient to support the sector’s growth while ensuring the regulatory approach remains proportionate.
The future shape of the mutual insurance sector
The importance of the mutual insurance sector to both consumers and the economy as a whole is evident; along with the mutual ethos of building strong community roots, the sector manages the savings, pensions, protection and healthcare needs of over 26 million people in the UK and Ireland and collects annual premium income of over £23 billion. The mutual insurers’ share of the UK insurance market has remained roughly stable over the last 10 years at around 6% of total assets, and 5-6% of total premiums.
(Source – Mutuals Landscape Report)
Whilst the share of premiums and assets has remained relatively stable, the number of mutual insurers has fallen from 154 in 2016, to 93 in September 2025. Most of this reduction is due to the very smallest pension insurers completing their run-off; however, it is also indicative of the relatively high barriers to entry for mutuals across the entire industry.
Of those mutual insurers still writing new business for consumers, the last was authorised in 1988; this compares to the PRA’s New Insurer Start-Up Unit which has authorised 41 new non-mutual insurers since it was established in 2018. This clearly speaks to obstacles faced by mutuals in raising and maintaining solvency capital levels required under the UK regulatory regimes; not only is it harder for a new mutual to enter the insurance market, but smaller insurers are often left struggling to obtain the economies of scale required to maintain their existing operating and capital models.
The regulators do recognise these challenges, but it remains likely that the path to growth for those mutual insurers looking to expand will be to gain scale through merger or acquisition rather than organic growth. On a similar note, most mutual insurers seeking to exit the market do so via a transfer of engagements or through run-off, but these are generally of low value and complex portfolios of legacy business which can result in difficulties in finding suitable acquirers.
In 2026, the FCA plans to start work on broader legacy issues in the life insurance and pensions markets with a view to reducing regulatory barriers. The PRA intends to publish guidance on the Friendly Societies Act Part VIII transfers (what is known as Part VII in the non-mutual insurance world) to help mutual insurers better understand the process, costs and simplifications that are currently applied with the intention of reducing barriers to firms looking to merge or consolidate. It is vital that potential mergers and consolidations take account of the mutual ethos and strong community roots to ensure the needs of existing members continue to be met.
The continuing quest for proportionality
The changes to Solvency UK resulted in 13 small firms, 10 of which were mutuals, becoming eligible to fall out of scope of Solvency UK and into the simpler Non-Solvency UK regime. Solvency UK also resulted in significant reforms to reporting and disclosure reducing the burden of reporting, which particularly benefitted smaller firms, many of which are mutuals.
However, there is still one reform which could further significantly benefit many mutuals, particularly those at the lower end of the market. Whilst there is currently a review of the Friendly Societies Acts which govern most mutual insurers, a legal change outside the scope of these Acts – namely the Government definition of a Public Interest Entity (PIE) – would dramatically change the outlook for many mutuals.
Insurance carriers are defined as PIEs regardless of the size of the company or mutual, yet practically speaking many would not meet the broader definition of being in the public interest, being specifically operated to meet the needs of their members. There is also a small pool of auditors able and willing to audit PIEs, which increases cost overheads and reduces competition for these mutuals.
What’s next?
It is good that the relevant regulatory authorities demonstrate an awareness of the challenges facing the mutual insurance sector, and the need for proportionality; but as ever, the devil will be in the detail, and any potential changes in company law may take some time to deliver.
The regulators rightly stress that many changes the sector yearns for can only be delivered by government and hence the mutual sector will need to continue to work hard to keep this at the top of Westminster’s agenda.
For more information on the regulatory and sector issues covered in this article, please contact Martin Watson or James Randall.
