Middlesea Valletta Life, Middlesea Group's life assurance company, last week announced the best results in its 15-year history with a pre-tax profit of €7.64 million for the year ended December 31, 2009, an increase of €6.44 million over 2008.
Profit after tax increased from €1.92 million in 2008 to €6.20 million in 2009. Significantly, MSV's book of business has grown by 14 per cent to €125 million with total assets rising 19 per cent to €999 million just shy of €1 billion.
Chief executive officer David G. Curmi told The Times Business this week the board was encouraged these results were achieved just a year after the unprecedented financial turmoil in 2008.
"These results can be attributed to three main factors: an increase in business written due to growth in demand for our savings-related life insurance products, a significant improvement in our investment performance following the strong recovery in investment markets in the second half of 2009, and the increased internal efficiencies that we have been able to achieve in our business processes that have, in turn, enabled us to reduce our internal cost base despite the increase in our business activity."
MSV chairman Roderick Chalmers last week talked of strong demand for the company's savings-related insurance policies in particular. Were other customer demand trend shifts identified last year?
"In a low interest rate scenario, it is normal that sales of savings-related insurance products increase," Mr Curmi explained. "This happened not just in Malta but in a number of life insurance markets across Europe last year. MSV's range of with-profits investment have generally provided policyholders with consistent and satisfactory returns compared with other investment products offering the same level of risk.
"Savings-related insurance products are considered by many to be valuable medium- to long-term investment instruments because, in addition to the lump sum paid at maturity, they can provide life insurance protection which is rarely available with other forms of regular savings plans. Savings-related insurance products are generally also regarded to be very tax-efficient instruments. For example, with-profits policyholders are not liable to pay any personal, withholding or capital gains tax on surrenders and maturities, since an exit tax is paid by the life insurance company. Similarly, beneficiaries will not be liable to any tax if they receive payment under an insurance product as a result of a death claim."
Mr Curmi said the main change MSV has witnessed in policyholder behaviour is a marked preference for savings and investment products that are safer, such as with-profits investments. MSV has seen a decrease in demand for unit-linked investments generally regarded to be riskier investments. A similar trend manifested itself across some European markets.
MSV's bonus philosophy for its range of with-profits investments has always been centred on the ability to pay stable, but supportable, bonus rates in the medium term, Mr Curmi added. MSV aims to 'smoothen' returns over the term of the policy: establishing reserves from certain favourable years to compensate for unfavourable returns in other years during the policy term. Notwithstanding the prudent investment policy adopted by MSV, investment returns could fluctuate further in the light of the current uncertainty in the capital markets. Fair value movements and lower investment returns impinge directly on the rates of bonuses declared by MSV. Regular bonuses are expected to vary over the lifetime of the policy, Mr Curmi pointed out.
Last week, chairman Chalmers highlighted how MSV was reaping the benefits of a strategy to promote and provide a broad range of products and services through a multi-channel distribution platform.
"Two of MSV's key strengths are its product breadth and its distribution reach," Mr Curmi explained. "MSV has a wide range of life insurance and savings-related insurance products designed to suit the four principal demands for life insurance: protection, savings, investments and retirement. Our product portfolio is regularly reviewed to ensure we continuously meet the needs of our very large customer base. In designing our products we ensure that we offer the greatest possible flexibility for our clients.
"Although MSV is principally a bancassurer, we also operate a multi-distribution platform. Our winning bancassurance partnership with Bank of Valletta plc has been hugely successful, and this is clearly our most important distribution channel. While MSV's strength lies in manufacturing insurance products and services, we work very closely with the bank to ensure the products we design are the products which the clients of the bank want to buy. On the other hand, BoV's strength lies in distributing MSV's products through its extensive branch network. This formula has worked well, judging by MSV's performance over the past 15 years."
Apart from the bank channel, MSV operates through tied insurance intermediaries, independent financial intermediaries and insurance brokers. The company has the largest network of tied insurance intermediaries that make up a loyal, dedicated sales force. Through this channel, MSV is able to reach customers who may not necessarily be BoV customers, and customers who may prefer to talk about their personal financial planning requirements in the comfort of their home or of their office.
This year, MSV plans to increase the awareness of the Maltese for basic voluntary life protection, according to Mr Curmi. Company indicators show that only 36 per cent of the working population in Malta has some form of life protection, and most of this protection is used as collateral against bank borrowings. Most families are either uninsured or inadequately insured against the death of their primary income earners.
In view of new regulatory capital requirements for life insurance companies coming into effect on January 1, MSV's shareholders Bank of Valletta plc and Middlesea Insurance plc resolved to further increase the company's issued share capital from €44.25 million to €51.75 million last December through the injection of new capital.
"Strong capitalisation is necessary to support the new business growth plans for MSV," the chief executive officer pointed out, "while meeting in full the requirements of policyholders and the insurance regulator. The bottom line in the life assurance business is that the more business you write, the more capital you are likely to be required to provide. We are fortunate that our two shareholders are committed to the continuing growth of MSV's business - and have provided the capital to enable this growth to take place.
Behind the scenes, a major review and re-organisation of MSV's management structure and operations is under way that will result in the company migrating away from outsourced and shared services. The move has been made necessary by the company's size.
Mr Curmi explained: "Consider the facts - MSV has shareholders' equity in excess of €100 million, business written of over €120 million, and a gross balance sheet value that has reached €1 billion. With over 80,000 customers, MSV is clearly not only Malta's leading provider of life insurance, long term savings and retirement planning, but is also one of the largest enterprises on the island.
"Going forward, the institutional shareholders of MSV and the board have agreed to take those steps necessary for MSV to move away from its dependency on shared and outsourced services. Whereas shared services were satisfactory as MSV's business was being built, the size of the company today is such that it is thought best to move rapidly towards a self sufficient, stand-alone status."
Mr Curmi added that these aspirations will require a thorough restructuring of MSV's operations, and the process is currently under way with management's full commitment.
Middlesea will remain a 50 per cent shareholder in MSV, but the dependency on the Middlesea Group for the provision of shared services will reduce gradually over time, the chief executive emphasised.