If the International Monetary Fund (IMF) gets its way, significant changes would be made to how the domestic insurance sector is regulated.
In a recent report, the IMF called for the “deficiency in expertise” and funding at the Financial Services Commission (FSC) to be addressed with a view to strengthening its oversight of the multi-billion dollar insurance sector.
The draft report, which followed an October 9-13 mission here by members of the IMF’s monetary and capital market department, said that as a result of limited resources, the FSC was currently struggling to discharge of its mandate with respect to the insurance sector supervision, pointing out that there were only 56 staff members to fulfill a range of responsibilities, including “licensing, supervising and regulating the operation of financial institutions and promoting stability, public awareness and public confidence in the operations of financial institutions.
“The FSC’s off-site insurance supervisory team consists of seven officers who are responsible for licensing and supervising 20 domestic insurance companies, approximately 50 insurance company branch operations, more than 200 companies registered in the offshore sector, as well as all of the country’s insurance intermediaries and loss adjusters,” the IMF added, while pointing out that “on-site supervision is carried out through a separate division consisting of six specialists for over 100 registered entities”.
However, it expressed concern that since the establishment of the FSC back in 2011, only half of the insurance companies and insurance brokers on the island had been inspected.
The report also revealed that the FSC has no actuary because the chief actuary position had never been filled, and that “no reinsurance expertise” was currently available within the regulatory institution.
In terms of the FSC’s funding, the IMF report made no mention of the $1.3 million provided in the 2017/2018 Estimates, but said the bulk of financial resources used to support its operations were derived from corporate registration fees “which are very minimal”.
With this in mind, the Washington-based financial institution took issue with Government’s current fee structure for multi-billion dollar institutions, such as Sagicor.
“The FSC currently imposes a flat annual fee for insurance companies of BD$20,000 per year. This means that Sagicor Life, with revenue of BD$2.3 billion per year, pays only 1/1,000 [or] one per cent of its annual revenue for the cost of home country supervision,” the report specifically stated.
It therefore recommended that current funding of the FSC be re-examined and that “the fee structure for companies should consider the required level of supervision, and adopt international benchmarks, which range from half to one per cent of premium income”.
In general, the IMF was not at all happy with the FSC’s level of financial oversight, suggesting that immediate enhancements were needed in key areas, including “liability valuations, risk-based capital adequacy standards, cross-border group supervision, and risk identification and assessment, and assessment of the effectiveness of corporate governance and risk management oversight practices.
“The findings of this mission confirm the need for urgent progress in these areas, and most relevant for this mission, the implementation of group-wide or consolidated supervision of the Sagicor group,” the report said.
While calling for current resources gaps and deficiencies in expertise to be addressed, it also suggested that “the FSC should have authority to pay market rates, otherwise it will not be possible to attract and retain qualified staff.
“As a short-term measure to bolster capacity with regard to assessing Sagicor risks on a consolidated basis, FSC should utilize its powers under the FSC Act to retain one or more expert advisors on contract, such as a qualified actuary and a reinsurance specialist,” it added.
The explosive document which has been met with stern rejection from the Sir Frank Alleyne-led FSC also took issue with the length of time the financial regulator currently takes to complete investigations. Examination reports “take an inordinate amount of time to be completed, and it is not unusual that a year can pass between the commencement of the inspection process for a particular supervised institution, and the finalization of the report for submission to FSC’s senior management and the operational division involved,” the IMF said.
It further warned that the FSC was suffering from “implementation paralysis”, while pointing out that little progress had been made in implementing the recommendations made back in December 2016 from a CARTAC workshop on consolidated supervision.
Earlier this week, Sir Frank responded to Barbados TODAY’s initial report on the IMF document saying, “I am not surprised, but I grieve for Barbados. I never thought any institution in Barbados would publish [something] as grievous as the one published about the FSC and Sagicor.
“It is replete with [inaccuracies] and sets out to injure people’s reputation and damage institutions,” he told a hastily called media conference at Accra Beach Hotel in Hastings, Christ Church on Wednesday.
Sagicor had also sought to discredit the report saying it found it “grossly inaccurate and indeed recklessly careless that an article or a report can be published to suggest that Sagicor is an under-regulated financial institution.
“This assertion is not supported by the facts as all can see from our frequent and various public disclosures. We are a large company by Caribbean standards, but we are a well governed, successful, solid institution,” it said in a region-wide statement issued on Wednesday night.
However, in the draft report, which clearly indicated that it was “for official use only”, the IMF said while a brief review of Sagicor’s financial statements and actuarial reports “did not reveal any untoward or serious financial or risk-related issues”, the Sagicor group “poses systemic risk” for Barbados and the Caribbean region.