Wednesday 1 August 2007
Reliance Mutual Insurance Society Limited (Reliance Mutual) has successfully completed the first ever takeover of a friendly society with tax exempt business by an insurance company.
The takeover of Hearts of Oak Friendly Society (Hearts of Oak), which on 25 June became Hearts of Oak Insurance Company Limited as part of the acquisition process, was formally concluded following approval by the High Court of Justice on 26 July 2007.
Hearts of Oak had been closed to new business since 1999 and was one of the larger friendly societies in the UK, ranked 9th by size of funds with £320m of assets under management. Its 66,000 policies included with-profits and unit linked endowments, whole of life, personal pensions and annuities.
This landmark acquisition is the first deal to utilise the legal changes for such transfers included in the 2007 Finance Act which received Royal Assent in late July.
Friendly societies often have portfolios of business which enjoy tax exemption and prior to these legal changes this beneficial tax treatment was lost if the friendly society business transferred to an insurance company. The legal tax change removed this artificial barrier so that insurance companies like Reliance Mutual can now provide greater opportunities to friendly societies looking for partners (or support).
Mark Goodale, Chief Executive of Reliance Mutual said, “Hearts of Oak was suffering a declining policy base, rising costs and reducing financial resources. Reliance Mutual has been able to remove the expense risk from the former Hearts of Oak with profits policyholders, as well as significantly reducing their exposure to the risk of annuitants living longer than initially expected. We have also been able to provide them the security of being part of a larger organisation that is financially much stronger.
“We believe that the situation that Hearts of Oak faced is not unique among friendly societies. With the recent legal tax changes our industry has entered a new chapter in the future relationship between a friendly society and an insurance company, and we would be happy to talk to other societies facing similar issues.”
Reliance Mutual has considerable experience in the business transfer and acquisitions market for the small to medium sized insurance company and friendly society sector. This is Reliance Mutual’s sixth acquisition since 2003.
Goodale added, “Our priority now is to ensure former Hearts of Oak policyholders are well looked after. The approach Reliance Mutual takes is people based with a commitment to our policyholders that makes sure they are all treated fairly – and to that end we welcome former Hearts of Oak policyholders into the Reliance Mutual family.”
At the same time as completing this acquisition, Reliance Mutual is taking the opportunity to rationalise its structure by transferring the business of its two subsidiaries, RM Life Assurance Limited (formerly SEB Trygg Life (UK) Assurance Company Ltd) and University Life Assurance Society (acquired from Equitable Life on 1 June 2007), to the parent company of the Group (Reliance Mutual Insurance Society). From 1 August 2007, all life assurance business of the Group will be part of the main company.
ENDS