The company released a statement this morning, outlining findings from a strategic review it undertook in 2020 to improve its capital position.
According to the statement, the total capital returned to members under the Bain Capital transaction would be £616m, with £212m in extra distributions for members.
The remaining £404m would come from remaining proceeds from the sale of its general insurance business.
As part of the deal, the firm plans to pay £533m to its 271,000 LV= Main Fund With-profit members via a one-off member payment of £100, along with payout enhancements of £101m. There are also exit bonuses and maintenance of mutual bonuses totaling £404m.
The deal has been criticised with fears it will lead to worse payouts for customers, worse customer service and that the private equity firm will strip it off its assets, load it with debt and then sell it to another bidder in a few years.
According to David Barral, senior independent director of LV=, said: “Our board carried out a careful and detailed strategic review of LV= in 2020. We examined all the options, drawing on our own wide business and transaction experience and that of our professional advisors.
“We all came to the firm conclusion it would not be fair for us to ask our With-profit members to finance a future that requires significant investment, which many would not benefit from. Therefore, we explored an external transaction and having considered 12 bids unanimously concluded that the best outcome for our members, employees and all of our stakeholders was the proposed transaction with Bain Capital.”
He added: “It was a decision we didn’t take lightly given our mutual heritage, but we know it is the right choice because it saves the future of LV=.”
Alan Cook, chairman of LV=, said: “There have been numerous theories and opinions about the process and decision. So that members can vote with facts in front of them, we are showing the analysis we did and the conclusions we reached.”
The board has unanimously recommended members in favour of the transaction and members are due to vote on 10 December.
Other options considered
The statement said that a “business as usual” approach would not work as LV= was a “sub-scale” life and pensions business and its new business unit was loss-making. It also said it had a “challenged capital structure” and the market was increasingly competitive.
It added that the firm needed £100m in investment for IT modernisation business operational improvements, product developments and customer services.
The company said it could not borrow more than an existing £350m in debt and new investment would have to be funded from LV=Inherited Estate, which would negatively impact returns to members.
Membership has also been falling, contracting 40 per cent since 2017 and is predicted to fall 60 per cent in the next 10 years. Consequently, most members would not see the benefit of their investment before their policies matured.
It also noted that there was a high level of execution risk to a “business as usual plan” given the firm’s historical performance.
LV= said that it did consider a closure option, as it would reduce the need for ongoing investment and capital needed to support the business would fall over time.
However, it said that this option would come with “significant costs” which would be passed on to members and lead to employee redundancies.