LV= fights back on Bain deal with ‘£212m more for members’ claim
The insurer LV= has claimed that a takeover by the US private equity firm Bain Capital will result in £212m in extra distributions for members, as it tried to fight back against criticism of its decision to demutualise.
The 178-year-old life insurance and pensions provider, formerly known as Liverpool Victoria, has accepted an approach by Bain for £530m in a deal that would end its member-owned status. However, members must back the takeover in a vote on 10 December, and the deal has triggered a political storm.
The majority would receive a payout of only £100 from the deal, a figure criticised by some as a meagre return for the loss of mutual status and the prospect of ownership by a private equity firm; such firms often insist on job losses or cost-cutting to achieve higher profits.
LV= said its “business as usual” no-deal scenario would result in only £404m being distributed to its 271,000 members whose policies mean they share in its profits, compared with £616m under the Bain deal. The insurer has been criticised by politicians and campaigners for failing to explain properly why members should sell out their rights.
The mutual said on Monday that it would fail in a business-as-usual situation because it was too small to compete against global insurers, and the £100m needed for new computer systems and product development would have to be funded by members, endangering their future distributions.
Mark Hartigan, the chief executive of LV=, said the company’s sale of its general insurance business before his arrival had made it too small to compete against larger rivals that could take advantage of a lower cost of capital.
LV= sold its general insurance business to Allianz for £1.1bn between 2017 and 2019 to stem a capital shortfall that it said became apparent in 2016 after new regulations to protect financial stability kicked in and after it lost money in the market volatility following the Brexit vote.
Hartigan said he remained confident that members would back the company. “I just have to, because the alternative is a much, much poorer outcome,” he said. “That would be a crying shame.”
LV= and Royal London are the only two financial mutuals left in the UK that are open to anyone, rather than limited to members of services such as the police, but Royal London is much better capitalised, Hartigan said.
“The model is just not appropriate for LV= as it stands,” he said. “If it was we wouldn’t have to do this.”
LV= said it had considered 12 offers, one of which was from Royal London.
Asked if Bain would be a good longterm custodian for LV=, Hartigan said: “The truthful answer is they’ll have to be. They’re going to have to invest a lot of money in this business for a long, long time to turn it round.”
LV= plans to pay out £533m over time to the 271,000 with-profits members, at an average of about £1,970, compared with an average of £1,490 without the takeover. About 830,000 non-profit members will receive £100 each.
Hartigan said he understood the “strong emotions” at play in the decision to abandon mutuality. “I hope the wider mutuals sector remains strong,” he added.