The COVID 19 Crisis
The start of the year saw equity markets continuing their upwards trend. However, once COVID-19 started spreading across the continents we saw the stock market falling sharply to end a decade-plus bull market. Volatility spiked to levels last seen during the financial crisis of 2008/9.
With WHO declaring COVID-19 a pandemic, markets started to price-in a recession, the extent of which is still currently difficult to predict. Between late February and the end of March markets went into a tailspin.
During March, the S&P 500 experienced three of its worst top ten trading days since 1987 whilst the MSCI World Large + Mid- Cap Index experienced the fastest fall into a bear market in history. Global financial markets have not just fallen sharply but bond prices and stock prices have moved together.
The unprecedented COVID19 crisis is being considered by insurers and particularly by life insurance companies as a high impact, exceptional adverse situation and most insurance companies are constrained to take measures to ensure their financial stability and the continued protection of policyholders.
The MMSV With Profits Fund suffered important falls in value albeit not to the same extent as the markets.
Fortunately, equity markets improved significantly during April and May relative to March but the economic outlook remains highly uncertain and very volatile.
COVID 19 Measures
The following measures have been implemented with effect from 11 May 2020:
1. Regular Bonus: There will be no change to the 2019 Regular Bonus rate of 2.85% declared by the Board on 4 March 2020 and announced in our Media Release 9 March 2020 but with effect from 1 January 2020, we will reduce the 2020 Interim Regular Bonus Rate from 2.85% to 1%. We will continue to review the Interim Regular Bonus Rate regularly.
2. Final Bonus: The Final Bonuses declared by the Board on 4 March 2020, and announced in our Media Release 9 March 2020, will be withdrawn and replaced by a lower final bonus scale for contracts maturing from 11 May 2020, varying by product group and premium. Going forward, we will continue to review Final Bonuses regularly.
The following are the revised Final Bonuses that will apply:
Single Premium Plans will be eligible for a final bonus if they have been in force for over 15 years:
• Single Premium Plan: 3% per annum for each year in force in excess of 15 years.
• Comprehensive Flexi Plan Single Premium: Flat rate of 10% for contracts in force in excess of 15 years. No annual rate will be paid.
• Comprehensive Life Plan Single Premium: Flat rate of 14% for contracts in force in excess of 10 years. Additional 4% for each year in excess of 20 years.
Regular Premium Plans:
• Comprehensive Flexi Plan Regular Premium: Will not receive a Final Bonus.
• Comprehensive Life Plan Regular Premium: 3% per annum for each year in force in excess of 24 years.
3. Reinvestment Special Offer: The Reinvestment Special Offer has not been renewed. Reinvestments of maturities will be subject to our standard new business terms.
4. Market Value Adjustments: Due to the recent large fall in stock markets, we may apply a Market Value Adjustment if you surrender your Policy early, which will reduce the amount that we pay you. Therefore, if you decide to cash in your Policy early you may receive less than the value of your Policy Account. We will be reviewing our Market Value Adjustments regularly and following further significant market movements.
5. Increase in the Minimum Term on Single Premium Plan: We have withdrawn the five, six and seven-year versions of the Single Premium Plan and set the minimum term to 8 years in order to mitigate the cost of guarantees and meet investment objectives of the MMSV With Profits Fund. This means that we will no longer accept new applications for Single Premium Plans for a term of less than 8 years. This measure does not however apply to reinvestments of maturities in respect of which the minimum term of 5 years will continue to apply.
6. Automatic Premium Loans: We have reduced the amount of interest that we charge on Automatic Premium Loans from 5.5% to 2.25% (simple interest) to assist you in managing your commitments in these difficult times. An Automatic Premium Loan is a Policy benefit that allows us to deduct the amount of any unpaid or outstanding premiums from the value of your Policy. The Automatic Premium Loan is a very efficient benefit that exists on certain of our policies that enables policyholders to maintain their savings policies in force rather than having to either surrender or allow a Policy to become paid-up.
Furthermore we are also pleased to inform you that with immediate effect we will waive the interest rate on Automatic Premium Loans in genuine cases of hardship (e.g. upon presentation of termination of employment notices) for a period of 6 months or earlier if the situation normalises before then.
7. Policy Loans: We have reduced the amount of interest that we charge on Policy Loans from 5.5% to 2.25% (simple interest) to offer you an alternative to surrendering your policy.
A Policy Loan is a very efficient benefit that exists on certain of our policies that enables our policyholders to borrow against the cash value of their Policy rather than requesting a surrender of their policies. You can use the borrowed cash in any way you like whilst maintaining your Policy in force.
8. Cancellation of Dividend: The Board of Directors resolved to cancel the payment of the final net dividend of €11.77m that was approved on 4 March 2020. This measure will further strengthen the equity of MMSV.
A disruption or crisis requires immediate attention. The situation we are in is novel due to the nature and scale of the threat of COVID-19, which distinguishes it from any other crisis. It is unprecedented and therefore, we have no experience on how to deal with its consequences.
Although we have started to see a gradual improvement in the health situation in Malta and in the local and global economic environment, our outlook is still one of cautious optimism. Difficult investment markets feature heavily in the outlook for the life insurance industry.
In the face of this crisis, we need to act responsibly to protect our company and our policyholders.
We hope that we have explained the circumstances that have led us to implement these measures.
If you require further clarification, information or assistance, please feel free to contact us.
David G. Curmi
Chief Executive Officer
Date: 26 May 2020
MAPFRE MSV Life p.l.c. (C-15722) is authorised by the Malta Financial Services Authority (MFSA) to carry on long term business under the
Insurance Business Act, Cap 403 of the Laws of Malta. MAPFRE MSV Life p.l.c. is regulated by the MFSA.