Independent Reviews into corporate governance of mutual life offices and the actuarial profession

As a consequence of the findings of Lord Penrose’s Inquiry into Equitable Life, Financial Secretary to the Treasury Ruth Kelly has today commissioned two independent reviews and requested that the Accounting Standards Board undertakes an urgent study into the accounting for with-profits business by life insurers.

Paul Myners will lead a review into the corporate governance arrangements applicable to mutual life offices. The terms of reference of the review are to:

Consider the governance framework for mutual life offices in comparison with that for comparable companies (and, where relevant, for listed companies).
Where appropriate, bring forward recommendations to ensure that boards of mutual life offices are as accountable to their members as boards of comparable companies are to their shareholders.
As part of this, the review will examine:

the level of member involvement in the governance of mutual life offices;
Board accountability for mutual life offices; and
the level of regulation by the FSA to which mutual life offices are subject.

The review will consult as widely as possible, taking into account the recent experience of other mutuals in this area in developing its conclusions and recommendations.
Since the governance of mutual life offices has much in common with that of other mutual societies, where appropriate, the review may also develop general governance principles for other types of mutual (taking into account the particular characteristics of other parts of the mutual sector).

The review will deliver a report with recommendations by the end of 2004.
Commenting on the review of mutual life offices, Ruth Kelly said:

“Although, as Lord Penrose himself points out, the problems at Equitable arose as a result of the particular circumstances in place during the inquiry period, the Report raises important questions for the governance of mutual life offices in general. The Government sees no reason in principle why boards of mutual life offices should not be as accountable to their members as those of comparable companies are to their shareholders.”

Sir Derek Morris will lead a wide-ranging review of the actuarial profession. The review will start on 1 May, following his retirement from the Competition Commission. The terms of reference for the review are:

Consider what professional and/or other regulatory framework would best promote recognised, high-quality and continuously developing actuarial standards, openness in the application of actuarial skills, transparency in the professional conduct of actuaries, accountability for their actions and an open and competitive market for actuarial advice in the UK;

In doing so:

Take into account developments in the actuarial profession, in regulation, and in the financial services market, in the UK and abroad;
Examine the roles of actuaries in the financial services sector, including in providing actuarial opinions in relation to audited accounts;
Build on the work of recent government and regulatory initiatives;
Examine the relationship between the Government Actuary’s Department and the actuarial profession and with other parts of government.

Recommend a framework that will be independent in representing the public and consumer interest, and be accountable, flexible, transparent, and no more burdensome or restrictive than is clearly justified.

Make recommendations on the future role of the Government Actuary, the functions of his Department and its future institutional status.

The review will deliver a final report with recommendations by spring 2005.

Commenting on the review of the actuarial profession, Ruth Kelly said:

“Actuaries play a vital role in the financial services industry and as a profession have placed admirable emphasis on high standards of technical ability, knowledge and integrity. However Lord Penrose’s Report has made it clear that relying on this is not enough. A modern professional or regulatory framework is necessary. Given its significant role in the affairs of the actuarial profession, it is appropriate that GAD also be considered by the review.”

Ruth Kelly has today written to the Chairman of the Accounting Standards Board requesting that the Board initiates an urgent study into the accounting for with-profits business by life insurers. The details of the study will be finalised once the Board has considered the contents of the Penrose Report. However, the Financial Secretary has requested that recommendations should be made by the end of this year and has suggested that the Board involve its committee, the Urgent Issues Task Force, to this effect.

Notes for editors

1. Lord Penrose’s Report into Equitable Life was published in full today. It can be found on the HM Treasury website. Hard copies are available from The Stationery Office, tel: 0870 600 5522.

2. Today’s statement to Parliament by Ruth Kelly on Lord Penrose’s Report can be found on the HM Treasury website

3. Paul Myners is currently chairman of Guardian Media Group plc and Aspen Reinsurance and will become chair of the Tate at the end of this month. He was formerly chairman of Gartmore Investment Management from 1999-2000. In 2000 he was commissioned by the Treasury to lead a review of institutional investment in the UK. The review reported in 2001.

4. Sir Derek Morris is currently Chairman of the Competition Commission (1998 – present). The review will commence on 1 May, after his retirement from the Competition Commission. He was from 1970 to 1998 the fellow and tutor in economics, Oriel College, Oxford, and a Lecturer (subsequently, Reader) in Economics, Oxford University. From 1981 to 1984 he was Economic Director at the National Economic Development Office (NEDO); and from 1984 until 1998 was Chairman of Oxford Economic Forecasting Ltd. He has published a number of books and articles on economic topics, primarily in industrial economics and on corporate control and performance. He is an Emeritus Fellow of Oriel College, Oxford, and was elected Provost of Oriel College, Oxford with effect from 1 October 2003, though he will not take up his duties until April 2004.

5. Enquiries regarding the proposed review of accounting for with-profits business by the Accounting Standards Board should be directed to the Chairman, Mary Keegan, on 020 7611 9702.

6. Media enquirers can contact the Treasury press office on 020 7270 5238.