How LV= Saved Itself From a US Private Equity Takeover Bid

Andy Burnham has now become the first Labour and Co-operative Party Prime Minister, arriving in Downing Street with a pledge to make good on plans to double the size of Britain’s mutual sector.

That makes this an opportune moment to speak with the chief executive of one of the UK’s best-known member-owned financial services groups — particularly one that, not so long ago, came perilously close to losing its independence.

David Hynam is the man in charge of LV=, the life insurance, income protection and pensions provider once known as Liverpool Victoria, which today is owned by more than one million members.

He stepped into the top job three years ago, after LV= had only just fought off a takeover attempt by a US private equity buyer.

His predecessor, former Army colonel Mark Hartigan, had sought to end LV=’s mutual status through a proposed £530million sale to Bain Capital.

But the controversial demutualisation plan failed to secure the necessary backing from members, following a campaign spearheaded by the Daily Mail and The Mail on Sunday, and the deal fell apart nearly five years ago.

Hynam was hired to restore stability. Since taking over, he has strengthened the 183-year-old mutual’s finances, cutting debt, improving profitability and rebuilding LV=’s capital reserves.

He has also ‘brought some pride back’ into the mutual. But while Hynam has been busy course-correcting LV=, other financial mutuals have been getting bigger.

The largest, Nationwide, has swallowed Virgin Money. Rival building society Coventry now owns the Co-operative Bank. OneFamily and Scottish Friendly plan to merge creating a mutual life assurer with 2.3million members.

‘The world has moved on a bit’ in the past three years, Hynam says in his distinctly Welsh accent. 

‘We’d been a bit distracted for a while,’ he adds with some understatement. ‘There’s some history that we’ve moved on from.’

At least LV= is no longer constantly looking over its shoulder.

‘I don’t get up in the morning thinking the big thing “I’ve got to fight for independence”,’ says Hynam. ‘I think “We’ve got to deliver great value for members”.’

And LV= is delivering. The mutual recently paid out a record £100 million to the 250,000 eligible policyholders who own the mutual.

The bulk of that bonus was a final payment from a deal with Allianz, the German giant that bought LV=’s home, motor and pet insurance arm six years ago.

Hynam seems to be in the right place at the right time.

On Burnham, he says: ‘It’s great to have somebody who has got an interest in the co-operative and mutual sector. That’s always going to be useful for us.’

But he also wants to see ‘consistent policies that customers can relate to’, especially for pensions.

Tax-free cash withdrawals from pension pots soared in the run-up to last year’s Budget on rumours the £268,275 limit would be cut.

It wasn’t, but Hynam is keen to avoid another bout of damaging speculation in the run-up to this Autumn’s Budget, which will be Burnham’s first.

‘If the tax-free allowance for pensions was withdrawn – or threatened to be withdrawn – people will behave differently in their tax planning,’ he warns. Another issue for LV= is access to capital.

Mutuals are owned by members, so cannot issue shares to outside investors, unlike public firms.

For member-owned life insurers such as LV= that are also regulated by financial watchdogs, it means relying on policyholder premiums, investment returns and retained profits instead.

‘I don’t think anyone has come up with an idea yet as to how mutuals can have access to capital when you can’t basically own a share,’ he admits.

Financial regulation is also designed largely with shareholder-owned banks and insurers in mind. Mutuals such as LV= are very much an afterthought. Despite these headwinds, LV= has recently returned to form, helped by a strong brand.

Hynam argues a strong heritage engenders both customer loyalty and ‘huge demand’ for the LV= name itself. The mutual can trace its roots back to 1843, when it was set up in Liverpool to help the poor pay for their funerals.

In a big vote of confidence, German giant Allianz recently signed a licensing deal to continue using the LV= name on the general insurance products it bought from the mutual in 2019.

Allianz, which reversed plans to drop the LV= name, made ‘an active choice’ that ‘keeps our brand fresh’, Hynam notes, adding: ‘It’s a very valuable brand – one of our biggest assets.’

He plays down suggestions customers are confused by having two insurance companies operating under one LV= banner.

Another factor in the mutual’s recent recovery has been buoyant stock markets. Its flagship with-profits fund, which protects policyholders against the vagaries of the stock market, returned an impressive 14 per cent last year.

Half of LV=’s business is in savings and retirement, selling the likes of annuities and equity release plans, which have also seen good growth. The rest is in protection plans such as life insurance and critical illness cover.

‘Our tag line is protecting your income while you’re working, maximising it when you’re not,’ Hynam says. LV=’s products are mainly sold via a network of regulated financial advisers who charge a fee for tailored services.

But it’s in unregulated, or guided, advice where the big growth opportunities lie as providers vie for the ‘mass affluent’ market.

Artificial intelligence (AI) can play a role in providing basic financial advice, bringing costs down, says Hynam. 

But its potential is also being discovered in other areas such as complaints handling, which LV= is trialling.

‘I don’t mind if some fail,’ he says of LV=’s AI pilots, ‘because you’re not giving it a good enough go if it’s always 100 per cent successful.’

Saving LV= isn’t the only rescue act Hynam has performed. His twinkly eyes light up when he talks about his dog Walter, who he describes as ‘a complete rescue’.

‘Walter was found in a Biffa bin in Cyprus,’ he reveals. 

The mother of his partner, Owen, was running a dog sanctuary there at the time and flew Walter to the UK for them. 

Hynam says: ‘He is a proper mongrel but he’s the right colour for a miniature schnauzer.’

He sometimes brings Walter into the office at LV=’s Bournemouth HQ and has a collection of china dogs too. 

These were leaving presents from colleagues at Bupa, where he ran the healthcare company’s UK business. 

He admits: ‘Some are nicer than others.’

Mutuals have seen their share of false dawns down the years. David Cameron’s coalition government promised to promote mutuals and foster diversity in the financial sector as part of his ‘big society’ agenda. It never really happened.

Maybe it will be different under Andy Burnham. All Hynam can do is live by his motto – to leave things better than you found them.