Questions about LV= bosses’ ‘conflict of interest’ in sale
Bosses at the insurer LV= have been criticised over alleged conflicts of interest in its controversial £530m private equity takeover.
LV= plans to demutualise in order to receive investment from Bain Capital, a US private equity firm. However, three-quarters of its member-customers must back the plan in a vote on 10 December.
Martin Shaw, the chief executive of the Association of Financial Mutuals, said he saw a potential conflict between the chief executive’s and chairman’s duty to look after the interests of the mutual’s members, and their desire to continue working for the company after the proposed takeover and demutualisation.
The deal has provoked concerns among politicians and the UK mutual sector over the future of one of the UK’s largest and most venerable mutual institutions.
Shaw made the comments at a hearing on the future of mutuals held yesterday by the Commons Treasury committee.
LV= has argued that it had no better option than to accept the takeover offer from Bain. The chief executive, Mark Hartigan, has said the deal was the best outcome for members, and that the company was too small to be able to compete with larger rivals, and fund technology upgrades.
Hartigan has previously said there were no contract discussions between him and Bain.
An LV= spokesman said the Bain transaction had been approved by LV=’s board.
However, Shaw said Hartigan and the chair, Alan Cook, were in a “difficult position” and that it would be preferable if they were to offer a “black and white position” and step aside once the transaction was completed, as some bosses have done in previous demutualisations.
Shaw also criticised LV=’s communications with members over the last six years, in what he described as a “three-act tragedy” that has led it towards demutualisation.
LV= has outlined how new regulatory requirements and losses following the Brexit vote in 2016 prompted a capital shortfall.
Its response was to sell its large general insurance business in two parts to Allianz for £1.1bn in 2017 and 2020. However, it now argues that the sale means it does not have the scale to compete with rivals.
Hartigan only joined at the start of 2020, but Cook has chaired the board since the start of 2017. LV=’s spokesman said the company had made the weakness in the capital position clear in its 2016 annual report.
“As an independent entity they were probably not in a position to continue,” Shaw said, “but actually what transpires from what they’ve said recently is that they knew that back in 2016, 2017, when they started those structural changes to the business.
“If it’s only just become aware to members now, then clearly that is a kind of failure in the basis of keeping customers properly informed of what’s happening.”
Separately, Gareth Thomas, a Labour MP who has been a persistent critic of the LV= deal, told the House of Commons yesterday that he had reason to believe a tender document issued to Bain and other suitors by LV= when it was looking for a buyer may have favoured demutualisation. LV=’s spokesman said that claim was factually incorrect.
Thomas also renewed his call for Bain to publish details of its plans for the board of LV=, saying that the proposed new board has been approved by the regulator, the Financial Conduct Authority. He said both the board membership and the tender document should be published before the LV= member vote deadline.