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Halkitis on ICB advisory: It is about information gathering, not a directive

Minister of Economic Affairs Michael Halkitis said yesterday that the intent behind an Insurance Commission of The Bahamas advisory was to gather information, as the government considers whether to take the advice of the International Monetary Fund (IMF) regarding a minimum holding of government securities.

The advisory, which was published on May 19, stated that the commission was requesting urgent feedback on the proposal, as it relates to long-term insurers and general insurers and their asset-liability management, particularly in the areas of concentration risk, liquidity, credit risk, yield, duration and other unintended consequences.

“The government of The Bahamas is considering the imposition of a mandatory minimum holding of government securities by regulated insurance companies. We have been informed that the International Monetary Fund has recommended this course of action to the Ministry of Finance. The government is suggesting a minimum holding of 50 percent of its assets to be held in government securities. It would allow a transition period of 24 months for companies to attain this minimum threshold,” Superintendent of Insurance Michele Fields said in the advisory.

“The commission has not determined how the minimum holding would be calculated, however, it is being considered that it be based on the statutory funds held in accordance with section 45 of the Insurance Act, 2005. The commission has conducted a benchmark in consideration of this proposal and has found that one jurisdiction imposes this requirement in which the calculation is based upon minimum required capital/surplus.”

There has been varied discourse regarding the advisory, with some questioning if this represents an overreach on government’s behalf.

Halkitis said, “The Insurance Commission requested some information from companies as to what their holdings are. I think that was the intent of the communication. The idea is that we want to know the extent of the holdings because we have gotten advice that perhaps we should look at what some other jurisdictions are doing in terms of regulating the quality of the assets that are held by the insurance companies. So, it was basically a first step of information gathering, not a directive at all.”

East Grand Bahama Member of Parliament Kwasi Thompson, who is also the opposition shadow minister of finance, called it “sad and unacceptable” that the government would give the insurance sector such little time to provide feedback on such a far-reaching proposal.

“The Opposition wishes to lend its fullest support to the position taken by the Bahamas Insurance Association, as reported in the press on May 25th, 2023, in its strong stance against the Davis administration’s plan to force the industry to hold up to 50 percent of its asset base in Bahamas government debt instruments, and having “its investment appetite and strategy dictated to it by the government”.

“Why is this PLP government even considering forcing the insurance industry to lend the government money, over and above the amounts that it would independently choose to do as part of its own investment policies? This unprecedented move to demand private entities to take on government loans seems to be heavy-handed, and reeks of desperation. The government must be very cautious and prudent in making any decision that could destabilize any industry,” he said.

“The FNM and all reasonable Bahamians demand to know what set of circumstances does the Ministry of Finance find our public financial affairs in to even contemplate such an extreme measure? What is the prime minister, as minister of finance, seeing in his fiscal reports and projections that would compel him to consider such a move, that some in the insurance industry state over time “will lead to the collapse of the industry”?

“It is sad and unacceptable that the insurance industry believes that “the government has sought to introduce significant policy changes affecting the insurance industry without the benefit of adequate consultation”. Why did the government think that providing the industry with just a week to review such a monumental shift in policy would represent any sort of reasonable and proper consultation, on a move that would have a potentially catastrophic effect on a critical domestic industry? The government must not act until it has properly consulted and listened to this important industry.”