UK Mutual Insurers and the Drive for Growth

Mutuals are a longstanding and key part of the UK insurance sector. In this update we explore their role in today’s UK financial services sector, their unique offering to policyholders and the regulatory landscape in which they operate.

1. MUTUAL INSURANCE TODAY

In the UK, the mutuals sector has gained renewed political attention, with the UK government expressing an aim to double the size of the UK mutuals sector which, according to the Prudential Regulatory Authority (“PRA”), has remained steady over the last 10 years, representing around 6% of the total assets held by, and 5-6% of total premiums written by, UK insurers¹.

Mutual insurers also have a significant presence in some of the world’s largest insurance markets, including the USA and Japan. In total, insurance mutuals accounted for 26.3% of global insurance premiums written in 2022, according to a study carried out by the International Cooperative and Mutual Insurance Federation in 2024². In Europe, around 31.8% of total premiums written in 2024 were by mutual insurers, which also held around 38.5% of the European insurance market’s assets³.

The UK government and regulators have recognised mutuals’ ability to contribute significantly to the financial stability of the insurance industry and to offer niche products to policyholders which may not be offered by other insurers. The alignment of interests between mutuals and their policyholders and their member-centric ethos also align closely with the FCA’s Consumer Duty principles and can serve to promote policyholder trust in the insurance market.

However, whilst mutuals face many of the same issues as other insurers operating in today’s insurance sector, their ownership structure can present unique challenges to new entrants. The number of mutuals operating in the UK has decreased significantly in recent times despite market share remaining steady, with the three largest insurance mutuals now accounting for 84% of the sector’s assets⁴.

For mid-size and smaller mutuals, access to capital remains a particular challenge, limiting their ability to modernise and compete with both the larger mutuals and other insurers. Compliance with increasing levels of regulatory obligations and operating costs for mutuals committed to pricing stability, as well as a lack of awareness and understanding of the mutual model by some investors,⁵ are also often cited as barriers to growth and sustainability⁶.

The UK government’s and regulators’ expressed commitment to engage with the industry on these issues, including via the publication of the PRA’s Mutuals Landscape Report and the Financial Conduct Authority’s (“FCA”) Registering Authority Report, and engagement with a newly established Mutual and Co-operative Sector Business Council⁷, is a positive development for the sector.

2. KEY FEATURES OF UK FINANCIAL SERVICES MUTUALS

Modern mutual insurance traces back to the 18th–19th century member‑run societies that pooled risk locally and by trade or profession (e.g. farmers or craftsmen), expanding as a social‑enterprise form focused on member benefit.

Whilst the financial services mutual sector has grown as a whole in recent years, the PRA notes that there has been very limited entry of new mutuals into the market  (though there have been recent examples of authorisation of mutual reinsurers). Although a large number of smaller mutuals remain in the UK market (with a total of 9,500 mutuals currently active in the UK) ⁸, there has also been significant consolidation, with the preferred strategy for many mutuals being to gain scale through merger or acquisition rather than organic growth. A recent example is the reported proposed merger of OneFamily and Scottish Friendly, which (subject to regulatory approval) could form one of the UK’s largest insurance mutuals⁹.

However, as the PRA has acknowledged, the consolidation process may not be an easy process for some mutuals with complex legacy business of a low value¹⁰. The PRA appears to recognise the need for smaller mutuals to consolidate and intends to issue clarificatory guidance on the mechanism to transfer /  amalgamate Friendly Society businesses (discussed further below) to help mutual insurers better understand the process, costs and simplifications that apply.

TYPES OF UK MUTUAL INSURERS

The term “mutual”  is wider than mutual insurers and encompasses organisations with different ownership models and methods of running their business, including co-operatives which are owned and controlled by their members, to meet their shared needs and which adhere to the Co-operative Values and Principles¹¹.

