Capacity Building & Institutional Strengthening

1. Capacity Building & Institutional Strengthening Ravi Rambarran Sagicor Financial CorporationJune 2006

2. Agenda • Introduction • Insurance Industry – Last Two Decades • Sagicor’s Cross Border Experience • Sagicor Today • Global Life Insurers • Impediments • Possible Solutions

3. Introduction Capacity Building : the ability to increase the breadth and depth of risks undertaken Institutional Strengthening : the ability to meet claims as risks occur Balancing act between capacity building and institutional strengthening

4. Insurance Industry – Last two decades • In need of restructuring from as far as the 1970s: • Small maturing markets; • Low revenue growth; • Declining profit margins; • Increasing unit costs • Branches of foreign companies • The companies lacked scale and so ripe for consolidation.

5. Insurance Industry – Last two decades • Foreign companies exited • The economics remained the same; • The issue of control delayed any meaningful solution for sometime.

6. Insurance Industry – Last two decades • Most companies talking consolidation by beginning of the 1990s; • It took the crisis in Jamaica to kick start the process in late 1990s; • Three regional companies : Sagicor, Guardian, CLICO • Further consolidation required e.g. Trinidad

7. Insurance Industry – Last two decades • The companies now have increased scale through consolidation; • The economics of the industry has improved marginally; • The companies still uncompetitive by international standards; • All of the companies are looking extra region for a long-term solution.

8. Sagicor’s Cross Border Experience • Increased Scale mainly through acquisitions • 15 acquisitions between 1991-2005 spanning USA, Jamaica, Trinidad, Barbados, Bahamas, Panama & Cayman

9. Sagicor Today Sagicor Group is a widely held public company :-Market Cap of BD 1.2 billion-Capital of BD 748 million (1989: BD16 million)-Profits BD 137 million (1989:BD 3 million)-Assets BD 6.4 billion(1989:BD 308 million)-Rating BBB+ by Standard & Poors and A Excellent by AM Best Sagicor Group operates in four main lines of business: Life and health insurance, annuities and pensions General insurance Property development Banking and other financial services

10. Impediments • Industry Issues: • Continued lack of long-term assets to support liabilities so there is a significant mismatch between assets and liabilities • Investment portfolios concentrated in sovereign bonds with some no longer being sovereign • Restrictions on intra regional investment and possible build up of asset bubbles • Regulatory policy focused on institutional strengthening with little focus on capacity building and hence regional competitiveness • Regulatory policy is more entity specific than risk specific and so ignores convergence between insurance and banking

11. Global Life Insurers

12. Impediments • Industry Issues: • Multiple capital adequacy standards across region • Multiple regulatory reporting standards across region • Multiple approval processes for products across region • Multiple tax regimes across region

13. Impediments • Industry Issues: • Higher level of insurance liabilities as a result; • Double whammy in that less capital available for capacity building and • Companies forced to raise capital in thin markets and high cost of capital environment to finance capacity.

14. Impediments • Industry Issues: • Introduction of several new accounting standards adversely affecting reported performance; • Lack of appropriate financial instruments to neutralize the impact of the new standards. • Greater pass through of risks to end users who are unaware of risks • Continued pressure on unit cost as insurance portfolios mature; • Further restructuring required to achieve international competitiveness.

15. Proposals • Comfort with Duopolies • Compulsory credit rating • Single regulatory regime in terms of capital standards, product approval, risk specific monitoring, reporting standards and timelines for response • Single tax regime • Removal of restrictions on intra regional investment • More long term issues by sovereigns • Outsourcing of state retirement programs