Mutual insurer LV has started a member consultation on its plans to convert to a mutual company limited by guarantee, saying its current friendly society status restricted its development.
Currently LV is governed by the Friendly Societies Act, which the provider considers has out of date provisions.
The insurer’s board also believes it restricts its ability to manage the business effectively and in the best interest of its members, LV stated in its annual results issued today (March 21).
The proposed change to a company limited by guarantee would result in LV being governed by the Companies Act, but it won’t change the company’s mutual status.
Similar to a friendly society a company limited by guarantee does not typically have shareholders or share capital. It has members whose personal liability is limited to the amount they agree to contribute towards the debts of the company.
Legislation governing friendly societies was last updated in 1992 whereas mutuals incorporated at Companies House have benefitted from more recent updates in the Companies Act 2006.
The change will be subject to a members’ vote at a special general meeting on May 22.
According to Richard Rowney, LV’s group chief executive, if this change is implemented, it will allow the board’s "ability to manage the business in the best interest of members and provide greater flexibility and freedom to compete over the medium to long term."
He said: "Our friendly society status has served us well for many years but the Friendly Societies Act is becoming outdated and restricts our opportunities for growth and future development.
"While our ethos remains the same, we need the right mutual structure in place to truly flourish moving forward.
"Converting to a company limited by guarantee provides the foundations from which to build on our heritage and strong brand to create a better mutual for the future, where being a member has more meaningful benefits."
Overall, LV had an operating profit of £136m in 2018, up from £134m in the previous year. This included £60m from the life business and £107m from general insurance, partially offset by strategic investment and group items of £31m, Mr Rowney explained.
Profit before tax was hit by difficult financial markets in 2018 leading to a reduced profit of £20m, down from £122m in 2017.
Life business operating profit was flat year-on-year, with new business sales down 13 per cent at £1.8bn, which compared with £2.1bn in 2017.
LV's retirement solutions division had already reported a drop in sales for the first half of last year, with £831m sold compared with £857m in the same period the year before.
The mutual entered a contract with investment manager Vanguard later in the year that saw Vanguard take over the management of 10 LV index funds.
The agreement was designed to allow LV to offer more competitive pricing for its drawdown customers and to boost sales in the division.