Jun 2016 Financial News

Life insurance companies get room to tweak product price - Hosin

Jun 27, 2016

Eric Hosin, new president of the Insurance Association of Jamaica (IAJ) and head of Guardian Life Limited, is positing that continued, enhanced profitability for the life sector could flow from reduced tax charges on insurance providers.

The seven companies registered locally reported an average 60 per cent increase in net income during 2015, according to the Financial Services Commission (FSC).

Net income at year end 2015 was $17.3 billion, compared to $13.7 billon at year end 2014.

“The better-than-normal growth experienced by the life insurance industry in 2015 is due primarily to a one-off release in actuarial reserves as a result of the change in the tax basis for the industry, as well as gains made due to the performance of the Jamaica stock market in 2015,” Hosin commented.

Guardian Life itself reported consolidated net profit of $4.8 billion, surpassing 2014 results by $2.2 billion or 87 per cent.

Under changes to the taxation regime for the life insurance industry, which took effect during 2015, gross premium and investment income taxes were removed and replaced by a new corporation tax of 25 per cent.

This change resulted in the life insurance companies holding less of their actuarial reserves compared to the period ended December 31, 2014, with the reduction resulting in the companies experiencing an improvement in their profitability.

The FSC said the improvement in profitability was evident by the 60.3 per cent increase in net income before tax over the prior period. Capital and surplus (retained earnings) increased by 17.1 per cent to $69 billion over the prior period as a result.

A repeat performance in 2016 is not anticipated, Hosin said, noting, “We expect profits to return to normal levels.

“While the new tax structure will reduce the change in the actuarial liabilities, the tax expenses are expected to increase as we move towards more corporate taxation.”

He added, however, that it is hoped that the new tax structure could engender increased sales from better returns to the policyholder.

Another insurance official said that higher levels of reserves required under older tax obligations were reflected in the pricing of the life products and that it is now expected that pricing could be adjusted downwards.

Source:
BY AVIA COLLINDER
collindera@jamaicaobserver.com
Business reporter
Jamaica Observer
Sunday June 26, 2016

http://www.jamaicaobserver.com/business/Life-insurance-companies-get-room-to-tweak-product-price---Hosin_64653