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LV= publishes Member Vote Pack detailing the expected financial benefits for members of the Bain Capital transaction

03/11/2021
PRESS RELEASE

LV= today (03 November) announces details of the expected financial benefits for members as part of the proposed transaction with Bain Capital. The details will be included in the Member Vote Pack and distributed to all members ahead of the two votes at a Special General Meeting (SGM) and Members’ Meeting to be held on 10th December 2021.

After an extensive strategic review in 2020, the LV= Board unanimously concluded that the transaction with Bain Capital presents the most positive outcome for all members, the future of the LV= business and its people. The Independent Expert has described the deal as fair and reasonable for members and policyholders. Confirmation has also been received from the Financial Conduct Authority and the High Court, that the transaction can proceed to a member vote. 

Key highlights for members:

  • £111m in one-off member payments, with every eligible member receiving a payment of £100, should the proposals go ahead in full1.
  • £101m increase in future With-profit policy payout enhancements for all members holding eligible2 LV= With-profits policies.
  • For With-profits policyholders: 
    ‑ Highest distribution to With-profits policyholders compared to continuing with ‘business as usual’ or closing to new business.
    ‑ Bain Capital will assume responsibility for supporting the ongoing business and exposure to future business risks – currently assumed by With-profits members.
    ‑ With-profits business to be placed in a ring-fenced separate fund, inaccessible to Bain Capital3 and closed to new business. The long-term interests of With-profits members will continue to be protected by an experienced and independent With-Profits Committee.
    ‑ As part of the transaction significant assets will be set aside to support the two existing staff defined benefit pension schemes which are the responsibility of the With-Profit Fund to support.
  • Capital investment by Bain Capital is expected to benefit all members through technology improvements, development of existing and launch of new products and enhanced service for customers.

Full detail is provided in a comprehensive Member Vote Pack that LV= has published online today at lv.com/future and will be sent to every member by 18 November 2021. This contains all the information members need to make an informed decision, including reports from the Independent Expert and the With-Profits Actuary. Members will be asked to cast two votes: firstly, on the partnership with Bain Capital and secondly on the most effective way to implement the transaction. 

“We've built a strong brand, a rich heritage and have a real opportunity for future growth. However, in order to be successful in a highly competitive market, we need significant investment to compete and achieve our ambitions for growth.

Bain Capital was the only option that offered both an excellent financial outcome for members and gave unrivalled support for the LV= brand, our people and locations. Whilst none of the bids would have allowed LV= to remain as a standalone mutual, this deal provides the highest distribution to With-profits policyholders compared to continuing with ‘business as usual’ or closing to new business.

We urge members to carefully read the information in the Member Vote Pack and join our upcoming webinars. The Board and I truly believe that this is the right way forward, enabling us to embark on the next exciting chapter of the LV= story and recommend that members vote in favour of our plans.” 

Alan CookChairman, LV=

Rationale for the transaction

To be able to compete effectively in the future, LV= requires significant investment. If LV= was to use internal capital to fund this, the majority of members holding eligible With-profits policies would be unlikely to benefit due to their policies maturing before LV= sees the returns on that investment. The Board did not believe that would be fair for members. 

Financial benefits

Should the proposals go ahead in full, the £530m paid by Bain Capital replaces the value of the non-profit business. The transaction enables the surplus assets, after allowing for other commitments, to be distributed to members. As a result, members will receive the following financial benefits:

  • £212m4 will be distributed in the form of payments to members, totalling: 
    ‑ £111m in one-off member payments, with every eligible member receiving a payment of £100. 
    ‑ £101m increase in future With-profit policy payout enhancements for all eligible With-profits members. This represents a percentage uplift of 0.1% for each year members have held their policy from 1996 until the policy pays out5.
  • In addition, as part of the transaction significant assets will be set aside to support the two existing staff defined benefit pension schemes which are the responsibility of the With-Profit Fund to support.

Other benefits 

For all members:

  • Continuation of existing customer policy benefits, including discounts on LV= General Insurance products
  • Investment by Bain Capital to deliver technology improvements, development of existing and launch of new products and service enhancements for customers
  • LV= to remain a UK regulated entity, providing ongoing protection from the Financial Services Compensation Scheme
  • Continuation of the LV= brand, with Bain Capital taking ownership of the operational infrastructure and as the employer of staff  

For members holding eligible LV= With-profits policies:

  • Bain Capital taking responsibility for support of the ongoing business and exposure to future new business risks, currently assumed by With-profits policyholders 
  • The With-profits business will be ring-fenced in a separate dedicated fund which Bain Capital will be unable to access3
  • Current bonus arrangements – mutual bonus and exit bonus – continuing for eligible policies, consistent with current practice
  • Greater clarity around costs with defined cost schedules for the administration services and investment management provided by Bain Capital
  • Continued oversight from the With-Profits Committee at the same level of governance as received today