Mutuals operating in the financial services sector include:

• Mutual insurers
  
  Mutual insurers operate in both the life and non-life insurance sectors, including in the wholesale general insurance and marine insurance markets (for example, as Protection and Indemnity Clubs (P&I)).
  Mutual insurers themselves come in various different legal forms:

1. some of the largest mutual insurers are formed under the Companies Act 2006 as companies limited by guarantee without share capital;
2. many are registered as Friendly Societies (organisations that provide insurance or other benefits to their members and are primarily funded by those members) under the Friendly Societies Act 1992 or the Friendly Societies Act 1974;
3. a small proportion of mutual insurers are registered as co-operatives under the Co-operative and Community Benefit Societies Act2014 (“CCBS Act”); and
4. others are unregistered companies.

• Funeral Plan Providers

1. funeral plan mutuals offer funeral plans to consumers and are formed as consumer co-operatives registered under the CCBS Act.

• Building societies

1. building societies form an important part of the mortgage and savings market and, subject to certain restrictions, can carry out a wide range of other financial services such as other forms of lending and investment, money transmission services, banking and insurance services; and
2. building societies are incorporated under the Building Societies Act 1986.

• Credit unions

1. credit unions are mutual societies that provide loans and savings products to their members. Credit union members must have specific common bonds between them (which may be occupation/employer-based or based on a locality or association) and legislative limitations apply to both the amount of interest credit unions can charge on loans and the nature of the business they can undertake; and
2. credit unions are established under the Credit Unions Act 1979 and registered under the CCBS Act as a special class of society.

COMMON CHARACTERISTICS

Whilst mutuals adopt a variety of different legal forms and operate their business activities in very different ways, their key defining and common characteristic is their ownership structure.

Mutuals are owned by their members (who are policyholders) as opposed to shareholders. In principle, this can offer significant benefits to policyholders. Members’ interests can be prioritised over the payment of shareholder profits, encouraging longer-term decision-making based on stability as opposed to prioritising short-term gains.

In general terms, mutual insurers tend to:

• hold higher capital buffers than non-mutual insurance companies;
  
• assume fewer underwriting risks;
  
• avoid volatile investment strategies; and
  
• invest in long-term projects and avoid short-term cost cutting that harms service quality.

However, for smaller mutuals, strong member-centric commitments to maintaining pricing stability and the type and terms of products offered in an environment of rising costs could come at a cost to their future viability. The FCA noted, in a recent review of how smaller mutual life insurers are meeting their Consumer Duty requirements, that whilst the emphasis on placing customers at the heart of their organisation was good practice, some smaller mutuals were inconsistent in assessing their future viability¹².

3. CAPITAL AND CASHFLOWS

SURPLUS

Mutuals receive premiums from their members and any surplus arising from underwriting profits, prudent expense management, and investment returns will either be used to strengthen the mutual’s balance sheet or be returned to members through enhanced product value. This structure ensures that economic gains accrue to policyholders over time rather than leaking out via dividends to shareholders.

Mutual insurers can use surplus to benefit policyholders in a number of ways, including:

• reducing premiums of the insurance policies underwritten (including by lowering charges and expenses);
  
• increasing the scope of coverage of the insurance policies;
  
• paying out policyholder dividends in various forms, for example, providing discretionary premium rebates, loyalty benefits, or member distributions;
  
• improving the mutual’s systems and operation, for example by investment in new technology to facilitate faster and fairer claims settlement, better customer support, fewer operational errors and lower frictional costs; and
  
• increasing solvency coverage and financial resilience, considering that a stronger capital position reduces the likelihood of distressed actions that could erode value, such as abrupt premium increases, severe underwriting retrenchment, or forced asset sales in adverse markets.

In summary, surplus reinvestment in a mutual can directly benefit policyholders by reinforcing solvency, stabilising pricing, improving product terms and service, and ensuring that economic gains are returned to members rather than to outside shareholders.

RAISING CAPITAL

Mutuals have a more limited range of external capital-raising options than other forms of insurance company. Whilst surveys show that raising capital is less of an issue for the larger mutuals¹³, it has historically been and remains a significant challenge for mid-size to smaller mutuals.

Through the late 20th century, several UK life/general mutuals demutualised or consolidated, driven in part by capital‑raising constraints under shareholder‑centric regulatory and market norms, and the UK mutual insurance market share fell sharply during this period before stabilising at a lower base.

