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Changing acts

by Shawn Cumberbatch

Barbados’ insurance regulators are moving to ensure they do not have to deal with another CLICO-type debacle anytime soon.

It means operating a life or general insurance company will become tougher and more expensive.

As authorities struggle to resolve the CLICO crisis and that of its sister company British American Insurance, Barbados TODAY investigations revealed that the Financial Services Commission is proposing the introduction of seven new guidelines to govern the conduct of insurers.

But added to these new provisions related to assets and valuation, corporate governance, international controls and risk management, market conduct, related party transactions and statutory reporting, life and general insurance companies doing business here will likely be faced with millions of dollars more in capital requirements to reduce the chance of clients being hurt when these organisations go belly up.

This would be done through amendments to the Insurance and Exempt Insurance Acts, a move which the FSC is now pushing. Sources close to the FSC said local insurance industry representatives had up to yesterday to say how they felt about the changes, and reports suggested several of them “were not happy”.

Some of the key changes being pushed by the FSC included increasing the minimum share capital requirements from the current $3 million to $5 million for a life or general insurance company, from $5 million to $7 million for a comprehensive company and from $1 million to $3 million for companies limited to writing motor vehicle or industrial life insurance business.

Additionally, the FSC is pushing for these same companies to be mandated to deposit millions of dollars more with it as the supervisory agency.

As it currently stands, life insurance companies are required to deposit $1 million and general insurers between $250,000 and $1 million based on their written net premiums, but the regulatory agency is recommending that this be increased to $5 million for life insurers and $2 million for general insurers.

And in what is believed to be a direct response to the CLICO collapse here, the FSC is also proposing an additional section to the Insurance Act stipulating that on the winding up of an insurance company, all of is monies and securities would be held as statutory funds and used by the liquidator to play local policies “in the first instance”.

The planned changes do not end there, however, as the regulator wants to introduce a new statutory fund to cover “other classes” of general insurance now not required to establish them.

While long term insurance policyholder liabilities and motor vehicle insurance policyholder liabilities are now required to have a statutory fund, the FSC wants this extended to include accident and sickness, liability,, marine, aviation and transport insurance. Barbados TODAY was provided with a consultation paper authored by the FSC’s Director of Insurance and Pensions Randy Graham, who gave the rationale for the proposed guidelines and legislative changes.

He said the overall aim was to “improve the prudential regulation of the insurance industry in Barbados”. The official disclosed that his agency had completed a “full review” of Barbados’ current regulatory framework for the non bank sector, and had “concluded that its prudential supervisory framework for insurance companies, which incorporates essential elements of the International Association of Insurance Supervisors, is sound”.

But Graham also said the FSC believed the framework “needs enhancement and modernisation so as to meet the unique needs of participants in, and risks inherent to, Barbados’ insurance market”.

“More specifically, some elements of macro prudential monitoring that are material in this modern and dynamic insurance market are not present in the current legislation, and the Commission found it necessary to upgrade so as it be in concurrence with the market trends,” he said.

“In consideration of measures to strengthen the sectors’ ability to withstand future shocks, the Commission has identified the monitoring of reinsurance adequacy and effectiveness, the monitoring of internal corporate governance and related party transactions in non-public entities, and the standardisation of assets not publicly traded as areas that presented particular challenges for the stakeholders and the regulation of the industry.

“Given the limited regulatory references to these issues in the Insurance Act CAP.310, the commission has developed a series of guidelines to ensure that the regulatory tools needed to monitor these issues are present in our Barbados’ regulatory framework. The guidelines are being issued under the authority of Section 53 of the Financial Services Commission Act 2010- 21, and the guidelines take the force of law. All licensed, where applicable, will be expected to follow the guidelines,” he stated.

The Director of Insurance and Pensions said the FSC was “seeking to create an environment where business decisions can be derived at in a rational, orderly and transparent manner, and one which avoids any unnecessary disturbance to markets and the interests of industry stakeholders”.

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