Member engagement 

LV= is pleased to be able to share the comprehensive Member Vote Pack with all members.  Members are encouraged to read the pack and engage with LV= in order to support them to make an informed vote:

  • A series of five webinars for members in the build-up to the SGM and Members’ Meeting will be held - full details and sign-up are available at lv.com/future
  • Extended opening hours (8am – 7pm Monday to Friday and 9am – 1pm on Saturday) offer members the opportunity to discuss the transaction and ask questions at a time to suit them.
  • Email the dedicated email boxes for non-profit members [email protected] and for With-profits members [email protected]
  • We are providing financial adviser briefings and a separate webinar to support them in answering queries from our members, their clients.
“I am passionate about what we do to help people protect their future, their family and their finances. The company going forward will be financially strong and will be structured with less debt. This transaction will enable LV= to continue to look after over one million customers, while creating investment in our business that will enhance the services we provide. I look forward to members’ questions at our upcoming events and echo the Board’s recommendation of this deal with Bain Capital.”
Mark HartiganCEO, LV=
“LV= is a unique company and we believe we can provide a strong partnership for growth. We look forward to investing in the LV= brand and its people for the long-term, to preserve and grow the business for future generations of customers. We recognise the responsibility that comes with such a rich and important heritage, and this will be reflected in our support for an ongoing presence across LV=’s three UK sites, continued commitment to investing in the communities where the company operates and sharing and strengthening LV=‘s customer-centric ethos.”
Matt PopoliBain Capital
Details of the Special General Meeting and Members’ Meeting
 
Each eligible member will be asked to vote twice:

Firstly, at the SGM on 10 December 2021 at 2pm, members will be asked to vote on a Special Resolution to approve the acquisition of the LV= business by Bain Capital6. 

Secondly, at the Members’ Meeting on 10 December 2021 at 4pm, members will be asked to vote on the most effective way to complete the transaction through a Scheme of Arrangement to make a change to Article 14.23.

Notes

1. This assumes the transaction is completed via a Part VII transfer, which is dependent on the outcome of the two member votes and the Court processes to approve the Scheme of Arrangement and the Part VII transfer. The amount will reduce to £60 if the transaction with Bain Capital completes in an alternative way either due to member or Court non-approval.   

To qualify for the one-off member payment, members must have a policy in place at the date of the Special General Meeting on 10 December 2021 and they must have taken out a policy or submitted an application for a new policy before 1 March 2021.

2. To qualify for the payout enhancement members must hold an eligible LV= With-profits policy at 10 December 2021.

3. Except in the unlikely and extreme circumstance such as the company that owns the fund becomes insolvent, whereby some of the protection provided by internal ring-fencing would fall away.

4. The £212m of payments to members, is based on current estimates and could go up or down in the future.

5. Example future With-profit policy payout enhancements:

  • Around three-quarters of all With-profits policies are legacy Industrial Branch Whole of Life policies. These have an average value of around £2,000 and have been held on average for 26 years since 1996. The resulting payout enhancement is expected to be 2.6% or £52.
  • Another popular historic product is our older unitised With-profits bonds (e.g. With-Profits Growth Bond or With-Profits investment Bond).  The average bond has a value of £30,000 and has been held on average for 21 years. In this situation, the payout enhancement is expected to be 2.1% or £630.
  • With-profits members with Flexible Guaranteed Bonds (Series 1 and 2) and Flexible Guarantee Funds (Series 1) have on average £80,000 invested and have held their policies for an average of 6 years. Here, the payout enhancement is expected to be 0.6% or £480.

For illustration purposes all figures are based on policy values as at 31 December 2020 and claim is assumed to occur at 1 January 2022.

For LV= With-profits policies with guaranteed benefits, members would not receive the payout enhancement if the value of the guaranteed benefit will be higher than the underlying value of the policy (including any payout enhancement).  See page 12 of the Explanatory Booklet (part of the Member Vote Pack) for full details.   

The future policy value will be dependent upon the performance of the fund and the date of maturity and could mean a further 0.1% enhancement for every further year the product is held beyond 01 January 2022.  The payout enhancement will be reviewed periodically, and may go up as well as down and is not guaranteed. The key factors which would cause it to change are on page 12 of the Explanatory Booklet (part of the Member Vote Pack).

6. The acquisition is subject to certain regulatory approvals, the approval of the Court to the Scheme of Arrangement and the Part VII transfer and approval from LV= members. If the proposals go ahead in full it is expected to fully complete by the end of October 2022, at which point LV= will no longer be a mutual and members will no longer have voting rights or share in the profits or losses of the non-profit business Should the Part VII not go ahead for any reason then the transaction with Bain Capital will complete however in an alternative way, subject to this being deemed appropriate by the regulators.