The £530 million takeover of LV= by Bain Capital has courted controversy since the deal was announced in December as some of the mutual insurer’s 1.25 million members have concerns about the decision to sell to an American private equity firm.
What began as discontent among policyholders has erupted into a storm of criticism in Westminster after the all-party parliamentary group for mutuals published a scathing report into the handling by LV=’s management of the proposed sale, which will result in the insurer’s demutualisation.
Less than candid
Perhaps the most serious charge levelled at the insurer is that the parliamentary group thinks there has been “a pattern of behaviour where the leadership at LV= was less than candid with its members” and “has not been open”.
It said: “Despite repeated assurances that there was no intention to alter the mutual status of the company, it is clear that plans were well advanced to seek alternative arrangements which could include a change of corporate status, if not a full demutualisation.”
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Public comments made by Mark Hartigan, the insurer’s chief executive, and Alan Cook, its chairman, “could arguably be seen as misleading by members”, the MPs alleged.
The group said: “The LV= leadership chose to reaffirm 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.”
Capital needs questioned
LV= has repeatedly stated that the main rationale for the sale is the need for fresh capital to invest in the business. Yet it raised £1.1 billion in a two-part deal to sell its general insurance business to Allianz. The final stage of the deal was completed in January last year.
The parliamentary group argued that while LV= said that it needed capital, “no evidence has been submitted to this inquiry that suggests that LV= is anything but a well-capitalised business capable of moving forward as a standalone mutual business”.
Conflicts of interest
Policyholders will vote on the deal, but the paucity of information provided to them by LV= “means that no realistic judgment of the merits or otherwise of the proposed sale can be made by individual members”, the MPs claimed.
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Yet Bain is “clearly interested in making a profit from the acquisition” and LV=’s executive management who stay on at the insurer “may well likewise benefit from enhanced remuneration”. Hartigan told The Times last month that he was “very hopeful” about being offered a role at LV= after the takeover.
LV= has said all policyholders would receive cash payments to compensate for the loss of membership, but the group said: “It is likely that the rewards to Bain and the leadership will dwarf any payments made to members.”
It warned: “In deciding their vote, members are expected to rely upon the judgment of others who it could be argued have a conflict of interest.”
It noted that The Times had reported in January that the committee representing the 340,000 holders of LV=’s with-profits policies, who are beneficial owners of the group, initially had rejected Bain’s offer in favour of a rival bid from Royal London, the mutual, before dropping its opposition.
Bain’s credentials
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Some members are concerned about Bain’s suitability as a buyer of LV=, the parliamentary group found. Private equity firms typically are short-term investors that seek to squeeze financial returns out of the businesses they own.
Bain bought Esure, the motor insurer, in 2018 but there is no sign of an “understanding of mutuality or demutualised businesses elsewhere in its portfolio, and as its ownership of Esure is quite short, there is no evidence of what that has delivered”, the report said.
LV= has argued that its “‘culture and values will remain the same” after the takeover, but the MPs claimed this “stretches credibility to its outer limits”.
