VM reports big gain on insurance deal

Marcella Scarlett, Business Reporter

Victoria Mutual Building Society (VMBS) booked close to a billion dollars in gains off the deal that merged its insurance subsidiary with British Caribbean Insurance Company (BCIC) and has used a portion to strengthen its capital reserves, according to group chairman Michael McMorris.

The transaction involved a swap of shares that has given VMBS part ownership of BCIC of 35.1 per cent as at May 31, 2010.

"The merger met our objective of strengthening our capital and lowering our risk in the insurance industry," McMorris told VMBS shareholders at the mortgage provider's annual general meeting last Thursday, July 28.

"The merger resulted in a gain of J$925 million to the group; of that sum, accumulated reserve since the formation of VMIC amounted to J$410 million," he said.

The other J$524 million was realised gain, that is, the value of the transaction over and above the value of the asset on the books, explained Richard Powell, president and chief executive officer of VM group.

McMorris said the deal has consolidated the financial strength and stability of the institution that was founded over 132 years ago.

Even without the J$925.6 million gain on the insurance deal, VMBS was poised to substantially grow profit above 2009's J$576 million.

With the deal, profits climbed by a robust 256 per cent improvement to J$2.05 billion.

Capital and reserves

The group said that for last year and the forseeable future all surplus would be transferred to capital and reserves. That, plus a non-cash adjustment of J$324 million representing a change in the valuation of the group's net pension fund assets due to staff, has expanded VMBS' capital base from J$5.9 billion to J$7.9 billion.

McMorris also signaled that the group had no new big initiatives on the cards and would be playing it safe this year.

"It is not every year that we are going to have rolling out of new strategies. Sometimes you just have to consolidate and work with the numbers that you have. That's the position we have when it comes to strategies for the time period," he said. "In the next few years, it is fragile so we are on a drive to strengthen our capital and reserve. We are going to secure the institution through the build-up of capital. We are going to take the time out to do stockpiling for the unforeseen."

The shift coincides with a troubling development for the mortgage provider: rising delinquencies and non-performing loan portfolio that rose from 6.71 per cent of total loans to 9.17 per cent last year.

"The society is wary of the next few years as our economy tries to gather momentum in economic growth. With this in mind, the board and management remain committed to building the capital and reserves of the society as safety net for the unforeseeable and expect to transfer 100 per cent of any surplus generated over the next few years until conditions change," McMorris said.

Powell said VMBS would focus on growing savings and its push for new business would be executed through the new internet banking platform and deployment of 'financial services specialists' who are tasked with transacting business directly with customers.

The Internet banking platform will be available from April 2012, McMorris told Wednesday Business.

marcella.scarlett@gleanerjm.com