The PRA noted in 2025 that the mutual sector continued to hold higher capital buffers than shareholder-owned firms¹⁴ which could be due to mutual insurers’ reliance on generating capital internally over time, rather than being as easily able to source additional capital externally.

Approaches to capital raising vary significantly between mutuals of different sizes but include: 

• Retained earnings: this is the most common route to generate capital, with profits being reinvested back into the business rather than being distributed as dividends or other benefits. Raising capital in this manner can align with the mutual ethos of prioritising long-term stability over short-term gains and prioritise prudent portfolio management;
  
• Subordinated Debt: this can be attractive to investors seeking higher yields and is structured in a way that facilitates the mutual’s ownership model;
• Mutual‑compatible capital instruments: mutuals can also raise capital through member contributions, either by increasing membership fees or by issuing mutual capital instruments (“MCIs”). MCIs allow mutuals to raise funds from members without diluting control. They carry long-term, fixed interest rates.

The PRA acknowledged in its Mutuals Landscape Report¹⁵ that for insurance mutuals looking to invest and grow, the limited number of methods to raise capital is challenging and that some smaller mutuals had suggested that current legislation presents a barrier to capital management.

However, the PRA does not seem to be contemplating any legislative changes specific to capital raising methods for insurance mutuals, stating that some of the larger mutual insurers have successfully accessed regular public debt markets and any legislative changes to develop new capital instruments would benefit only a minority of firms and involve significant cost and complexity. Previous attempts to introduce further methods by which mutuals could raise capital (via amendments to legislation) were never fully adopted or progressed. A lack of understanding of insurance mutuals’ structure / business has previously been cited by industry participants as a reason why smaller mutuals may struggle to access the same capital¹⁶. The FCA has proposed increasing the amount of publicly available information on mutual insurers to encourage growth in its Registering Authority Report¹⁷.

However, on 14 November 2025, the PRA signalled a notable shift in its stance on capital innovation in the UK life sector. It published a discussion paper exploring potential methods for life insurers (specifically mentioning mutual insurers) to increase access to alternative capital which it was previously closed off to. This includes the potential for UK insurance special purpose vehicles to access capital market investments for life risks, together with other structures used in the banking sector.  The discussion paper is conceptual in feel, and at this stage is intended to prompt a round of industry engagement as opposed to any detailed proposals, but is a positive development and something that we expect some mutual insurers will have engaged with already.

4. REGULATION OF MUTUAL INSURERS

The legislative and regulatory requirements that apply to mutuals differ depending on their legal form. However, all financial services mutuals carrying out regulated activities are regulated by the PRA and / or FCA under the Financial Services and Markets Act 2000 (“FSMA”) in the same way as other financial institutions.

Mutual insurers, building societies and credit unions are regulated by both the PRA and FCA (as “dual regulated” firms) with mutuals providing funeral plans solely regulated by the FCA. For dual-regulated firms, the PRA is responsible for prudential supervision and the FCA is responsible for conduct supervision.

APPROACH TO SUPERVISION

The regulators’ approach to the supervision of mutual insurers is generally consistent with that for other insurers and many of the same regulatory requirements apply.

However, the regulators are required to ensure that their supervision is proportionate to the size and risk profile of the firms they supervise. Therefore, smaller insurers (the vast majority of whom are mutual insurers) are in some cases exempt from some of the more onerous regulatory requirements. To take an example, firms under certain thresholds (see Section 4 below) will fall under the PRA’s “Non-Solvency UK regime”, a simplified regime tailored to small insurers, and are exempt from some of the more onerous reporting requirements. Despite these exemptions, however, the cost of regulatory compliance for smaller mutuals remains high, particularly as regulatory scrutiny in certain areas intensifies (such as the FCA’s focus on compliance with the Consumer Duty).

REGULATORY LANDSCAPE

In recent years, the PRA and FCA have generally adopted a supportive approach to consolidate the sector, help the growth of mutuals and support their development within the insurance market.

