The Bahamas' insurance industry needs legislative reform in order to remain competitive, according to a top industry executive. Chester Cooper, president and CEO at BAF Financial & Insurance, pointed out to Guardian Business that in 2011 alone, the industry paid in excess of $300 million in claims. "So imagine the economy with $300 million less, I think that in itself speaks to the value of the insurance industry. The insurance industry remains robust and strong," he said.
"There is a cast of very strong insurance carriers in The Bahamas on the life and the P&C (property and casualty) side. The industry plays a pivotal role in the overall economy of The Bahamas in terms of protecting assets." Cooper noted however that from a regulation standpoint, there needs to be legislative reform. He believes the industry needs to have a system in place that is more dynamic.
Annuities, a simplistic approach and limited investment options are all areas that Cooper would like to see addressed in order to strengthen the country's insurance sector. "We are concerned with how the regulations treat annuities for example. These are saving products, the method of determining the level of reserves and the capital required for doing this type of business is not an incentive for insurance companies," Cooper noted.
"As an industry, we have been encouraging a risk-based approach where all of the factors of determining capital and reserving requirements are working together, hand in hand rather than there being a set of discounts on one side that doesn't speak to the realities and the real risks of the business environment." He continued, "International agencies use a risk-based approach and The Bahamas uses a simplistic approach where we look at assets and apply some discounts. They set discounts based on the type of assets that you own with a hope that this builds in some cushion in the event of an adverse situation.
It's a good start but there needs to be more review and updating to bring it in line with international financial standards." According to Cooper, the discussion to modernize industry regulations are ongoing between the Insurance Commission of The Bahamas (ICB), the government and other key industry stakeholders. "In terms of the regulations, I would say that ICB has been quite prudent in its dialogue with the industry in terms of how we can improve the regulations and legislation. Those discussions continue to be ongoing," he explained.
"The ICB, the government and industry stakeholders have worked together to bring the set of regulations that we have. They are already in need of reform, if we were to look at the regulations with respect to the discounting of assets for the purpose of calculating the reserves or the liabilities of insurance companies."
The BAF chief further revealed to Guardian Business that the most significant issue coming out of the assessment of these regulations is the limited investment options in The Bahamas. There is a strong need for relaxation of exchange controls to allow life insurance companies to invest more freely abroad. "When you look at the opportunities to invest in The Bahamas, you have mortgages and properties, stock, registered stock and there are limited numbers of equities on BISX (Bahamas International Securities Exchange)," Cooper added.
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