Beacon Insurance Company is giving thumbs up to a move by regulators to introduce a system which sets the minimum capital an insurance company needs to support its overall business operations.
But it will result in increased premiums.
The Financial Services Commission (FSC) will introduce the risk-based capital management system for the industry sometime next year.
Beacon’s Chief Operations Officer Christopher Woodhams told a media conference on Friday the Trinidad-based insurance company fully supported the move.
“It ensures that what you are doing in your business is properly managed and properly regulated. So, essentially what happened with CLICO shouldn’t happen again,” he said, adding that the move should also correct the long period of low insurance premiums which was beginning to hurt the industry.
Last month, the FSC’s Chief Executive Officer Randy Graham hinted at changes coming for the sector, as he expressed concern that the industry was experiencing “one of the longest soft cycles ever seen, which has led to premium rates being low for long periods”.
Woodhams said if the situation had been allowed to continue much longer, it could erode the capital of the industry.
“It is something that the market needs to address for it to be viable and strong,” he said.
“[The risk-based capital] is very different to what the regulations have right now. It is a very onerous but important requirement and it is a distinct change to how an insurance company manages its business.
“We at Beacon 100 per cent support it. In fact, we want it to happen because we see it as the mechanism that solves a lot of the problems I was talking about earlier . . . The market, I think, will correct itself because of how they have to manage their business affairs,” Woodhams added.
He said he also suspected the new mechanism could result in some of the weaker companies being gobbled up by larger ones, as was the case in other jurisdictions when such a system was introduced. Woodhams said Beacon had not ruled out the possibility of acquiring other operations here or in the region.
“We are always looking at what is happening, but we would wait until the regulator implements risk-based capital and see what the fallout is from that, because we think that will be very market changing,” he said.
Beacon had “no immediate concerns” regarding the island’s recent downgrades from international ratings agencies, the top official added, stating that the company, which has been around since 1972, remained committed to Barbados.
“There is a very vibrant financial centre here in Barbados. There are a lot of positives. You may not see it based on the economic numbers you are seeing now, but we believe there is a very strong future here for Barbados,” he said.
However, concerned about the current low premium rates and a highly competitive environment, Woodhams said the company was doing all it could to stay afloat while capturing new business.
Beacon, which operates in seven territories and has approximately 11 per cent of the general insurance market regionally, only controls roughly two per cent here. Its market share in Barbados is the smallest of all the countries in which it operates.
There are currently 21 domestic insurance companies maintaining more than $3.2 billion in assets and paying out over $175 million in claims to persons annually.