Our future plans

Frequently asked questions about our future plans

28 May 2021

Strategic review

LV= has always been a strong advocate of mutuality, what has changed? You refer to the many alternative measures the Board considered for the future of LV=. Was this option accepted unanimously? What other options were considered?
Mutuality has served us well for many years but we simply can’t make it work any longer for our business model given the scale of additional investment that would be required and time required to deliver growth. It has taken nearly 12 years for members to see a full return on their investment in the general insurance business and the vast majority of today’s With-profits policies will mature within the next eight or nine years.

The Board carefully considered a wide range of strategic options and proposals supported by independent financial and legal advice and in consultation with the independent With-Profits Committee.

During the strategic processes confidential information is shared between the parties, which is why everyone concerned signs confidentiality agreements. This means it would not be right or proper for us to disclose details on any of the other parties that took part in our process or what their plans were for LV=.

It is the Board’s duty to take action in the best interests of all members. At the end of the process the Board was unanimous in its decision that the transaction with Bain Capital presents an excellent financial outcome for our LV= With-profits members as well as offering an unrivalled commitment to LV=’s future prospects, business and our people.

There was also no transaction being offered which would have allowed members to retain similar membership rights to those that they have today and no transaction under which LV=With-profits members would have been likely to benefit from stronger governance arrangements, more access to distributions or a better cost structure.
 
What is the role of the With-Profits Committee in the strategic review and Board’s proposal of Bain Capital?
The role of the With-Profits Committee is to provide advice and where appropriate make recommendations to the Board to ensure that any outcome is fair for With-profits members. The With-Profits Committee is made up of members appointed in the same way that a Board member would be appointed, and in addition the Chair of the Committee is approved by the UK regulators.

With regards to the Bain Capital proposal, the With-Profits Committee were involved at each stage of the strategic review with the Committee meeting in advance of each Board meeting to discuss the relevant papers that were being presented. The With-Profits Committee then gave advice to the Board.

At no stage were decisions taken by the Board that were in conflict with any advice or recommendations given by the With-Profits Committee.

At the final decision point to go into exclusivity with Bain Capital, the With-Profits Committee was unanimous in agreeing with the Board that the Bain Capital transaction represented an excellent outcome for LV= With-profits members.
 

I understand the Board of Directors asked the question "what is best for our members" at each stage of the transaction process. What criteria were used?
The primary criteria used was to secure the best financial outcome for all members and specifically LV= With-profits members, who by the nature of their policies provide capital to fund investments and new business in LV=.

Once that was achieved the Board looked at what other benefits could be achieved for our other stakeholders as is required by their statutory duties as directors.

Bain Capital put forward a proposal that provides an excellent financial outcome for members. This is not only in the purchase price but also through fixed administration and asset management agreements that our With-profits members will benefit from even as the With-profits book decreases in size.

Bain Capital was also singular in being able to offer not only this financial outcome but also the strongest commitment to the future of LV= and our people.

This provides our people with the opportunity to participate in an exciting future, supports the communities which we serve and provides ongoing competition and choice in the UK market. The news has been well received by our people who recognise the transaction as an opportunity for the business to grow.

Financial benefits

Can you tell me the details of the one-off member payment?
The amount of these payments will be determined by the Board after consultation with the With-Profits Committee. The Board’s decision will also be reviewed by an Independent Expert to ensure that the Board has achieved its primary aim of being fair to all members. Details on the value of these payments will be included in the voting pack sent ahead of the vote on the transaction. 
Can you tell me the details of the enhanced payout on LV= With-profits policies?
Members who hold an eligible LV= With-profits policy are expected to receive an additional amount by way of an enhanced payout when their policy comes to an end or they start to receive money from the policy.

Details on the value of these payments will be included in the voting pack that will be sent out ahead of the Special General Meeting.

The amount of money that eligible members receive will vary by type of product that the member holds, the size of their investment, and the length of time until their policy ends.
 

Member eligibility criteria

 

What are the eligibility details for the one-off member payment?

