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Hogan Lovells Play key Role in Progression of Mutuals Deferred Shares Bill Through Parliament

06 March 2015

London, 6 March 2015 – On 6 March 2015 the Mutuals Deferred Shares Bill 2014-15 received its third reading in the House of Commons, the final stage in the parliamentary process before it is given Royal Assent and becomes law. This marks the culmination of two and a half years work of researching, drafting, negotiating and legislating for this landmark new law for mutual insurers and friendly societies.

Hogan Lovells consultant, John Gilbert, was involved in drafting the original Bill, which was introduced as a private member's bill in the House of Lords, and also advised on discussions with the Prudential Regulation Authority and HM Treasury on the treatment of mutual deferred shares under Solvency II, the new EU-wide regulatory regime for insurance business which takes effect on 1 January 2016.

Commenting on the Bill, John said:
"This is an important milestone for mutual insurers, permitting a new form of mutual share - the creation of member investment shares - for the purpose of raising capital.

"It is a significant step forward that the difficulties of raising capital in member-owned organisations have been recognised and addressed by Parliament, and the Bill has made swifter than usual progress, both in the House of Lords and Commons

"Mutual insurers and friendly societies will now be able to raise additional working capital to grow their businesses and develop new products; an exciting development that will allow them to compete in the wider insurance market".

When law, the Act will allow friendly societies and mutual insurers to raise additional capital by issuing a new form of mutual deferred shares.
Until now, the principal source of regulatory capital for mutual insurers has been retained profits, which has restricted their capacity to grow and put them at a competitive disadvantage compared with proprietary companies.  

In order to preserve the mutual character of the issuer, the Bill contains restrictions on the voting rights attached to the shares, effectively preventing investors from demutualising the issuer.

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