LV, one of the UK’s largest and oldest mutually owned life insurers, is to sell itself to private equity group Bain Capital in a £530m deal.
The sale will lead to a cash payout for LV’s 1.3m members, some of whom will also qualify for higher bonuses when their policies mature.
Private equity firms have been taking a growing interest in the UK life insurance market, seeing a potential to increase profits by cutting costs while in some cases also providing opportunities for growth. At the start of this year, for example, the rump of Equitable Life was sold to private equity-backed Utmost.
LV, which was established in 1843 and used to be known as Liverpool Victoria, has already sold its car and home insurance business to Germany’s Allianz and said it had conducted a rigorous strategic review before deciding to sell itself.
Its members own the company but the number of people who hold with-profits policies, whose capital funds LV’s growth and other investments, is declining.
“It was clear that we would need significant long term investment to compete in this market,” said Mark Hartigan, chief executive, who joined the company at the start of this year. “This is the culmination of a rigorous strategic review followed by a structured and competitive bid process,” he said, adding that there had been 12 formal bids for the business.
Royal London, the UK’s biggest insurance mutual, was one of the potential buyers, but LV entered exclusive talks with Bain in October. The £530m price tag values LV at 0.9 times own funds, which is a measure of the equity that members hold in the business.
All members will receive what Mr Hartigan called “a modest cash payment to compensate for the loss of ownership”, although he would not comment on the size of this, saying it was for the board to decide.
The 340,000 members who hold with-profits policies will also get a 40 per cent uplift to the pool of cash available to pay bonuses when their policies mature. The amount payable will depend on each specific policy.
This is Bain’s second investment in UK insurance after it bought motor insurer esure two years ago.
Matt Popoli, head of insurance at Bain Capital Credit, said: “We are investing in a unique company with an impressive management team and employee base, that is already well positioned in the market.”
After the deal, LV will close its with-profits fund to new business but will continue to sell retirement and other products.
“We and they recognise that this is a long term play,” said Mr Hartigan. “Bain has a strong track record in financial services and insurance. They have considerable experience of demutualisations in the US.”
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