One of Scotland's last remaining mutuals has reported record sales and a big leap in membership, as its chief executive declared it was targeting acquisitions.

Scottish Friendly, which can trace its roots back to 1862, increased total sales to £51.1 million in 2023, up from £47.7m, against a backdrop of market and economic challenges. Sales grew as the Glasgow-based mutual saw membership climb by 24,000 to 838,000, with assets under management increasing to £4.6 billion from £4.5bn in 2022.

The financial services organisation highlighted strong protection sales, as people sought to protect their income and family members. However, it reported a fall in sales of individual savings accounts (Isas) and junior Isas as higher interest rates persuaded customers to save in cash instead of investing in stocks and shares products.

Scottish Friendly currently administers around two million policies.

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Chief executive Stephen McGee told The Herald: “I think we have been on quite a good journey over the last few years, and have still got lots more that we want to do and achieve.

“What we have definitely seen through the sales figures is people are still being impacted by inflationary pressures and the cost of living, but really their determination to save for themselves and their families is still there.

“So, we are seeing our member numbers increasing, which is really positive. People’s propensity to save is really strong and holding up well. [But] their ability to [save] and how much they can save is where we have seen the impact.”

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Asked if there any signs of the outlook improving, he said “green shoots” began to appear at the end of 2023 and were evident at start of this year. He noted that the economic backdrop remains challenging, but expressed confidence that people are a “wee bit more optimistic”.

“We are cautiously optimistic, but with some [signs of] green shoots,” he added.

“We are hoping we are well placed as people begin to become more optimistic about the future.”

Mr McGee, who has been chief executive of Scottish Friendly since April 2022, expressed the view that interest rates will begin to come down from the current 5.25% this year, but said that could be later than initially thought.

“[We are] definitely expecting interest rate falls over the course of the coming year, [but] that expectation may be tempered by the fact inflation did not drop as much as some people were expecting recently,” Mr McGee said.

“I think there is a real question around [whether an inflation target of] 2% is actually a credible, long-term, sustainable target, or whether they need to consider revisiting that benchmark. I’m not thinking about a huge increase, but maybe increasing it to 2.5% or 3%. That is entirely speculation on my part.”

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Scottish Friendly has used acquisitions in recent years to grow its membership, the breadth of products it offers and its technology capability. In 2019, it concluded a “transformational” deal to acquire a huge book of life and pensions policies from the UK operation of Canada Life. The deal brought a massive boost to membership numbers and assets under management, as well as expertise in areas such as risk, actuarial, and IT.

Asked if acquisitions were on the agenda, Mr McGee said: “Absolutely, that is still a key part of our growth strategy. We look at opportunities through different lenses.

“Because we have been so successful in those acquisitions in the past, we will still continue to look at those type of acquisitions, but the ones we are really attracted to right now are ones that will really accelerate our strategy, add products and services, add capability and really give us more tools to help our members.”

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Scottish Friendly has moved to mitigate the movement to cash savings with the introduction of a guarantee on its Jisas policy for with-profits investors, under which a minimum amount is paid on maturity of the product on the child’s 18th birthday.

Mr McGee said the offer is “really popular” and “allows people to participate with a bit of confidence”.

He added: “Cash has always been attractive in the UK, and became much more attractive as interest rates spiked. We are already beginning to see those short-term interest rates coming down quite substantially and softening. We think that will bring us back towards where we have been long term.”