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WIDESPREAD UNDERWRITING LOSSES, significant declines in investment income and overall low levels of profitability are a bother for Barbados’ general insurance industry.
But the fact that limited data was available for 2015 means that authorities, led by regulator the Financial Services Commission (FSC), might not be aware of the full extent of the challenge.
The issue was highlighted in the latest Financial Stability Report released by the Central Bank in partnership with the FSC.
While the report covered the performance of the financial sector in 2015, the FSC said “limited data is available for 2015, and hence the majority of the analysis is based on 2014, for which the full data package is available”.
However, using mainly 2014 information, the report pointed to the challenges highlighted above and added that “investment income declined sharply in 2014 from the prior year and this significantly impacted profitability for many of the medium and smaller general insurers”.
“The industry had already been facing low returns from its core underwriting business and it relies heavily on investment income to supplement its overall profitability,” it noted.
The 2015 report also said that “medium and small general insurers were also under pressure from aggressive underwriting by larger general insurers and from life insurers writing general insurance business and offering non-life insurance products”.
“Many of these smaller insurers have faced losses for at least the past three years. Claims provisioning in the general insurance sub-sector appeared to be adequate in 2014, with the exception of one insurer which the FSC continues to monitor,” the report stated.
“Many insurers also have capital and reserves to buffer losses. There is however at present no regulatory capital standard beyond the minimum established by legislation. The existing insurance act minimum capital standard utilises a flat amount plus a solvency buffer based on prior year premiums.”
The FSC said that in order to align the capital requirements with the inherent risk of each entity, it will “move towards instituting a risk-based capital framework in the coming fiscal year”.
“Risk-based capital is now considered the best practice in this regard and allows both insurance companies and regulators to make the most efficient use of capital to support the protection of policyholders. Industry consultation will soon begin on its implementation in Barbados.” (SC)