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Features - July 2010



The Bahamas Investor

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Insurance in the future

Insurance in the future

Revised legislation puts Bahamas in a strong position to grow domestic, international insurance business

The Bahamas Investor Magazine
June 22, 2010
June 22, 2010
Steve Cotterill

The next few months will see the implementation of two key pieces of revised insurance legislation: the Domestic Insurance Act, which comes into full effect this month, and the External Insurance Act, which follows shortly after in August. The Bahamas insurance industry has been gearing up for the change over the last year.

Prudential supervisory and regulatory responsibility falls to the Office of the Registrar of Insurance Companies, currently under the auspices of the Ministry of Finance. The office is mandated to protect the interests of policyholders by ensuring the solvency and orderly functioning of insurers, re-insurers and intermediaries operating in The Bahamas.

At the head of the regulatory authority is Lennox McCartney, registrar of insurance companies, who was appointed in 2008. Prior to this he was the director of The National Insurance Board (NIB), a post he held since 1995 and previously between 1987 and 1988.

McCartney’s professional career started with PricewaterhouseCoopers in Nassau and Toronto, Canada where he served as staff accountant and senior consultant and where he passed his CPA examinations. He also served as the financial controller of the Bahamas Development Bank, an information technology consultant with The National Insurance Board, and ran his own information technology consulting firm in Toronto, Canada. He is a member of the board of the Securities Commission of The Bahamas and has sat on The Central Bank of The Bahamas board, as well as previously serving as a director of the Bank of The Bahamas Ltd.

McCartney is a graduate of the University of Windsor, Ontario, Canada. He has a Bachelor of Commerce degree in business administration, a Bachelor of Science degree in computer science and an MBA.

In an exclusive interview with The Bahamas Investor, McCartney talks about the current health of the sector, the opportunities arising from the revised insurance legislation, and the progress of the transition of the Office of the Registrar into an independent supervisory commission.

Q: How do you view the health of the insurance sector in The Bahamas?

A: The industry in The Bahamas is very vibrant. We have the largest premiums per capita and premiums to gross domestic product in the region, outside of the US and Canada. So, we have a large, vibrant domestic insurance industry and it continues to be that way.

Q: So, you would say the industry is weathering the storm?

A: On the gross premium side of the business, yes. On the investment side, most insurers, particularly those who have invested in equities, have, like all investors in equities, reflected the downturn in the economy, but the core business for insurers remains quite vibrant and close to previous years’ levels.

Q: Regarding the current legislative environment, what provisions are being made to bolster the domestic and external insurance sectors?

A: In July 2009 the new Domestic Insurance Act came into force. Similarly, in August 2009 the External Insurance Act came into force. For both these acts there is a 12-month transitional provision, as there is for most legislation of this type. By this month most of the provisions will be fully in force. So, for the past 12 months, we and the commission, as well as the insurance companies, have been preparing in anticipation of the full implementation of the new provisions.

Q: What specifically are the key provisions in these two acts?

A: On the domestic side, there are a couple of key provisions. Firstly, all insurance companies and intermediaries, agents and brokers, have to re-register with the commission. From that point on, all new provisions will apply to them, including additional capital and solvency requirements, as well as new rules relating to corporate governance, how boards are appointed, what percentage of the board has to be resident and what percentage of the board can be affiliated with the company. It really addresses the independent running of the operations. In the past we had no rules regarding that, so companies could of had associated companies, shareholders or even family members making up their entire board. So, the new legislation states that a certain percentage of the board has to be independent, and with that comes better governance of the entire industry.

Q: Has the impetus for these changes come as a result of external pressure?

A: Part of the impetus for the new legislation is to bring our jurisdiction up to international standards–meeting the new insurance standards set by the International Association of Insurance Supervisors, of which we are a member. We subscribe to those standards and we are committed to meeting them. Corporate governance, capital requirements, solvency requirements, related-party transaction requirements are all the key areas of this legislation.