As mentioned above, the UK government expressed its commitment to growing the UK mutuals sector as a whole in 2024. The Mutuals Landscape Report and the Registering Authority Report were subsequently published in 2025 to help progress discussions on how best to support the mutuals sector.

The FCA’s 2025 Registering Authority Report set out the steps it is taking to improve understanding of mutual societies, which it believes could help growth. These include¹⁸:

• enhancing the amount of information available to the public on the Mutuals Public Register, initially focusing on financial information submitted through annual return forms; and
• establishing the “Mutual Societies Development Unit”, to engage policymakers, academics and researchers, think tanks, trade bodies and others on policy and understanding relating to mutual societies.

The FCA has also commissioned research papers on the co-operative / mutual regimes in other jurisdictions so any learnings could be applied. The Mutual and Co-operative Business Counsel was also established to aid these discussions, of which some of the largest mutuals are members. 

To date, however, the principal regulatory reform supporting the growth of mutuals in the UK is the implementation of Solvency UK¹⁹ which is, in part, focussed on proportionality to reduce regulatory burden on firms and support sustainable growth (on the basis that many smaller insurers in the market are mutual insurers, these should be beneficial to the industry). The principle changes included:

• matching adjustment eligibility: changes were made to the prior regime to support insurers to make investments in the economy by enabling them to access a broader range of matching adjustment eligible assets more quickly and by removing unnecessary bureaucracy. The PRA’s new framework, known as the Matching Adjustment Investment Accelerator, removes the requirement to obtain prior approval from the PRA before UK insurance firms can claim matching adjustment benefit on certain assets;
  
• increased number of firms subject to the non-Solvency UK regime: thresholds for firms to access the non-Solvency UK regime (a simplified version of the Solvency UK regime)²⁰ were reduced to bring more firms in scope (from €5 million to £25 million in annual gross written premium income and from €25 million to £50 million for a firm’s and group’s technical provisions). As a result, the PRA states that 13 small firms (10 of which were mutuals) became eligible to move into the simpler non‑Solvency UK regime; and
  
• reporting and disclosure requirements: certain requirements were simplified and reduced to lessen administrative burden (almost 50 reporting templates and certain supervisory reporting requirements, alongside other disclosures, were removed).

Other actions the PRA and FCA have taken or are intending to take to support growth (as specified in the 2025 Landscape Report), include:

• Part VIII Transfer Guidance: as mentioned above, the PRA recognises the increasing consolidation in the market to enable smaller mutuals to achieve economies of scale, minimise costs and expenses, and maximise specialised expertise and technologies. It intends to publish further guidance on the method by which friendly societies can transfer their business to another insurer (by way of a Part VIII transfer under the Friendly Societies Act 1992²¹) to demonstrate how this could be carried out in a cost effective manner and with limited burden to support this process;
• Establishment of Scale-up Unit: to reflect feedback that smaller firms face barriers to launching new products due to development and testing costs and regulatory complexity, the PRA and FCA established a joint Scale-up Unit. This is intended to help firms understand the regulatory processes relevant to their scaling-up plans and provides access to support - for example, when firms are looking to launch a new or innovative product or service;
  
• Simplification of PRIIPS regime: attempts to simplify product information on Packaged Retail and Insurance based Investment Products (PRIIPS), Undertakings for Collective Investment in Transferable Securities (UCITS) and non-UCITS retail schemes;
• COBS 20 Application: the FCA has acknowledged challenges firms face in implementing certain aspects of the approach to with-profit funds set out in Conduct of Business Sourcebook (COBS) 20 in the FCA’s Handbook. The FCA plans to start work on broader legacy issues in the life insurance and pensions markets; and
• Review of Friendly Society Acts: the PRA has also been engaging with the Law Commission in their review of the Friendly Societies Acts. On the conclusion of the review, the PRA and FCA will consider how best to update the regulatory framework to reflect any changes.

The PRA stated in its 2025 Landscape Report that it had not heard significant calls from insurance mutuals for further wholesale legislative reforms, citing only the Building Societies Act 1986 and the Credit Unions Act 1979 as legislative areas for change. However, it expressed an openness to discussing how best to support the mutual sector further, particularly in the area of raising capital.