In a letter to members incoming chairperson Seamus Creedon said that in light of LV’s “improving business performance” over the past 18 months the mutual was now “appropriately capitalised and trading well”.
This marks a U-turn on LV's previously stated position, which was that the mutual was in need of so much investment that the risks of remaining independent were "too high".
In November previous chairman Alan Cook told members, in an ultimately unsuccessful bid to encourage them to vote for the Bain Capital takeover, that LV was sub-scale with an "insufficiently strong capital structure".
Cook resigned after members failed to endorse the Bain Capital takeover in December.
But his replacement Creedon has now said LV is in a position to continue as an independent mutual.
He said: “The strength of LV’s business performance combined with its operational progress has allowed it [the board] to look at the business differently.
“As a result, the board believes in the continuation of LV’s status as an independent mutual brand and the opportunities this presents for our members, customers, employees and wider communities has strengthened.”
In 2020, the mutual conducted a strategic review which concluded it could not carry on with ‘business as usual’. This saw it shop around for a potential takeover or merger. Initially the mutual settled on Bain Capital, but when this deal collapsed it turned to rival Royal London to explore a potential merger.
Royal London and LV agreed to abandon merger talks last week after concluding a deal would not be in the best interests of their respective members.
FTAdviser understands Royal London did not get very far with negotiations or discuss any deal in depth, with LV deciding to end discussions just two days in.
During these talks, FTAdviser also understands no other alternative parties were brought up, and that it was not made clear by LV that the situation had changed, enabling it to operate independently.
A spokesperson for LV said: "We’ve been clear that Royal London discussions ran alongside considering all options – including continuing as a standalone mutual. [...] We’ve seen strong progress in key areas and this provides the foundation for a mutual future."
They also said the “improv[ed] business performance” over the past 18 months down was attributable to Clive Bolton, the mutual’s managing director of protection, savings and retirement.
The strategic review found the mutual was in need of a more than £100mn investment to improve its IT systems, business operations, products and customer service.
It had also shown the mutual’s membership base had dropped by more than 40 per cent since 2017, and projected a further 60 per cent fall in member numbers over the next 10 years.
'In a very different place'
But Creedon said LV was now “in a very different place to where it was 18 months ago”, citing a number of changes Bolton has overseen.
These include a suite of new executives, including new chief financial, operating, and risk officers, as well as a “reposition[ing]” of the business to focus on mass affluent customers - a market it believes is underserved, and more “effective management” of its expenses and cost base.
Creedon also cited the development of adviser-focused products, such as its smoothed investment range which have replaced "low-value legacy products" in its with-profit fund, and its income protection and critical illness policies.
On IT transformation, Creedon said LV has made “good progress”, delivering a new equity release system and the recently launched Embark partnership, both of which are part of an “ongoing IT investment plan”.
He said the plan was aimed at providing “more certainty on the future investment needs of the business” and enabling “careful management” of capital.
A spokesperson for LV also told FTAdviser that Cook’s use of the phrase “sub-scale” in November when referencing the 2020 review related to market share, and not capital.
“Our capital position has been and remains very strong with a capital coverage ratio of 198 per cent, [per] our last set of financial results for 2020,” they said.
Between 2017 and 2019, LV also sold its general insurance business in a bid to bolster its then-weak capital position.
LV did not address requests for more information regarding the latest statistics on falling memberships, and how it’s managed to continue without the £100mn investment it said it needed less than two years ago.
What this means for members and advisers
For LV members and advisers, the mutual told FTAdviser the latest update would mean there would be investment in digital tools and automation.
It would also mean continued access to its range of Smooth Managed Funds, Equity Release, Income Protection and Critical Illness.
ruby.hinchliffe@ft.com
