When Matt Popoli turned up for his first day at banking giant Morgan Stanley two decades ago, he was handed a security pass marked “insurance”. It signalled his first job and was to determine his career path.
His first deal was the demutualisation of Boston-based life insurer John Hancock — though he was so junior, he was not even a footnote on the project.
But that transaction gave Popoli, now 45, a taste for the notoriously complex and dry insurance sector. More than 20 years later, his career path has put him at the centre of a row that is far from dry: the demutualisation of Britain’s second-biggest mutual insurer, LV.
The American is leading the £530 million takeover of Liverpool Victoria for the Boston-based private equity firm Bain Capital, which was founded by American politician Mitt Romney and, until now, was better known as the owner of Burger King.
Last week, MPs and peers on the All-Party Parliamentary Group (APPG) for Mutuals accused LV of being “less than candid” with its 1.25 million members and of displaying a “cavalier attitude” in not properly informing them about the transaction, which will be the first big demutualisation for over a decade.
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Members are yet to find out what they will receive, assuming they back the deal at a vote this year.
“The spectre of demutualisation has not been seen in the UK since before the financial crisis,” the APPG said in its report. “It is no surprise that the idea of dismantling long-established mutuals and accessing their legacy assets has been out of favour since that time.”
Etched in the memories of those who follow mutuals is the takeover of Britannia Building Society by the Co-op Bank just as the financial crisis was taking hold — and before that, the string of demutualisations in the late 1990s. Halifax, the biggest building society, floated on the stock market in 1997 before almost collapsing during the banking crisis.
Insurers also jumped on the bandwagon, such as Norwich Union, which was folded into Aviva. Even the AA joined in. Few mutuals retained their independence after demutualisation, with the notable exception of Northern Rock, which imploded in 2008 and was largely nationalised.
“The decision to demutualise is a one-time, irreversible one and cannot be taken lightly,” said the Association of Financial Mutuals. Debate is raging over whether it is the right move for LV — created in Liverpool in 1843 — when it was known for its “penny policy”. Door-to-door agents would collect the premiums to cover funeral costs.
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The APPG quoted an LV member: “One of the reasons why the selection of Bain by the LV board came as such a surprise is that one cannot imagine two more divergent capitalist structures than the mutual organisation and the private equity model.”
Questions are being asked about why LV choose Bain over the sector’s biggest mutual, Royal London, after they were among 12 bidders.
Mark Hartigan, 58, who has led the deal for LV, joined only in December 2019, soon after the sale of the general insurance business to Allianz.
With a plc background at Zurich, he was hired on a one-year contract to oversee a review, and is expected to stay on after the change of ownership. “When I arrived, I had two very clear remits. One was to focus on our commercial outcomes as a standalone life and savings business. And the other was to lead a strategic review.
So I was looking at how best our future could be served,” said Hartigan.
He explored three options: continuing LV in its current guise; closing to new business to look after its with-profits members; and seeking third-party funding to segregate the with-profits owners and also continue to grow. The latter route was chosen. “It was only Bain that could provide for the financial outcome that was as good as we could achieve,” said Hartigan. It came with promises about the three main sites in Bournemouth, Hitchin and Exeter.
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Barry O’Dwyer, the boss of Royal London, told the APPG: “The main reasons for demutualisation in the past have been lack of capital or lack of scale. And essentially, I’m struggling to think of a demutualisation that wasn’t justified on one of those two reasons. And by their own admission, neither of those two are applicable to LV, which is very interesting.”
It leaves questions about the motives of Bain, which until now has only had one other insurance investment in the UK: esure.
The industry is changing. Ben Cohen, an analyst at Investec, said: “What you’ve seen in the market is consolidation, as you’ve had ... a shift from savings that are life insurance based to savings that are more asset management based.”
Bain backed Popoli in 2018 when he set up Insurance Capital Group, which had a focus on “sponsored demutualisations and other complex transactions”. It formally recruited him last year, naming him global head of insurance.
He has a long track record in the insurance industry, with demutualisations featuring among his activities. In 2012, for instance, his Prosperity Life Insurance business took over the US mutual Shenandoah Life, which was in receivership. Prosperity took over another mutual, SBLI, two years later and members got payouts. The enlarged business was sold to the private equity arm of hedge fund Elliott Advisors in 2019.
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Gareth Thomas, the Labour and Co-operative MP who chairs the APPG, said of Popoli: “His track record shows how it is possible to take over one mutual and use it to draw in other targets for demutualisation. This is not a practice we should welcome in the UK.”
When Popoli gave evidence to the APPG, he said Bain’s objective could be summarised in one word: “growth”. This looks likely to require investment in technology.
He sees too much focus on the demutualisation. “The mission, vision and values that have been around for more than 178 years will not change,” Popoli said.
And he admitted to having his eyes on further expansion in Britain.
“We will continue to explore opportunities in the UK. The UK is an interesting market,” he said.