NFU Mutual doesn't have shareholder pressure, is well reserved and avoids volatile investments. But farming is dwindling. Managing director Ian Geden tells Elliot Lane about the need to diversify

While most insurance industry chief executives run to their gîtes in the South of France, fearful of the backlash from shareholders after the recent equity market crash, one sleeps easy in his bed.

"Which would you rather be? A chief executive who has to justify profits to shareholders, or one who oversees a well-run mutual offering its policyholders healthy profits without exposure to the stock markets."

These are the words of a very relaxed Ian Geden, managing director of NFU Mutual, one of the oldest mutual insurers in a dwindling market. Tucking into a plate of roast beef, he explains that he is a "country boy", living deep in rural Worcestershire with a smallholding in the market town of Evesham. He is also publicity-shy but, he says, for good reason: the mutual does not need a strong public image because it is not listed.

"I can't stop people losing money, but as a mutual we have a financial objective and we don't have to return anything to shareholders, only to policyholders. As long as we cover our costs, and return enough to keep us going, at the rate we want, we are happy to take lower returns," he says.

Geden talks of the management of NFU Mutual in the same vein as the late GEC chairman Lord Weinstock, who was renowned for his steady stewardship and retaining at least £1bn in the bank for emergencies.

Geden emphasises that NFU Mutual is "well-reserved", has "a philosophy for long-term, stable investments" and "avoids volatile stocks".

The company manages assets of more than £8bn and, Geden says, has one of the lowest expense ratios in the industry. "We vie for top place with Direct Line. The gap between both our expense ratios is usually about 0.5% year on year," he said.

The popular misconception is that NFU Mutual is directly owned by the National Farmers Union. It took the initials when it was formed 90 years ago, because the mutual shared the offices of the local union representatives.

Foot and mouth
Though the union does not have any financial investment, the two organisations have a strong affiliation and the union recommends the insurer to its members. NFU Mutual now has 357 local offices, manned by a sales force of 600, servicing 850,000 customers.

But, like the mutuals, traditional farming is a dying profession. Last year's foot and mouth epidemic wiped out two-thirds of the UK farming community, with 12,400 farmers and farm-workers losing their jobs and 3,000 farmers switching to other professions. An average farmer last year, according to NFU Mutual's own estimate, earned a derisory £5,000 compared to £80,000 five years earlier.

Geden says if you talk to the average farmer "it is only a question of when" the disease will hit the country's livestock again.

"The general consensus is that the disease came into this country through bush meat from Africa and elsewhere, which got into pig swill and then spread," he says.

Though the farming industry is vigilant, the government has not taken action to stop the illegal imports of bush meat, he says.

NFU Mutual, unlike some other insurers, carried on renewing its foot and mouth cover throughout the crisis, but did not take on any new business.

As of 1 June this year, however, the company is taking new business on advice from the Department for Environment, Food and Rural Affairs and the NFU.

Foot and mouth is covered by a consequential loss policy. After a herd has been condemned, the government issues a compulsory purchase order on all the livestock and offers the farmer the market price for the animals. However, a dairy farmer may get the value of his herd, but has lost further income as he can no longer supply milk.

"Our policy is very simple. We pay out 25% on top of government compensation or the sum of the loss. This gives the farmer money for loss of income, for calf, or whatever," says Geden.

But farming is now under 40% of the business share and NFU Mutual is outgrowing its historical roots.

"It is about farmer diversification, where farms have been converted into activity centres and guesthouses; farmers' children who know the brand, but are moving on to work in other professions; and commercial and personal lines insurance for rural areas where small industrial estates have sprung up.

"This is the future, but we will always be a niche player," says Geden. And he is extremely happy with that.