The results suggest a strong awareness and acceptance by the AFM’s members that modernising their technology will need to be an investment priority, to maintain competitiveness and continue attracting a new generation of members, the report says.
What have reactions been to the deal?
In an open letter to members Greg Batterbee, the chair of LV’s employee consultative forum, said the deal represents an investment of £160m to help grow the business and “reclaim LV’s position as a top three provider”.
LV’s board is also unanimously recommending that members vote in favour of the deal, after arriving at the “firm conclusion” that it would not be fair to ask with-profit members to finance a future that it says requires significant investment, which many would not benefit from.
The provider also says Bain Capital will “support the leadership team to grow the company, so the strong and vibrant LV brand continues to attract customers and financial advisers”.
But Peter Hunt, managing partner at Mutuo, a cross mutual sector body, says many customers would have chosen LV because of its status as a mutual.
“It is not the brand that is valuable, but the mutual business purpose, focussed on service and price,” he adds.
John Gilbert, a director at M&G Advisory Services, which offers consultancy to friendly societies and mutual insurance companies, says: “Once members have allowed LV to be sold to Bain, they will have no financial interest in its growth or in what happens to the brand, all the benefits of which will accrue to Bain – so why is this being touted as a reason to vote for the deal?”
How have demutualisations fared in the past?
Hunt at Mutuo says policyholders in previous demutualisations have experienced a lower quality of service and higher pricing.
But in his assessment of the deal’s impact, Ian Farr, LV’s with-profits actuary, refers to an agreement that requires service standards to be maintained at levels that are set out.
“I understand from discussion with LVFS management [these] are based on the standards in place immediately prior to the transaction. I therefore have no reason to believe that the proposed transaction will have a material adverse impact on the standards of administration for with-profits policies,” Farr writes.
On previous demutualisations, AFM’s Shaw likewise notes that they have not been positive.
“A number of insurers demutualised between 1996 and 2006, paying an average incentive to members of more than £1,500,” says Shaw.
“However, once members lost their controlling rights in the business, they soon experienced a reduction in the quality of service, increased charges and plummeting investment returns.
“Despite the bold vision provided by management of a better future, only one of those demutualised insurers has continued to prosper (Norwich Union, now Aviva); the rest are now either closed or owned by a bank, an overseas insurer, or a firm that runs down closed insurers.”
