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Insurers 'over reacting' on 50% investment 'minimum'

• Top official: Gov't 'not desperate for funds'

• Do we want capital markets to develop'


Tribune Business Editor

The Ministry of Finance's top official yesterday said insurers are "over reacting" to the consultation on holding a "minimum" 50 percent of their investments in government securities as he refuted fears it is "desperate for funds".

Simon Wilson, the financial secretary, told Tribune Business the issue was far from becoming a firm proposal or decision as the Insurance Commission needed to gather the necessary details and feedback from its licensees before any report or recommendations can be submitted to the Government.

Speaking after insurers voiced fears that the Government is seeking to "dictate" their investment strategy, he added that the topic had been raised during an International Monetary Fund (IMF) mission to The Bahamas that discussed this nation's capital markets.

Mr Wilson told this newspaper that the IMF representatives had been "slightly surprised" to learn that there was no minimum threshold for government securities holdings imposed on Bahamian insurance underwriters even though the sector was widely perceived as the cause of many past Caribbean financial "meltdowns", as occurred with CL Financial (CLICO) and the Jamaican financial crisis in the 1990s.

He added that the absence of such a benchmark was "unusual", especially given The Bahamas' exchange control regime and lack of alternative investment options. And the financial secretary asked: "Do we want the capita markets to develop or do we want to be in the same place we were 50 years ago?"

Addressing the insurance industry's "grave concerns", which were communicated to the Insurance Commission on Wednesday, Mr Wilson said: "Nothing has been proposed. To be clear, we had a mission from the IMF to discuss the capital markets of the Commonwealth of The Bahamas. One of the questions asked of the regulators was: Is there a minimum requirement for holdings of government securities among licensees?

"The [insurance] regulator indicated there was no minimum requirement. The IMF folks were slightly surprised. If you look at this region, and the failures that have happened in the financial sector in the region, they've always been led by the insurance sector. The view is that the insurance sector is regulated softer than the banks.

"All these major meltdowns in the Caribbean have come form the insurance sector. The view is that the banks are well-regulated, well-capitalised. The banks are required to have a percentage of their assets in government securities. They are viewed as risk free."

Given the multiple downgrades to The Bahamas' sovereign creditworthiness in recent years, and the impairment charges that banks and other institutions have had to take on their government securities, that view could be challenged. However, Mr Wilson said: "The Bahamas Insurance Association, I think, is over-reacting. This is just an inquiry.

"The Insurance Commission has to do their work, and prepare a report and recommendations to the Government. It is just an inquiry. I may have seen the Commission's letter. Obviously, they want to understand it. I think they're over-reacting. We don't have any information so we cannot reach the stage of making a decision or proposal. I don't know what the issue is."

Many insurers, though, are likely to contrast that with the six days allowed by the Insurance Commission to provide feedback and the urgency with which it requested that this be received ahead of this coming Wednesday's 2023-2024 Budget presentation in the House of Assembly.

Noting that several Bahamian insurers "hold as much as they can" when it comes to government securities investments, Mr Wilson said: "There's no doubt that not having a minimum requirement is unusual, especially in a country where we have exchange controls. It's not like we have a lot of options. Because we have exchange controls it's unusual."

Several observers have questioned whether the proposal to mandate that Bahamian insurers hold a "minimum" 50 percent of their total portfolio in government securities is a sign of a lack if appetite for paper debt among local investors. Mr Wilson, though, assured that this was "completely, completely, completely" the wrong interpretation.

"When we look at our fiscal performance over the last couple of months, it's quite clear revenue is performing quite well, expenses are under control, our borrowing is very much reduced," he said. "We have multilateral lines available, so this is not a situation where we are seeking, we are desperate, for funds and liquidity. None.

"The question we have to ask ourselves: Do we want the capital markets to develop? This is the third decade of the 21st century. Do we want to be in the same place we were 50 years ago?" Michael Halkitis, minister of economic affairs, gave a similar explanation at yesterday's Prime Minister's Office media briefing.

"The Insurance Commission requested some information from companies as to what their holdings are," he said. "That was the intent of the communication. The intent is that we want to know the extent of the holdings because we had gotten some advice that perhaps we should look at what some other jurisdictions are doing in regulating the quality of assets held by insurance companies. It was a first step in information gathering. It was not a dictate at all."

Bahamian insurers, though, said yesterday that they were still awaiting clarification on the matter from both the Insurance Commission and the Government. Julian Rolle, the BIA's chairman, told this newspaper that neither Bermuda nor the Cayman Islands impose a minimum requirement for holdings of government securities on their insurers, with only Jamaica applying such a benchmark - which appears to be a legacy of its 1990s financial crisis.

Anton Saunders, RoyalStar Assurance's managing director, said of the proposal: "There's no way that can work with the investment portfolio we have, along with our A. M. Best commitments and regulatory limits of our different regulators in the Caribbean. That really is a non-starter for us.

"For all the regulated companies in The Bahamas, that is a non-starter. There's no way in heaven you can impose limits for investment accounts. Saying you must invest 50 percent in a particular security, that goes against all portfolio diversification and concentration of risk in one's investment portfolio. For us, there's multiple reasons why we strongly object to this measure.

"We have investments in government stocks, but don't mandate that we put 50 percent of our assets in a particular investment. We do have government stocks, we don't run away from them; we are part of the community, but please don't mandate how much we invest."