This one-off payment will be made to all existing eligible members with an active policy at the date of the Special General Meeting (SGM). New policies taken out from the 1 March 2021 are not eligible for the one-off member payment.

We expect payments will be made in 2022 once the member, regulatory and legal processes have fully completed.

Please note that the payment will be per member, and not for each member qualifying policy held.

 
 
What are the eligibility details for the enhanced payout on LV= With-profits policies?

Members holding eligible LV= With-profits policies are expected to receive an enhanced payout when their policy comes to an end or when they start to receive an income from it - if they hold an LV= With-profits policy at the date of the Special General Meeting (SGM) - and the overall vote is in favour of the transaction. This will remain the case even if after this date their policy lapses or they leave.

The enhancement will be added to policy payouts whenever they occur, which would include lump sum payments on death, surrender or maturity, and regular income or partial withdrawals from relevant With-profits products.

These eligibility criteria were discussed and agreed at Board and considered alongside advice from the With-Profits Committee who agreed the proposals were fair to LV= With-profits members.

 
If I purchase a new policy from the 1 March 2021 and I am not already a member of LV=, am I entitled to any member payment as a result of the proposed transaction?
New policies taken out from the 1 March 2021 are not entitled to the one-off member payment. This reflects our announcement in December 2020 that we had reached an agreement with Bain Capital to acquire LV=, ensuring we act in the best interest of our existing members.

LV= With-profits policies taken out from the 1 March 2021 are still entitled to the enhanced payout when their policy ends or they start to receive an income from it, providing the policy is still active at the date of the Special General Meeting and the overall vote is in favour of the transaction.
 
My policy is due to mature soon, will I still be eligible for the member payment?
If your policy is due to mature before the date of our Special General Meeting (SGM), then you’ll no longer be classed as a member of LV=. Even if you decide to leave your money with us, you won’t have an active policy and you would no longer be classed as a member – meaning you would not be eligible for any member payment. If you have other policies with us which are still active at the date of our SGM, then you would still be eligible. We will announce the date of the SGM on LV.com/future in due course.
Are there any With-profits members who will not benefit from an enhanced payout?

Yes, there are three types of With-profits members who will not qualify for the enhanced payout at policy exit:

  • Those who have a conventional pension where these policyholders already benefit from a guaranteed yearly income. 
  • RNPFN With-profits policies which are already in their own ring-fenced fund. These policyholders may benefit from distributions made from their fund’s inherited estate in the form of either a terminal bonus enhancement or special bonus. 
  • Teachers With-profits policies which are already in their own ring-fenced fund. These policyholders may benefit from distributions made from their fund’s inherited estate in the form of either a terminal bonus enhancement or special bonus. 
What happens if my policy lapses or terminates before the date of the Special General Meeting (SGM)?
If you do not hold an active member qualifying policy at the point of the SGM, you will no longer be a member and therefore you will not qualify for the member payment.

If you do not hold an active LV= With-profits policy on the date of the SGM, you would not qualify for the enhanced payout.
I already have an eligible policy with you, but I would like to purchase an additional policy – will I qualify for the one-off member payment on the new policy?
The one-off member payment will be made on a per member, not a per policy basis, so you will not receive an additional member payment.

You and your policy

What does this mean for my existing policy?
This transaction will not affect the product you hold with us and the terms and conditions of your policy remain unchanged. We continue to operate as normal so you will be able to access our services in exactly the same way.
What do you mean by With-profits and non-profit members?
With-profits members hold a long-term investment product where the premiums are pooled together in a fund and invested. These policyholders receive bonuses that reflect the performance of the investments plus additional bonuses at the discretion of the Board.

The policies are primarily made up of longer-term financial products including endowments and whole-of life policies that are no longer actively marketed.

