Our future

The Member Virtual Event

What were the Questions that were covered at the Member Virtual Event?

We’ve summarised below some of the key Questions and Answers that were discussed at our recent Virtual Member Event.

Financial Benefits

What is the likely size of the payouts for members and when will they be paid?
There are two different payments for members; all eligible members will receive a member cash compensation payment and eligible With-profit members will also receive an enhanced payout at policy exit. [For eligibility see next question]

We expect the cash compensation payments to be made from Q1 2022 after the transaction fully completes following the legal process. 

The Board, after consultation with the With-Profits Committee, has formed an initial view on what members and policyholders may be paid depending on type of policy and the length of time it has been held.  This will be reviewed in conjunction with the Independent Expert to ensure that the proposals are fair to all members. Until this process is complete, we cannot communicate what the amounts will be.

Full details on the value of these payments will be included in the voting information pack that all members will receive ahead of the vote on the transaction.
What are the eligibility criteria for the compensation payment and also the enhanced payouts at exit to With-profits members?
These are complex issues which are currently being considered by the Board and the With-Profits Committee with the primary aim of ensuring fairness to members based on factors such as the type of policy and length of time the policy has been held. This will take time and careful consideration and we will share the detail as soon as it is decided and well in advance of the member vote.
Will my terminal bonus increase by 40% as a result of the sale to Bain Capital?

No.  Following the sale of the General Insurance business we set aside an amount of capital to distribute to With-profits members.  As a result of the transaction with Bain Capital, it is this amount which has increased by a further 40%.  

The actual amount of money each With-profits member receives will vary based on a number of factors - the type of product they hold, the size of their investment and the length of time until their policy matures – which will result in a different outcome for each members’ terminal/exit bonus.

How will members’ interests be enhanced if Bain Capital will be extracting money for their dividends, loan repayments or management fees? This seems a contradiction.
Bain Capital is paying £530 million for the business which allows us to provide a financial reward to our members.

Going forward, the With-profits fund will be ring-fenced and closed to new business and the associated risks. All monies in the ring-fenced fund will be for the benefit of With-profits members. Bain Capital will not be able to access these funds.

With-profits members will also benefit from a fixed schedule of costs into the future in the form of administration and asset management agreements.  This fixed cost schedule will help to provide certainty to With-profits policyholders over time as the With-profits fund decreases in size.

Bain Capital is investing in LV=’s new business franchise and it will be the success of this that will determine its ultimate return on investment.  Any future dividends paid to Bain Capital will be subject to approval by the Board.

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. 

Strategic review

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 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.
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 WPC 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 With-profits members.
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 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 With-profits members would have been likely to benefit from stronger governance arrangements, more access to distributions or a better cost structure.

What does this mean for my policy?

Is my pension investment, currently under management with LV=, safe?
Yes. Your investment will be protected by exactly 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 deal goes ahead?
First and foremost, all eligible members will benefit financially from the transaction. 

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 Credit 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.
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 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.

Voting process

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.

We consider the likelihood of half our members turning out to vote to be an impossibility.  Our typical turnout for member votes is less than 10%. 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 With-profits members won’t receive the additional bonuses when their policy matures and there will be no member compensation 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

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. 

Future of LV=

In his letter to members, 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 Credit 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.