LV= has revealed its new business unit is loss-making and the insurer requires around £100m worth of investment to bring it back up to scratch.
The insurer’s strategic review conducted in 2020 also concluded it was a sub-scale, life and pensions business with an insufficiently strong capital structure.
LV= published the details of the review, which focused on and emphasised the importance of returning capital to members, in its latest bid to explain why it is looking for outside investment.
With the voting deadline of 10 December drawing closer, LV= is increasingly trying to publicly justify accepting the controversial £530m bid from private equity business Bain Capital, and convince members to support the sale.
The board of LV= has been criticised and strongly questioned for making the deal with Bain Capital, which would see the business lose its mutual status, when other options were available.
Last week a public spat broke out with fellow mutual Royal London which lost out in the bidding process last year but claimed its original proposal would retain LV=’s mutual status.
£404m from GI sale at risk
In the points released from the strategic review, the LV= board concluded that the current business as usual option that would include making a £100m investment itself in the business was too high risk.
LV= noted it had 271,000 with-profit members which has dropped by over 40% since 2017 and is expected to fall by a further 60% in the next 10 years.
It argued that with the long-term nature of the products it was highly likely a significant proportion of current members would not see the benefit of the investment before their policies matured.
The board also argued that if its business as usual plan did not succeed the planned £404m to be given to with-profits members from the sale of the general insurance (GI) business may have to be reduced.
The board had also considered closing to new business but said this would come with significant costs, would lead to employee redundancies, and was higher risk than business as usual with any capital returned to with-profits members likely to be less and over a longer time.
£212m payout for members
Finally, the insurer‘s board confirmed it received several proposals, with the Bain Capital agreement it chose giving £212m to members in addition to the already planned for £404m remaining from the general insurance business sale.
The board said the deal offered the best outcome for members, employees and other stakeholders.
“It preserved the brand, heritage and values of LV=, provided significant expertise and investment capital for growth and allowed for the continuation of the LV= presence at Bournemouth, Hitchin and Exeter. These benefits were not available under other external proposals,” the statement said.
The board has continued to urge members to support the deal which requires the backing of 75% of those who vote.
David Barral, senior independent director of LV=, said: “We all came to the firm conclusion it would not be fair for us to ask our with-profit members to finance a future that requires significant investment, which many would not benefit from.
“Therefore, we explored an external transaction and having considered 12 bids unanimously concluded that the best outcome for our members, employees and all of our stakeholders was the proposed transaction with Bain Capital.
“It was a decision we didn’t take lightly given our mutual heritage, but we know it is the right choice because it saves the future of LV=.”