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The key question the amendment raises is how to ensure that the rights and interests of with-profit policyholders are dealt with. It is an extremely serious issue, as the noble Lord, Lord Joffe, made clear, which has not been dealt with adequately by many market participants up to this point. I suspect that it is easier to deal with such representation on the board of a mutual than a plc without opening up a wide range of other groups which might be represented on the board of a plc. I am full-square behind the amendment. It is a serious issue which is not adequately addressed in all cases under current regulation. I look forward to hearing the Minister's response on how the Government might strengthen the position of with-profit policyholders in future.
The key point of the debate is the difference between proprietary companies and mutuals. After all, the leading life with-profit policy organisation in this country is a mutual. While past performance is no guidance for future performance, if one looks at the performance of the top 10 with-profits life companies one will find that something like eight of them are mutuals. The consumer choice is there in the first place. The consumer chooses whether to invest in a with-profit policy in a proprietary company in the full knowledge that the success of that company will be shared between the with-profits holder and the shareholder. If they want to benefit from the whole of the profit, they should join those of us who are in the mutual movement.
Lord McIntosh of Haringey: My Lords, I am very tempted by the noble Lord, Lord Naseby, as one who has been--I have declared this interest to the House on another occasion--a with-profit policyholder in two mutual companies both of which decided to demutualise, against my vote. I have my own feelings on this matter. The Government's view is one which I think would be shared by the noble Lord, Lord Naseby: that there is a role for more than one form of governance in the insurance industry; and that there is a role for mutuals as well as proprietary companies. However, perhaps we are straying beyond the confines of the Bill.
We had a useful debate in Committee on the subject of the orphan estates of long-term insurers. In responding to that debate, I was able to give some assurances about the arrangements for the regulation of relevant business now under the Insurance Companies Act 1982, and how the FSA would be able
It was clear from our debate that a major concern was the transparency of the arrangements and the information provided to with-profits policyholders. The noble Lord, Lord Joffe, referred to that again in describing the case of the Prudential. Greater transparency is something that the FSA will be able to require using its powers under the Bill. It would be premature for me or for the FSA to say that it will do so. The FSA must come up with proposals for rules and consult on them, but I can say that it is something the FSA is considering.
Before I respond to the amendment, I should like to pick up a couple of points made by the noble Lord, Lord Joffe. I express my gratitude to him for sending a copy of his argument to me in advance. It is certainly the case that information is available to support the information sent to policyholders in the annual bonus notices. I may have given another impression at Committee stage. It may have been possible to construe my response to imply that the Treasury regulations require that information be sent to policyholders. If that were the case, I apologise. Let me explain my point so that the position is clear.
The Treasury requires a bonus notice to be given but it does not specify the information that has to be provided. However, substantial information must be published annually by insurance companies: their annual report and accounts; the regulatory return (it is still often called the DTI return); and the report of the appointed actuary. That information can be obtained from the company or Companies House.
The noble Lord, Lord Joffe, spoke in some detail about the particular company, the Pru. Since we are debating a Bill, I do not think that I should discuss the rights and wrongs of anything done by a specific company. However, perhaps I may say a word about where the Pru has got to in its proposals. I understand that it is proposing to make an attribution of the orphan estate from which the Pru would be able to make compensation claims. The appropriate share would go to policyholders.
As regards further distributions, the fact is that the Pru is not yet at the consultation stage. It would first need to obtain the approval of the regulator for the overall plan. There is not much point consulting if the FSA will reject the plan after consultation. I do not know whether that helps the noble Lord, Lord Joffe, but I took seriously his point about negotiations taking place for four years with nothing being said to with-profits policyholders.
The issue of pensions mis-selling goes wider than the Pru and the Government sought to address it soon after coming to office. Your Lordships will recall Mrs Liddell, when she held the post, severely calling insurance companies to account for pensions mis-selling and she demanded rectification.
There is a relationship between pensions mis-selling and orphan estates, but the position varies between firms. The matter must be considered on a case-by-case basis. However, as the matter has been raised I want to trail arrangements which will come later in today's proceedings. Perhaps I may address my comments in particular to my noble friend Lady Turner who expressed concern about the matter.
Amendments Nos. 212 and 222 provide a framework for reviews of past business if something along the lines of pensions mis-selling were to happen again. That is for a later debate, but having regard to the prominence given to the issue by the noble Lord, Lord Joffe, that may be helpful.
The subject of the amendment, while it also relates to the question of with-profits life insurance policies, is different from the issue debated in Committee. It seeks to ensure that the interests of the policyholders may be properly represented on the board of the company concerned.
It is not true to say that the board considers only the interests of the shareholders and that no one is available to represent the interests of policyholders. The regulator will for the most part be there to ensure that he represents the interests of the proverbial man on the Clapham omnibus and to ensure that he is properly taken into account by the company.
The amendment raises some technical difficulties because in our view it would confer a power on the authority which would not be appropriate. It goes way beyond matters of regulation and is more a matter of corporate governance.
I accept that Part V of the Bill gives the FSA certain powers in relation to the membership of the boards of authorised firms, which will allow the FSA to intervene in specific cases in order to protect the interests of policyholders: for example, to prevent a person who is unfit to be a director of an authorised firm from holding such a position; or to ensure that the board has an appropriate balance of expertise and experience and of executive and non-executive members. But there is a world of difference between an intervention power of that kind and a statutory prescription that a particular category of stakeholder should always be represented on the board.
Therefore, that is not a power which I would wish to see conferred on the FSA; nor do I believe that it is truly a financial regulatory issue. Therefore, it would be outside the scope of the Bill. Against that, I accept that the arrangements are not entirely without precedent. The Pensions Act 1995 makes arrangements allowing pensioners to be trustees of a pension fund. But in that case the assets are held in trust for pensioners, so the case for pensioner directors is stronger.
Therefore, I would not rule out the possibility of a provision on the statute book that would have the effect of requiring policyholder representation on the board of a company whose business included with-profits long-term insurance. However, it seems to me that that is a question best considered in the wider context of the company law review and not financial regulation.
On the basis that the issue will be considered in the context of the company law review currently being carried out by the Department of Trade and Industry, I regret that I invite the noble Lord, Lord Joffe, to withdraw his amendment.
Lord Joffe: My Lords, I am grateful to the Minister for his careful consideration of the amendment. As regards the distinction between mutual and with-profits companies, I fear that the mutuals are fast disappearing and that choice will soon be very limited. But that is not the main thrust of my case.
I am encouraged by the Minister's comments on the company law review and his clear acceptance that there is some merit in the points raised, in particular transparency from the point of view of policyholders. Having regard to that and the urgent need to get the Bill on the statute book in as short a time as possible, I beg leave to withdraw the amendment.