Martin Shaw says \u2018three-act tragedy\u2019 has led to plans to demutualise, in criticism of chief executive and chair<\/p>\n
Last modified on Wed 24 Nov 2021 14.59 EST<\/p>\n
Bosses at the insurer LV= have been criticised over alleged conflicts of interest in its controversial \u00a3530m private equity takeover, which has been labelled a \u201cthree-act tragedy\u201d.<\/p>\n
LV= plans to demutualise in order to receive investment from Bain Capital, a US private equity firm. However, three-quarters of its member-customers must back the plan in a vote on 10 December.<\/p>\n<\/p>\n
Martin Shaw, the chief executive of the Association of Financial Mutuals, said he saw a \u201cpotential conflict\u201d between the chief executive and chair\u2019s duty to look after the interests of the mutual\u2019s members, and their desire to continue working for the company after the proposed takeover and demutualisation.<\/p>\n
The deal has provoked concerns among politicians and the UK mutual sector over the future of one of the UK\u2019s largest and most venerable mutual institutions. LV=, formerly known as Liverpool Victoria, was founded in 1843 to help Liverpool\u2019s poor with burial costs. Shaw made the comments at a hearing on the future of mutuals held on Wednesday by parliament\u2019s Treasury committee.<\/p>\n
LV= has argued that it had no better option than to accept the takeover offer from Bain. Its chief executive, Mark Hartigan, has said the deal is the best outcome for members, and that the company was too small to compete with larger mutual and non-mutual rivals and fund big investments in technology upgrades.<\/p>\n
Hartigan has previously said that there are no contract discussions between him and Bain. Bain has not published any details of its plans for remuneration of executives.<\/p>\n
An LV= spokesperson said the Bain transaction had been approved unanimously by LV=\u2019s eight-member board. However, Shaw said that Hartigan and the mutual\u2019s chair, Alan Cook, were in a \u201cdifficult position\u201d and that it would be preferable if they were to offer a \u201cblack-and-white position\u201d and step aside once the transaction completed, as some bosses have done in previous demutualisations.<\/p>\n
Shaw also criticised LV=\u2019s communications with members over the past six years, in what he described as a \u201cthree-act tragedy\u201d that has led it towards demutualisation.<\/p>\n
LV= has outlined how new regulatory requirements and losses after the Brexit vote in 2016 prompted a capital shortfall. Its response was to sell its large general insurance business in two parts to Allianz for \u00a31.1bn in 2017 and 2020. However, it now argues that the sale means it does not have the scale to compete with rivals.<\/p>\n
Hartigan joined at the start of 2020, but Cook has chaired the board since the start of 2017. LV=\u2019s spokesperson said the company had made the weakness in the capital position clear in its 2016 annual report.<\/p>\n
Shaw said: \u201cAs an independent entity they were probably not in a position to continue, but actually what transpires from what they\u2019ve said recently is that they knew that back in 2016, 2017 when they started those structural changes to the business.<\/p>\n
\u201cIf it\u2019s only just become aware to members now then clearly that is a kind of failure in the basis of keeping customers properly informed of what\u2019s happening.\u201d<\/p>\n
Separately, Gareth Thomas, a Labour MP who has been a persistent critic of the LV= deal, on Wednesday told the House of Commons that he had reason to believe that a tender document issued to Bain and other suitors by LV= when it was looking for a buyer may have favoured demutualisation. LV=\u2019s spokesperson said that claim was factually incorrect.<\/p>\n
Thomas also renewed his call for Bain to publish details of its plans for the board of LV=, saying that the proposed new board has been approved by the regulator, the Financial Conduct Authority (FCA). He said both the board membership and the tender document should be published before the LV= member vote deadline.<\/p>\n