In a 76-page report by the All Party Parliamentary Group (APPG) for mutuals, published last night (April 7), MPs criticised LV’s leadership, stating it has not been clear to its members about its intentions for the business.
The report said despite repeated assurances there was no intention to alter the mutual status of the company, it was clear that plans were in place to “seek alternative arrangements” which included a change of corporate status, if not full demutualisation.
MPs alleged that although a deal had been agreed with Bain Capital, LV was also exploring potential sales to other non-mutuals at the same time as the company provided public reassurance to its members, which could be seen as misleading to its members.
The report stated: “We do not expect any business to give a running commentary on matters in the boardroom, but in this case, the LV leadership chose to re-affirm its commitment to mutuality at the precise moment that it had instructed its advisers to seek a purchaser of the business, regardless of its ownership status.”
According to the report, LV is now claiming that it needs to sell to Bain Capital 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 twelve months ago, having raised about £1.5bn through the sale of its general insurance business and on corporate debt markets.
LV said it was "disappointed" by the report.
A spokesperson for LV said: "We have always been clear to our members that the strategic review and subsequent proposed transaction with Bain Capital 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."
They added: "We are disappointed by the report and we have always recognised the importance of equipping our 1.25m members with all of the information they need to help them make an informed decision in advance of the vote and this continues to remain our absolute priority.
“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 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.”
The APPG asked the Financial Conduct Authority if it would investigate LV’s need to raise capital via a sale to a company as opposed to another mutual, and what other options LV had to raise capital such as via debt.
The FCA replied: “Our focus has been in ensuring that the process they have followed will enable decisions that are fair to their policyholders and members, and that recognise the particular interests of with-profits policyholders, many of whom will be maturing over the short to medium term.”
Read: LV's sale to Bain is a sad moment for the mutual sector
The report also said the notion that the board had concluded a deal with Bain Capital in advance of providing any meaningful information to its members showed a “disregard for the interests” of members and a “cavalier attitude” towards the member governance of the business.
Gareth Thomas MP, chair of the APPG for Mutuals, said: “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 report concluded that regulators have also not appeared to have acted fully in the interests of members, customers and the wider economy.
It also argued 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.
Thomas said: “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.”
LV first announced the sale of its savings, retirement and protection businesses to Bain Capital for £530m in December.
Back in September there were reports Royal London was looking to take over LV to create a large-scale mutual.
But LV quickly confirmed it was in exclusive talks with Bain Capital and was not talking to any other businesses.
Back in June, it was reported LV had sought advice as to whether the sale of its life and pensions business would be in the best interest of it 1.3m customers.
It also said it was looking into a joint venture option, similar to the one it struck with German insurance giant Allianz when it sold its general insurance business in 2017.
amy.austin@ft.com
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