Apr 2013 Financial News

New chairman Adrian Bharath: NIB needs $3.3b

Apr 18, 2013

The National Insurance Board’s (NIB) new chairman Adrian Bharath is looking to deepen the institution’s involvement in the local capital market to broaden its investment portfolio.

In an interview with the Business Guardian on Tuesday at NIB’s head office on Stanmore Avenue, Port-of-Spain, Bharath said he wanted to increase the institution’s investments in property and diversify its portfolio to include more foreign investments, which would reduce the possibility of concentration risk.

In outlining his vision for the social security provider, Bharath believes there is “little activity” on the local stock market and wants the NIB to help stimulate the capital market.

He said NIB has to be careful in how its subsidiaries are used if they are to benefit from these investments in the capital markets.

“I am a believer in freedom of capital and capital movement,” Bharath said, referring to the proposal by the Government to privatise about 20 per cent of the First Citizens Group and the proposed merger and listing of T&T Mortgage Finance Company (TTMF) and Home Mortgage Bank.

He said the Government’s idea of deepening the local capital market will benefit NIB as it will provide the institution with the ability to investment in quality local companies.

The merger and privatisation of TTMF and HMB, in particular, will benefit the NIB because it owns 51 per cent of TTMF and 51.25 per cent in HMB (as well as 100 per cent of Nipdec, the property developer).

Bharath said there are “strengths and weaknesses on both sides” in terms of how the proposed merger of TTMF and HMB is handled.

He noted that the NIB’s investments in TTMF and HMB were stated on its balance sheet at cost.

“In my view, it should be at market value,” he said, adding that changing the way in which the subsidiaries are valued would allow NIB “to extract the maximum value” from its investments.

“We need to have the experts come in and do the exercise to understand what the shortfall in the fund is, given what investments the NIB has,” he said.

Responding to questions on NIB’s financial health, Bharath said the last actuarial valuation of the institution, which was completed in 2010, found its investment portfolio had experienced a shortfall of $3.3 billion in relation to the projected surplus. This shortfall was caused by lower than expected investment returns following the 2008 global financial crisis.

The valuation shortfall, plus the fact that T&T has an ageing population and a low birth rate, could create actuarial problems for the NIB in the future, Bharath said, if the institution does not institute the necessary corrective actions, such as maximising the returns from its investments and ensuring contributions remain relevant.

Asked if nothing is done, whether the NIB would run out of money by 2040, he responded: “Yes, according to the actuarial valuation.”

As of 2012, NIB’s total assets was worth $22 billion.

Apart from the audited statements, the last actuarial review, the eighth, was completed in May 2010 and covered the period July 1, 2006, to June 30, 2010. Actuarial reviews are conducted every five years.

Bharath said the last audited statements were in June 2012, although there was a “slight delay” in the issuing of the financial statement in 2010 when there was no board.

Bharath is a chartered accountant by profession and worked with professional services firms like KPMG. Just before joining NIB, he was involved full time with his firm, AMB Corporate Finance Lrd (AMB), formerly Aegis Corporate Finance Ltd.

Social security

Bharath, who has been the new chairman of the National Insurance Board (NIB) since December last year, described its national insurance scheme as a social security system established to protect vulnerable groups.

He looks at it as a sort of “Robin Hood” system that protects lower-income people.

“The system was not designed to replace income, but to alleviate poverty. It has worked well. Recently, the pension benefits have improved from $2,000 to $3,000. There are also other benefits. National insurance provides long-term and short-term benefits,” he said.

Some $2.3 billion was paid to national insurance scheme’s 100,000 beneficiaries in 2011, while $2.7 billion was collected in income from contributors.

In March, there was an increase in the NIS contribution rate from 11.4 per cent to 11.7 per cent. In 2014, the contribution rate will increase further to 12 per cent.

Bharath said last month’s increase in NIS contributions came out of its 2010 actuarial review.

“When you do the actuarial review, benefits would change and so the contributions would change as well to meet those increases. It is important to note it is a complex system. The number of contributors over the long term will decrease, so what will happen is that even if you increase the contribution rate as the number of contributors will fall, the effect of that rebalancing will be limited.”

He said the World Bank is currently doing a study to be completed in June on pension harmonisation. A three-tier system currently exists.

“A non-contributory pension, like senior citizens, then NIS system, which is a contributory scheme, and the occupational plans, which would include plans like annuities,” he said.

Bharath sees his chairmanship as setting the NIB’s strategic direction and has set three targets for his stewardship: rebranding the NIB, putting policies in place to improve the organisation and enhancing its property portfolio. Only one per cent of its investments is in property.

Economy and NIB

He said NIB has large investments.

“We have significant holdings in some of the largest banks and conglomerates, we need to look at other opportunities in the stock market. We need to have an investment manager to look at strategies at how best to look to get greater returns,” he said.

Despite this, he said there may be a need to change legislation that would allow them to look for new investment opportunities abroad.

“The law says we must invest 90 per cent locally and ten per cent abroad. We will continue to pursue with the Finance Minister the increase in that ten per cent in foreign investment to about 20 per cent. We also need to demonstrate we have the risk management opportunity in place,” he said.

Bharath said the NIB needs talented people to execute its projects as it competes with the private sector, which pays much higher salaries, for the same talent.

Clico Investment Bank

Speaking about how NIB has performed within the current economic climate, the chairman said, “There are others who have done worse than the NIB.”
“Look at Clico, for example. On the other side of the scale, NIB was conservative from a cash perspective. Investments were made in Clico.”
“On NIB’s balance sheet, there is roughly $700 million that is showing as an asset, in the next financial statement in June 2013, we expect a provision because CIB is now in liquidation. More importantly, it is made up US$102 millionand $45 million, the equivalent of which is $700 million.
“CIB’s liquidator is Deposit Insurance Corporation (DIC) and we have met with them on the understanding of what the value of impairment would be. They are still in the process of liquidating. In the anticipation there would be a shortfall of the carrying value, we have held informal discussions with Minister of Finance to see if there is any way that NIB can participate in some sort of long-term security whereby that shortfall can be made good in the long term,” he said.

Rebranding

Bharath spoke about “rebranding” NIB’s image to make it more transparent, open and accountable to the public.
He said a lot of the NIB offices are old, some staff members have outgrown its infrastructure and pointed to the relocation of its head office. The NIB has 17 offices in T&T.
“We are looking at investing in properties where we believe capital appreciation in the long term and annual income in terms of renting or leasing. Right now we are lightweight in terms of our investment portfolio in terms of real estate. When you look at other well-run pension plans throughout the world, real assets, like real estate, are a significant part of the portfolio,” he said.
He said for many years they there have been plans for re-location NIB’s head office.
“Since 2004 they have been thinking of it. Not only in Port-of-Spain, but we did visit Sangre Grande and Tunapuna, and the common theme is the NIB has outgrown them.”
Bharath spoke of retraining staff to help the them grow and for people to have the right skills.
“The NIB will continue to grow and we need to have infrastructure to grow this. We need to help people when they come in and revamp the accommodation. We do not want people having to wait two or three hours to get services,” the chairman said.


Source:
RAPHAEL JOHN_LALL
Trinidad Guardian
Thursday April 18, 2013

http://www.guardian.co.tt/business-guardian/2013-04-18/new-chairman-adrian-bharath-nib%E2%80%88needs-33b