The Friendly Giant

Malcolm Berryman, chief of the shy friendly society Liverpool Victoria, is a man with a mission to plough profits back to his one million members. So how is he able to offer guaranteed endowment mortgages and give with-profits policyholders a return that's double the industry average?
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The Independent Online

Don't whisper it too loudly, but one of the best-kept secrets in financial services is a company called Liverpool Victoria. It doesn't promote itself much, relying instead on word of mouth, but the message is beginning to spread like wild fire through leafy middle-class suburbs. Basic, good-value insurance and excellent long-term investments are only part of what's on offer. Endowment mortgages that will produce returns significantly above industry averages and guarantee agreed target returns are another. You can also insure your home or car for prices that regularly appear in the best-buy tables. What's more, the policies tend to be straightforward, with no venomous caveats lurking in the small print.

Don't whisper it too loudly, but one of the best-kept secrets in financial services is a company called Liverpool Victoria. It doesn't promote itself much, relying instead on word of mouth, but the message is beginning to spread like wild fire through leafy middle-class suburbs. Basic, good-value insurance and excellent long-term investments are only part of what's on offer. Endowment mortgages that will produce returns significantly above industry averages and guarantee agreed target returns are another. You can also insure your home or car for prices that regularly appear in the best-buy tables. What's more, the policies tend to be straightforward, with no venomous caveats lurking in the small print.

In itself, this makes Liverpool Victoria no ordinary insurance company. But there are other differences. Now based in Bournemouth, Liverpool Victoria is a Friendly Society which finds its roots deep in the traditions of 19th century working class self-help. Relatively small compared to competitors in the long-term investment market, it is nonetheless the biggest friendly society with more than a million members. And Liverpool Victoria is acquiring a name for itself not just among customers. Strong investment performance, with a 20 per cent rise in assets in the past three years, coupled with the attractive propositions it offers, is making industry insiders sit up and take notice too.

With consolidation beginning to sweep the industry, Liverpool Victoria is determined that it should be consolidator, as opposed to the consolidated. The society is looking at several targets to provide economies of scale, particularly on the general insurance side, and was on the final shortlist for Scottish Life, the £1bn Edinburgh-based pensions mutual which had put itself up for sale. This prize eventually went to Royal London, but there are other possibilities.

In the ultra-competitive insurance market, with its razor-sharp margins, Liverpool Victoria is finding it can already compete with the giants. Last year it increased its total premiums by 12 per cent to £200m. Malcolm Berryman, chief executive, says the secret of Liverpool Victoria's success is its approach to investment. "We go for long-term investment that is consistently in the second quartile, rather than sometimes in the top but sometimes in the bottom," he says. "We also have good people and we don't attempt things we are not good at. We don't do our overseas investment ourselves."

Liverpool Victoria has amassed £5.2bn of assets through its policy of long-term investment. This compares to £4.3bn three years ago. Last year Liverpool Victoria yielded a return on capital of 22 per cent. The society's fixed asset ratio, the way insurers' financial strength is valued, is the second-best on the market.

The upshot is that the society can put 75 per cent of its funds into equities, a higher proportion than most plcs and other mutuals. The high exposure to equities has fed through into the performance of its members' funds, placing Liverpool repeatedly in the best-buy tables this year. Last year, with-profit policyholders took a return of 12 per cent on their investments, compared to an industry average of 6 per cent.

Liverpool's with-profits policies rank first in the UK over five, 10, 15 and 20 years and second over 25 years, shows a survey by the trade magazine Money Management. On general insurance, the society ranks in the top 20 insurers of home, motor and contents, shows Department of Trade and Industry data. It can do this, it says, because of its whizzy risk-assessment computer systems, which categorise people down to the last letter of their postcode. It also has a much higher customer retention rate than many insurers, allowing it to avoid high levels of expensive new premium-writing.

But if the products are every sales team's dream, why isn't Liverpool Victoria shouting about it? Mr Berryman says: "Our level of progress over the past couple of years has caught us out. We are only now coming to the market place and saying, 'This is what we have to offer'."

The offensive includes a move to encourage people to shed their view of the society as staid, kicking off this month with a magazine advert featuring a woman clad only in a bra, with a Liverpool Victoria credit card strategically placed. But although 45-year-old Mr Berryman wants the society to offer the best products on the market, he isn't particularly interested in gobbling up new customers to boost market share. "Our purpose is to enrich the lives of our existing customers and their families," he says. "We're not trying to attract big new numbers of customers. We don't have a growth objective in that sense."