Non-profit members have an insurance policy where the sum insured and benefits are fixed from the start of the policy and the policy doesn’t attract bonuses e.g. Income Protection or Critical Illness Cover.
As a result of the Bain transaction will there be any change to policy terms and conditions?
LV= will still operate as a separate legal entity to Bain Capital; we will still be regulated in the UK by the PRA and FCA, all of our terms and conditions will continue to abide by these regulations, in addition our products will continue to fall under the jurisdiction of the Financial Services Compensation Scheme.
Is my pension investment, currently under management with LV=, safe?
Yes. Your investment will be protected by the same safeguards as it is today. We will still be regulated by the independent Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), who both look to ensure an appropriate level of protection for all consumers. Your investment will also continue to be covered by the Financial Services Compensation Scheme.
What changes will members see if the transaction goes ahead?
First and foremost, all eligible members will benefit financially from the transaction.

LV= With-profits members will benefit from a With-Profits Fund that is ring-fenced from new business and existing non-profit business and the associated risks.

With-profits members will continue to benefit from independent oversight from the existing With-Profits Committee as they do today.

There are no immediate changes to the overall business strategy or the management team. While Bain Capital will be the ultimate owners of LV=, the leadership team will be responsible for the day to day running of the business under the direction of the Board.
Will the Fund charges remain the same and will the asset mix change as the closed With-Profits Fund is wound down?
There will be no changes to the Fund charges as a result of this transaction. Under the terms of the transaction there will be a fixed cost schedule of administration and investment management charges.

There are no planned changes to the asset mix. As happens now we regularly review the asset allocations and ensure that it is still appropriate for the current market conditions, outlook, and the profile of our With-Profits business. The With-Profits Committee and the Investment Committee will continue to provide independent oversight.
How do I know if I hold a member-qualifying product?

Anyone can become a member of LV= by owning a member-qualifying product with us. This includes all of our current and historic products, apart from our equity release products (for example Lifetime mortgage and Flexible Lifetime mortgage). 

Customers who have general insurance products (for example car and home insurance) are also not members - these products are sold by LV= General Insurance Group, a subsidiary of Allianz.

 
How do I know if I’m a With-profits member?
If you hold one of these policies, then you will be a With-profits member.

Voting process

Will members get a vote on the transaction?
Yes – eligible members will get a vote on the transaction, as long as they have been a member for a continuous period of 12 months.
What percentage of votes is required for this proposal to be passed?
Firstly, it’s important to understand that there are two votes.

The first vote to approve the transaction will require 75% of those who vote, to vote in favour. There is no minimum turn-out required. The transaction will only proceed if members approve this vote.

If members do vote in favour of the transaction, there is an Article in our current constitution that effectively prevents us from implementing the transaction fully and providing the best result for our members, as it requires more than half of all members to turnout to vote. With 1.25m members currently this would mean that we would need a 50% turnout equating to 625,000 members - something that we believe could not be achieved.

Therefore, if members vote in favour of the transaction, we can apply to the Court to change that specific Article so that it does not apply in this case. While it is not required, we will seek member agreement for us to do this in a second vote, which will also require 75% to vote in favour and then allow the transaction to be fully implemented for the benefit of our members.
What happens if you do not get 75% of members voting in favour of the transaction, what is Plan B?
It is the Board’s unanimous view that the transaction with Bain Capital is right for our members and represents the most financially attractive option. Just as importantly we believe it is right for our business, our people and the UK life and pensions market.

This is why we are recommending that members vote in favour.

In the event that we do not get member approval (requiring 75% of those who vote to vote in favour) it will not go ahead. In this situation LV= With-profits members won’t receive the additional bonuses when their policy matures and there will be no member payments.

If an insufficient number of members vote to approve the transaction, then we would have to revisit our strategic options, which would cost members money to run and it is unlikely that any of the options available are likely to be as financially attractive to members given the extensive work undertaken to get to the point of recommending the Bain Capital transaction.
 

Bain Capital

What are Bain Capital’s plans for LV= in outline?

Bain Capital will support the LV= Board and Management’s strategic plan, which includes (i) leveraging LV=’s strong brand to expand its presence in its existing markets, (ii) innovating and refreshing the customer experience, (iii) providing significant value and on-going stability and financial strength to LV= With-profits policyholders and (iv) continuing to strengthen LV=’s value proposition to its financial advisers.

