MPs have slammed LV= alleging a lack of openness and transparency around its plans to demutualise.
In February, Mortgage Strategy sister magazine Money Marketing reported that MP Gareth Thomas wrote to LV= chief executive Mark Hartigan requesting answers to a list of questions ahead of a hearing into LV=’s takeover by private equity firm Bain Capital.
In a report published today, members of the all-party parliamentary group for mutuals have criticised LV=’s leadership, stating it has not been clear to its members about its intentions for the business.
Former ministers and senior figures in both Houses of Parliament have argued that the board’s decision to conclude a deal with Bain prior to providing information to its customers shows “a disregard for the interests of members” and “a cavalier attitude towards the member governance of the business”.
Thomas, who chairs the group, says: “The all-party parliamentary group for mutuals was dismayed to have to conduct this inquiry into the planned demutualisation of LV=. It is perverse that at a time when mutuality is growing in other parts of the world that this course is being chosen by the UK’s second largest mutual insurer.
“Our report finds this demutualisation to be unnecessary, rushed and ill-advised. The APPG has members from across the political spectrum and we were unanimous in our findings. The UK already has one of the smallest mutual insurance sectors in comparison to many of our international competitors; the completion of this transaction is regrettable and only exacerbates that trend.”
According to the report, LV= is now claiming that it needs to sell to Bain “to raise capital, but will not disclose how much it needs or for what purpose”.
This is despite the LV= board stating the company was very well capitalised just twelve months ago, having raised around £1.5bn through the sale of its general insurance business and on corporate debt markets.
Thomas tells Money Marketing: “We couldn’t see any reason to justify the sale to Bain or indeed anyone else, there was no obvious shortage of capital and we found no evidence of any pressure from regulators to sell the business at all”
Chief executive Mark Hartigan has admitted it only has an “embryonic” business plan at this stage, the APPG alleges.
Responding to the report, a spokesperson says LV= is “disappointed” with it, arguing the group has always recognised the importance of equipping its 1.25 million members with all of the information they need to help them make an informed decision and this will remain a priority.
Timeline of LV=’s sale
21 March 2019
Annual results for 2018 published, including £136m profit and announcement of plans to convert from a Friendly Society to a Mutual Company Limited by Guarantee (CLG)
22 May 2019
Special General Meeting approves conversion to CLG
31 May 2019
LV= agrees sale of final 30.1% of general insurance business to Allianz for £365m
11 December 2019
Richard Rowney steps down as CEO
20 December 2019
Mark Hartigan appointed CEO
19 March 2020
LV= announces 2019 annual results and publishes annual report to members
11 June 2020
Sky News Reports LV= is exploring an end to its independence
15 June 2020
LV= issues the first public statement on the story
28 September 2020
LV= announces to the London Stock Exchange that it is in ‘ongoing discussions with a number of companies.
30 September 2020
AGM held in private
2 October 2020
LV= announces to the Stock Exchange that it is in exclusive talks with Bain Capital
15 December 2020
LV= agrees transaction with Bain
LV= leadership writes to members for the first time to inform them of the sale
3 February 2021
LV= member virtual event
8 February 2021
APPG for mutuals decides to undertake an inquiry into the proposed demutualisation of LV=
Source: APPG for mutuals – Inquiry into the planned demutualisation of LV=
The regulators
LV= first announced its sale to Bain Capital in December 2020, but has hit a few stumbling blocks since.
The APPG says the financial interest for Bain is clear, having had discussions about the future including remuneration of the private equity firm’s chair and chief executive.
However, it says the interests of current and future customers of LV= will be damaged.
The group also approached the FCA and PRA over its concerns, but said the regulators “do not appear to have so far acted fully in the interests of members, customers, and the wider economy”.
The FCA said: “For past demutualisations, the FCA (and our predecessor regulator the FSA) has been guided by our objectives in considering the merits of the specific demutualisation. This would take into account the impact on the range of policyholders and members of the mutual, as well as the implications of the demutualisation for competition in the interests of consumers.
“In practice, we have not conducted any dedicated ex-post reviews of past demutualisations to assess the benefits they have in practice delivered for the wider public interest, the management proposing demutualisation or consumers.
“Our primary focus has been on ensuring a robust analysis of the proposal to demutualise, including the potential benefits to competition in the interests of consumers in maintaining the diversity that mutuals add to the provision of retail financial services.”
The report also argues that legislation on financial mutuals needs a complete overhaul to modernise the rules, help them raise capital sensibly and avoid losing control of assets built up over many generations.
The FCA added: “Post-demutualisation, we have continued to supervise demutualised firms and sought to address any issue or concerns as part of our normal approach to supervision.”
LV= is currently finalising the comprehensive member pack with the regulator, which will include reports from an Independent Expert and With-profits actuary, and will be shared with members.
Members will also be provided with another opportunity to pose any further questions through a webinar.
“We continue to passionately believe that we have secured the best possible outcome for members and our confidence in the future of LV= under Bain Capital’s ownership remains unswerving,” a spokesperson added.
LV= responds
We have been clear that the business, while well capitalised, requires significant further investment to compete in an increasingly competitive market.
This investment would need to come from our existing capital, and this creates an inherent tension between balancing the requirement to invest for the future success of the business while providing meaningful returns to with-profits policyholders.
We have always been clear to our members that the strategic review and subsequent proposed transaction with Bain has been solely driven by their long-term interests. At all times this has been the absolute driving force and guiding principle behind any decision made or action taken at LV=.
We therefore welcomed the opportunity to provide written and oral evidence to the APPG hearing to explain why Bain Capital was singular in offering an excellent financial outcome for members as well as an unrivalled and long-term commitment to LV=’s future prospects, business and people.