Q: What are the most relevant provisions in the External Insurance Act?

A: While it also brings the jurisdiction up to international standards, it was designed a little differently than the Domestic Insurance Act. In addition there is a bit more flexibility in supervising and licensing external insurers, as the external environment changes so rapidly. The act allows the commission to see how The Bahamas would like to position itself in the international insurance business. The core of the act is minimalist and any additional regulations do not require debate or to be passed by the House [of Assembly], which allows us to be more flexible. As the international environment changes, the act allows the commission to be dynamic and move with the changes.

Q: What input have you received from the industry in the creation of these acts?

A: We have been in continuous consultation with the industry. Before any changes are made to the legislation, it is international standard practice to have proper consultation with the industry, so we have had that feedback during the entire process. We don’t always necessarily agree on the way we should move forward, but we take in to consideration the views of the industry. We have made modifications to the initial positions before we determine what is finally in the regulations. But it’s give and take.

Q: What has been the feedback from the industry?

A: Some of the feedback, particularly from the intermediaries, has indicated that they believe some of the capital requirements may be a little difficult for them to make. Others in the industry are looking forward to the requirements, because it puts a more stringent regime in place and creates a more level playing field for all insurers and intermediaries. It has been a mixed reaction, as you might expect with any change. We feel there is still not a full understanding of the legislation and we are working to better inform industry players through briefings.

Q: How does the new legislation make us more competitive?

A: It bolsters the industry by providing a modern regulatory framework, which is really there to protect the policyholders. The primary focus is to provide a more secure industry. This new legislation, I believe, does that and takes us to another level. There is still a way to go, but we are on the right path.

Q: Will it attract more business?

A: It will mean we have a similar regulatory framework as other countries and if you have the perception of security in the industry then companies and the customers will feel more secure doing business here, which will provide a platform for growth. People are positive about our compliance and they are not looking at jurisdictions that do not meet international standards.

Q: What else positions us ahead of our competitors?

A: Many other jurisdictions focus on the international insurance industry only, whereas we have a vibrant domestic insurance industry, which is looking for other avenues in which to grow. The international side really bolts onto that, so The Bahamas is in a strong position.

Our location is also very attractive to many persons. We are very close to North America and Latin America, so it is easy for clients to visit and do business here, as well as relax. Our existing financial service industry, including insurance and captives and some of the life insurance aspects, provide alternative wealth management tools. There are natural linkages that the insurance sector provides for the entire financial services industry.

Q: What areas or products within the industry would be profitable to expand given the current legislative environment?

A: The non-captives–commercial insurers–in the international arena could be very attractive for wealth management purposes, such as life insurance or for more general commercial open market type operations. We are seeing some interest in these areas and we are looking at a number of applications from people who are interested in setting up this type of business in The Bahamas, from all over Europe, other jurisdictions and North America.

During the 1970s a lot of captive business went to Bermuda and later to the Cayman Islands. But now there is a genuine interest from a lot of people about bringing business back to us. The environment in other jurisdictions is changing, particularly as regards cost, so they are looking at other places as alternatives.

Q: How do you see the industry developing over the next five, 10, 15 years?

A: It’s hard to predict, particularly as things are changing so rapidly, but I think we will have a lot more captives and we’ll see some growth on the domestic side. Some Bahamian companies will be moving out and acquiring other insurers in other jurisdictions. That’s a growing trend.

Q: How is the transition from the Office of the Registrar to the independent Insurance Commission of The Bahamas progressing?

A: We have a very engaged and expert board on the commission that is guiding the way forward as we make the transition from the [Office of the] Registrar, which is a government department, to an independent body. We are recruiting and training staff and have brought in consultants in fields such as actuary and IT. We have been putting it together in a planned and deliberate way to make sure we have all the talent and the skills we need in place. It has its challenges, but we are on schedule and, by the end of June this year, all the major aspects will be complete.

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