Financial services giant Sagicor, which last year moved its holding company to Bermuda after more than 170 years here, is preparing to establish a firmer footing in the British overseas territory located in the North Atlantic, according to a recent International Monetary Fund (IMF) report.
The draft report on an October 9-13 mission here at the invitation of the Financial Services Commission (FSC) states that as a next step to the relocation of the holding company, Sagicor plans to establish a reinsurer in Bermuda to be supervised by regulators in that British territory.
“During the mission team’s discussion with the senior management team at Sagicor, we were advised of plans to establish a reinsurance operation in Bermuda, and of the company’s request to the Bermuda Monetary Authority (BMA) to be the agency responsible for group-wide supervision,” stated the draft report by the three-member IMF team of Ralph C Lewars, Lawrie Savage and Rodolfo Wehrhahn.
The team noted that the insurance giant had not established any operational entity in Bermuda as of the date of the mission, and the senior management team was still operating out of Barbados.
Efforts by Barbados TODAY to get Sagicor to elaborate on its plans were unsuccessful up to the time of publication, but the IMF team made it clear in the 16-page report that the new entity “would likely result in a change in home supervision responsibility from Barbados to Bermuda”.
It is not immediately clear how this would change the dynamics of the company’s operations here, or if any of its businesses here will shut down.
However, when it first announced in January 2015 that it planned to move its holding company, Sagicor Financial Corporation (SFC), to escape the negative impact of Barbados’ repeated downgrades by the international ratings agencies, Sagicor had made it clear in a message to policyholders that re-domiciliation was an SFC issue, “and will have no impact on any of our operating companies, Sagicor Life Inc, Sagicor General Insurance Inc or Globe Finance Inc”.
President and Chief Executive Officer of Sagicor General Insurance Inc David Alleyne, who was sent on leave earlier this year due to an internal investigation, had also given the assurance that the over 100 staff at that company would not be impacted, and neither would any of the staff at Sagicor Life.
SFC employed about 15 people at the time, most of whom the company said operated in “a virtual business environment, spending quite a lot of time travelling to various locations”, and therefore employment would not be significantly impacted.
However, the establishment of a reinsurer in Bermuda is likely to present supervisory challenges, considering the fact that the IMF mission found that already, “home supervision of Sagicor remains unclear”. The role of the FSC, which still has supervisory responsibly, is also likely to become even murkier.
“Given that the type of operation that Sagicor envisions to establish in Bermuda has not been disclosed, it is unclear what responsibility the Bermuda Monetary Authority . . . will have with respect to the group,” the three-member team said in the draft report, a copy of which was obtained by Barbados TODAY.
“Ultimately, the intensity of supervision carried out by the BMA will depend on the type of entity [or] entities that Sagicor ultimately establish in Bermuda, and the importance and risk posed by that [or] those institutions to Bermuda. Both questions are central to avoid supervisory gaps of the Sagicor Group,” the team added.
The Barbados-based Sagicor Life Inc is the largest operating entity of the Sagicor group and is currently regulated by the FSC. The Sagicor group does business through more than 50 subsidiary companies in over 20 countries including the United States, spanning a range of businesses such as general insurance, commercial banking, mutual funds, investment advisory services, property management, pension fund asset administration and other financial and non-financial businesses.
SFC is incorporated as a publicly listed holding company, with more than 36,000 shareholders and total assets of more than $13 billion, the equivalent of approximately half of Barbados’ gross domestic product.
The team from the IMF’s monetary and capital markets department visited here at the FSC’s request “to review the current supervisory framework utilized by the FSC-Barbados to supervise Sagicor Life Inc on a solo and consolidated basis”.
The mission met with FSC staff with supervisory responsibility for Sagicor, as well as Sagicor’s group president and chief executive officer, group chief risk officer, group chief financial officer, deputy chief executive offier of Sagicor Life, and head of internal audit.
The mission found that group supervision by the FSC was “absent from the regulatory and supervisory frameworks, which is considered a major weakness, and also at variance with the expectations” of the insurance core principles of the International Association of Insurance Supervisors.
The IMF also said in the draft report that since its establishment in 2011 the FSC had not implemented “formal or informal procedures with regard to a number of areas that are critical for effective financial supervision.
“For example, operational divisions are not making use of, or completing risk assessment matrices that will serve to generate consistent, reasonably objective risk assessments for the prioritization of risk-based supervisory activities.”
The IMF team concluded that the Sagicor group “poses systemic risk for the Caribbean region, which should be monitored on an ongoing basis.
“The size and complexity of the SG operating in 21 countries throughout the Caribbean, and holding assets equivalent to about 50 per cent of the GDP of Barbados, is larger than CLICO before it collapsed. The FSC-Barbados is currently not in a position to conduct group-wide supervision, and solo supervision is weak,” the report stated.
The team recommended that within the next 12 months the FSC should designate Sagicor as a domestic and regional systemically important financial institution, and the supervisory responsibilities for the Sagicor group and its multiple entities should be made transparent.