Advisers have said “all IFAs want is clarity” on LV’s ownership position, following confirmation today (February 7) that talks are back on between the mutual and rival insurer Royal London.
LV first entered into talks with Royal London back in September 2020, having denied reports it had been in talks years prior to this.
Talks halted when Bain Capital, a US private equity firm, squeezed Royal London out of the picture and became the favoured buyer of the mutual.
David Barral, LV’s senior independent director, said in December that Bain’s deal offer was “far superior to any proposal received from other third parties, including Royal London”.
But that month, Bain was swiftly ruled out when not enough members voted in favour of the deal.
Royal London had begun circling LV with its offer once again around the time of the vote, and now both firms have confirmed talks are officially back on.
Some advisers have since criticised the firms’ deal announcements, calling for clarity on LV’s ownership on behalf of clients.
“I think the publicity created by this ‘will they, won’t they’ is not good publicity from the outside,” said Roy McLoughlin, associate director at Cavendish Ware Wealth Management.
“Most IFAs just want clarity, closure, and would hope the combined strength will lead to more innovation and ultimately better underwriting - something the industry has been crying out for.”
The Bain deal had offered all 1.2m LV members anywhere between £60 and £100 each, depending on the deal voted for, and an additional £52 to £630 for with-profit members depending on their policy.
“We had clients asking us whether £150 was a good deal,” said McLoughlin. “It was rubbish.” The adviser said the communication from LV to its members around the Bain deal, particularly its letter, had led to confusion over ownership and over how insurance companies work.
On LV’s renewed talks with Royal London, McLoughlin said the industry “needs more insurers, not less”.
“It’s a shame to see an amalgamation might take place,” he continued. “I don’t want less of a choice for the consumer. It’s also healthy for the market to have a decent representation when it comes to mutuals. But no matter how you look at it, we will end up with one less mutual.”
LV will be absorbed ‘in the end’
Alan Lakey, founder of CIExpert, agreed the insurance industry has shrunk significantly in the last few decades.
“Today we have something like 14 providers if you ignore D2C [direct-to-consumer]. Back in 1990, we had around 50,” said Lakey.
On Royal London, Lakey said it has “absorbed every other company it's merged with or bought”. It cited Scottish Provident, United Friendly, and Refuge Assurance as examples.
“They now form part of the Royal London group and no longer have their own identities. So one assumes what will happen to LV is it’ll be absorbed and the name will disappear.”
But Lakey is quick to highlight that LV’s name is “far better known” than the other companies he cited, and that its brand is particularly important still in the general insurance and car insurance space where Royal London doesn’t operate.
“My guess is that for two to four years, LV would remain independent. But then it would become absorbed.”
Lakey would hope the two remain separate on a branding front to at least keep an element of consumer choice. “Of course less competition means less intermediation.”
He used Australia as an example the UK pensions and insurance sectors should be trying to avoid, where just a couple of providers operate in each space.
“You’re no longer an independent adviser then. You’re now tied to some degree and the choice aspect has disappeared.”
Lakey is wary that a deal where shareholders are involved could see policyholders lose out to profit margins.
“Some firms can get too unwieldy,” said Lakey. “Not every merger works out well."
MP welcomes talks
Gareth Thomas, Labour MP for Harrow West, said he “welcomed” public confirmation of talks with Royal London.
Thomas said: “As talks with Royal London proceed the members of LV deserve to have access to all the facts about who will benefit, what current board members are getting from the deal and how much it’s all going to cost.
“The FCA [...] now need to ensure there are no non-disclosure agreements and all sides are open and candid about progress with the membership. The customer members who own LV deserve nothing less.”
ruby.hinchliffe@ft.com