Why have you chosen Bain Capital when from their many mergers they appear to have no experience or expertise in life and pensions?
It’s important to be clear that while Bain Capital will own the company and invest in the new business, the Board will set the strategy and the management team will execute it.

The Bain Capital team leading the LV= transaction has a strong track record of successfully growing and supporting similar savings, retirement and protection insurance businesses and has experience in life insurance demutualisation transactions in the industry globally.
 
What guarantee is there that the long-term interests of members will be protected?
There are number of policyholder protections in place. The With-Profits Fund will be ring-fenced from new business risk and the risks in other parts in the business for example increased deaths on terms assurance business. Other policyholder benefits such as the level of annuity someone receives are not changing and cannot be changed by Bain Capital as these are protected by the terms and conditions of the policy.
In his letter to members in December, Mr Cook says that Bain Capital offers “an unrivalled commitment to LV=’s future”. What commitments have been made?

This is a significant, strategic investment for Bain Capital, who is committed to the principles, values and long-term growth of the business. LV= has been around for 177 years and the transaction with Bain Capital provides us with the opportunity to build upon that heritage and position ourselves to be successful long into the future.  

Bain Capital is also committed to providing the investment required to strengthen our digital capability, enhance the customer experience and broaden the products and services currently offered. This will allow us to continue to be competitive and deliver great products to our members.  

Bain Capital’s proposal offers the strongest commitment to our people. Only they assured an ongoing presence in our three locations in Bournemouth, Exeter and Hitchin.

 
What are Bain Capital’s intentions for the future of the LV= business?
There are no immediate changes to the overall business strategy or the management team. While Bain Capital will be the ultimate owners of LV= the management team will be responsible for the day to running of the business under the direction of the Board.

Bain Capital has bought into our culture and values and see staying true to them as key to our future success.

Board

How much will the existing board of directors receive on top of normal salaries and bonuses? A cynic might suggest that the size of this payout could influence the board?
The Board is made up of both non-executive directors and executive directors.

The chairman and the non-executives receive an annual fixed fee and no bonuses for their work on the Board, and there is no incentive scheme associated with this transaction.

For executive directors – the chief executive and the chief risk officer – we have a very explicit remuneration policy which is covered in our directors’ remuneration report every year. Again, they have no incentive scheme associated with this transaction.

For the wider management team, bonuses are calculated using a balanced scorecard – a tool that sets a combination of financial and non-financial performance criteria against which management are measured. Over the last couple of years, the relative weight of the non-financial elements around our strategy and our members have not changed. There is no explicit bonus related to the Bain Capital transaction.
What will happen to the current Board if the transaction goes ahead?
A new Board will be formed to oversee the business in the future. The majority of this new Board will remain independent and we expect there to be some members from the existing Board to maintain continuity and also some members from Bain Capital. The remaining current directors will leave when the transaction is fully completed.

All-Party Parliamentary Group

What’s the position of the LV= Board on report from the All-Party Parliamentary Group (APPG) for Mutuals into LV=’s proposed transaction with Bain Capital?
We have always been clear that the strategic review and proposed transaction with Bain Capital has been solely driven by considering what’s in the best long-term interests of members. This has been the guiding principle behind any decision made by LV=. We welcomed therefore the opportunity to provide written and oral evidence to the APPG explaining why Bain Capital was singular in offering an excellent financial outcome for members as well as an unrivalled and long-term commitment to our future prospects, business and people.

We are disappointed by the findings of this report. We have always recognised the importance of providing our members with all of the information they need to make an informed decision in advance of the vote. This continues to remain our absolute priority and we are finalising a comprehensive information pack with the regulator - which will include reports from an Independent Expert and With-Profits Actuary - and look forward to sharing it with members. We will also provide all members with another opportunity to pose any further questions through a webinar, the date and details of this will be confirmed in due course.