FMI UPDATE ADVISER Q&A May 2014 Contents A. AN INTRODUCTION FROM BRAD... 2 Quick Facts... 2 B. IN GENERAL... 3 1. When will this be effective and what should I look out for?... 3 2. Does the FMI brand remain the same?... 3 3. How does this affect policyholders?... 3 C. ABOUT THE SHAREHOLDERS... 5 1. Are Lombard still a part of FMI?... 5 2. Who are the other shareholders?... 5 D. ABOUT GUARDRISK LIFE... 6 1. Who is Guardrisk Life?... 6 2. Will Guardrisk Life change FMI?... 6 E. HOW DOES THIS AFFECT DOING BUSINESS WITH FMI?... 7 1. What will happen to my future commission on existing business?... 7 2. Will the way in which I do business with FMI change?... 7 3. Will my clients get a new policy?... 7
A. AN INTRODUCTION FROM BRAD We are very excited about the opportunities that these changes bring for FMI, the advisers we work with and our policy holders. This document explores some of the questions that you may have. If you have any further questions please feel free to email me directly: bradt@fmi.co.za Alternatively please contact your BD or our Financial Adviser Distribution Team on 0860 10 52 08 or sales@fmi.co.za Regards Brad Toerien CEO Quick Facts As of 1 July 2014 Guardrisk Life will replace Lombard Life as FMI s licence partner for all new business. The Lombard Group have reduced their shareholding but continue to be long-term partners in FMI, while CEO Brad Toerien has increased his shareholding and Craig Harding joins as a new shareholder together all three will actively drive our strategic vision to be known as the leaders in income protection to self-employed individuals and SMMEs. Reinsurance Group of America, Incorporated (RGA), a leader in the global reinsurance industry, remains our primary reinsurer. RGA was awarded Life Reinsurance Company of the Year from the 2013 Worldwide Reinsurance Awards and have won the award five times in the eight years it has been running. Guardrisk have an AA- Global Credit Rating and their capital adequacy requirement (CAR) indicator is 5.7 as at October 2013. Guardrisk Life has R4.4billion in assets and receives R2.2billion in premiums as at March 2013. In 1995 FMI, as a young start-up business, was one of the first financial service providers to specialise in income protection for the self-employed and SMME market. Over the years, our ability to develop innovative products coupled with the strong backing of our partners has provided our policyholders with an unbeatable risk solution. We work with independent financial advisers across the country because we believe they give their clients the best advice. Once FMI accredited, our advisers have access to FMI@hand, our online adviser portal and a dedicated sales support team making business with FMI swift and simple. FMI is an authorised Financial Services Provider and is insured by Guardrisk Life. 2
B. IN GENERAL 1. When will this be effective and what should I look out for? All new business, with a commencement date of 1 July 2014 and quoted in June, will be insured by Guardrisk Life. Please look out for the words Insured by Guardrisk Life on all policy documentation and marketing material from 1 June 2014 onwards. Existing policyholders will continue to be underwritten by Lombard Life and administered by FMI for the time being, so there is no change for them now. In due course, Lombard Life will lodge a formal application with the Financial Services Board and seek their approval to transfer the existing FMI policies from Lombard Life to Guardrisk Life by way of the provisions set out in Section 38 of the Long Term Insurance Act. Our employees are already informed of the changes and are well equipped to answer any questions you may have. We have also advised the various financial intermediary publications of our new partnership with Guardrisk Life and as a result you may see some related editorial copy in their next issues. 2. Does the FMI brand remain the same? Yes. Since 1995, our ability to develop innovative products coupled with the strong backing of our partners has provided our policyholders with unbreakable risk solutions. And that s what we ll continue doing. We ve changed our partners. Not our philosophy or our brand. We re passionate about our income protection philosophy and continue to believe strongly in: developing products that fill the disability and life insurance gaps overlooked by traditional insurers and their approaches supporting the survival of small businesses and the prosperity of their people 3. How does this affect policyholders? By partnering with Guardrisk and RGA, FMI policyholders are insured on a financially stable license. With their strong brand in the cell captive market, experience at running a licence at scale and providing licence-only support Guardrisk Life fits FMI s licence partner criteria perfectly. Guardrisk Life boasts gross premiums of R2.2 billion, and assets of R4.4 billion as at March 2013. This strong financial foundation is supported by an AA- Global Credit Rating and Capital Adequacy Ratio of 5.7 as at October 2013. As a result FMI s policyholders will benefit from the brand, scale, and financial security of Guardrisk Life and its parent company the MMI Group. 3
In addition to the benefits and security afforded by Guardrisk Life, RGA will continue to provide reinsurance support for the FMI book of business. RGA is a leader in the global life reinsurance industry. They were awarded Life Reinsurance Company of the Year from the 2013 Worldwide Reinsurance Awards and have won the award five times in the eight years it has been running. 4