Mr Berryman believes Liverpool Victoria is free of the need to attract ever more customers because of its mutually-owned structure. Friendly societies are governed by the Friendly Societies Act, which allows them to offer tax-free savings plans, a long-term savings product no other company can offer. Apart from this caveat, friendly societies operate like other mutually-owned insurance companies and building societies. They are owned by their members, who must vote on major changes to rules. They also have no shareholders who need to be fed out of profits.

Instead, the rationale on the investment side of the business is to return a large proportion of profits to members. The general insurance side is run to add value to members. While it operates separately and is underwritten entirely by Liverpool Victoria, its profits are fed into the general group's pot and returned to members of the society in bonuses.

Mr Berryman says: "Our focus is completely different from plcs - we are not out for the hard sell to get people to take one or two products. We want people to come to us and have a basket of products for their lifetime." Becoming a member is straightforward - all you have to do is start a life policy such as an endowment or pension.

As well as its one million members, the society has about the same number of customers who hold renewable insurance policies, rather than lifelong ones. But full membership is rewarded. They get profits made by other parts of the business, and a reduction of between 10 and 15 per cent on general insurance premiums, better terms on personal loans and extra allocations on life and other investment products.

Unlike many member-owned organisations, Liverpool Victoria has not increased its boundaries to membership to combat the threat of carpetbaggers raiding it for windfalls estimated to be worth up to £2,000 each. But would-be carpetbaggers should not expect an easy target. Mr Berryman has a zeal for mutuality which appears surprising in the pragmatic world of insurance.

"We are not going to demutualise, absolutely never," he says. "It is distressing to think people are coming to us for the wrong reasons." Other mutuals mostly say they want to stay mutual but coyly add that "if something came along" they would consider it. Bradford & Bingley, the building society, took this line before voting to demutualise this year. Scottish Provident and Friends Provident followed similar lines.

Mr Berryman is dismissive of such fence-perching. "Companies either demutualise because they have run out of money or because they want to. Neither is the case for us. And I cannot imagine circumstances that would benefit members more than the current ones."

If such circumstances emerged, the technicalities of Liverpool Victoria would be similar to many other mutuals. Seventy-five per cent of members would have to vote to demutualise, on a 50 per cent turnout. If a predator came along to snap up the society, members would first have to demutualise then vote on the bid.

But these are not circumstances Mr Berryman envisages. In return, he delivers an uncompromising promise about the quality of Liverpool Victoria's products. "They have to be top quartile if you run an organisation owned by members. The moment a member gets a duff product your credibility is destroyed."

Liverpool Victoria was established in 1843 as the Liverpool Independent Legal Victoria Burial Society in Liverpool, as a collective for working-class people to save enough to give their dead a decent send-off. "When Liverpool Victoria was set up, burial was an important part of someone's life," says Mr Berryman. "It was a time when the family was able to demonstrate pride in people's achievements because they were able to afford a proper funeral rather than a pauper's grave."

While the middle-classes may have muscled in on the act, with the society's liberal heritage as well as its competitive prices adding to its appeal, the basic principle applies just as much to the 21st century, he says. "Our purpose is to try to help people enrich their lives while helping them protect against financial distress. So our products break down into investments and loans on the aspirational side, and travel, car and life insurance on the protection side."

Mr Berryman, an actuary who headed Liverpool Victoria's operations side before he became chief executive, has something about him of the down-to-earth Victorian who is not too suave or jaded to talk about savings. But his outlook is conspicuously modern. After taking over as chief executive he embarked on radical changes, including slicing £20m from costs. This involved out-sourcing some back-office work, and significant job losses.

Ahead lie active management and likely acquisitions. Mr Berryman says he wants to "transform the nature of insurance to really look at it from the customer's point of view". He also wants to add value by looking at acquisitions, to add to Frizzell Financial Services and Landmark Insurance, acquired in the past few years. Of possible purchases Mr Berryman says: "Some of our protection and pensions could be improved. I am also looking at ways to increase economies of scale."

Whether or not Mr Berryman chooses the acquisition path, the society's future, with its swelling coffers and quietly growing customer base, could hardly look more friendly.

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