C. ABOUT THE SHAREHOLDERS 1. Are Lombard still a part of FMI? Lombard s partnership with FMI is changing. FMI has grown significantly as an underwriting manager and strategically no longer need Lombard s expertise in running an insurance licence. From 1 July, Guardrisk Life will replace Lombard Life as FMI s licence partner for all new business. The Lombard Group will remain a significant shareholder in the FMI business and are looking forward to participate in the achievement of FMI s strategic vision to be known as the leaders in income protection to self-employed individuals and SMMEs. 2. Who are the other shareholders? Brad Toerien has been CEO and a shareholder of FMI since 2008. He is committed to building FMI into a market leader and has now increased his shareholding significantly. Craig Harding has joined FMI as a new shareholder alongside Brad and Lombard, and will play an active role in the growth of FMI. Craig has extensive financial and operating experience in the African financial services market. During his time as MD of Altrisk that company trebled in size and doubled its market share of new business. Before that, Craig was an executive director of African Life, helping grow the company from a small domestic insurer to a pan-african financial services company. 5
D. ABOUT GUARDRISK LIFE 1. Who is Guardrisk Life? Guardrisk has a unique position among SA s insurers. Formed in 1993 by Forbes, Guardian National and MIB, the insurance company was initially set up to focus specifically on the cell captive market. The company s founders pioneered a concept in which businesses had the opportunity to set up their own insurance structures. In essence, a cell captive is like owning an insurance company without the significant cost, compliance and administrative burdens. The cell captive concept was extended to life insurance when Guardrisk Life was formed in 1999. By 2007 the US-based magazine, Business Insurance, found Guardrisk to be the largest specialist captive insurance group of its kind in the world. In 2013 Guardrisk celebrated its 20th anniversary, boasting premium income of R9.1bn, total assets under management of R12.5bn with 245 cells. The group also owns Euroguard, based in Gibraltar, which focuses on short-term corporate risk solutions as well a short-term and life license in Mauritius. Guardrisk provides state-of-the-art risk financing and insurance solutions and access to a broad and diversified panel of professional reinsurance markets. Sound financial ratings give their clients total peace of mind: Leading international ratings agency, Fitch Ratings has rated three companies in the Guardrisk group. Guardrisk Insurance and Guardrisk Life received national insurer financial strength (IFS) ratings of AA(zaf) and the group s Mauritius operation received an international IFS rating of BBB. Guardrisk Insurance s AA domestic claims paying ability rating from Global Credit Rating Company makes them South Africa s highest rated cell-captive short-term insurer. Guardrisk Life is the country s only independently rated specialist cell captive life insurer and has a domestic financial strength rating of AA-. Guardrisk (previously owned by Alexander Forbes) is a wholly owned subsidiary of MMI Holdings effective 3 March 2014) but continues to operate independently. 2. Will Guardrisk Life change FMI? No. Guardrisk Life sees themselves as enablers of insurance businesses through their cell captive structures; they will have little involvement in FMI beyond their legal and regulatory responsibilities. The new licence partnership with Guardrisk Life enables us to continue growing in a competitive market and focus on what we do best developing innovative products that challenge convention to give our clients a better offering. So while Guardrisk Life will not change FMI, the licence partnership with them does allow us to develop the business as we believe best for future growth. 6
E. HOW DOES THIS AFFECT DOING BUSINESS WITH FMI? 1. What will happen to my future commission on existing business? All commission will continue to be paid in the usual efficient and timely manner that you ve been accustomed to with FMI. For a short period of time your commission statement may reflect two different types of payments, and your bank account will receive two deposits - those for existing business ( insured by Lombard Life) and those for new business as of 1 July 2014 (insured by Guardrisk Life). This will continue until such time as the FSB approve the application we intend submitting for the transfer of existing policies from Lombard Life to Guardrisk Life. 2. Will the way in which I do business with FMI change? For any new business applications with a commencement date of 1 July 2014 and quoted on in June that will be insured by Guardrisk Life, you will be required to sign a new brokering commission agreement. We will make this process as hassle-free as possible for you. Beyond that, doing business with FMI remains the same. Same great products, same convenient application and new business process, same great service all made simple and hassle-free through the FMI @hand business tool. Likewise our team of dedicated FASAs will as always be available to answer queries and assist in the new business process. Our commitment to paying claims remains as important a part of our business philosophy as ever and we ll continue to assess claims according to our existing criteria and processes, offering more certainty and more guarantees of a pay-out than other providers. 3. Will my clients get a new policy? Existing FMI policyholders will continue to be insured by Lombard Life and administered by FMI. In due course, Lombard Life will lodge a formal application with the Financial Services Board and seek their approval to transfer the existing FMI policies from Lombard Life to Guardrisk Life by way of the provisions set out in Section 38 of the Long Term Insurance Act. This process will be accompanied by a detailed communications plan to ensure advisers and clients are kept informed every step of the way. When this happens and assuming the FSB approves the transfer, we will issue an endorsement to current policies within 60 days of transfer, reflecting the change of insurer only. No other clauses will be amended. 7