Jan 2013 Financial News

New Insurance Bill: Companies need to increase capital above $3m

Jan 24, 2013

Insurance companies would have to hold more capital when the new Insurance Act is implemented. At present, insurance companies hold $3 million.

When the new Insurance Act is implemented, companies would have to comply with this improved risk-based capital regime, said Carl Hiralal, Inspector of Financial Institutions, in an interview with the Business Guardian.

He was speaking at the January 16 opening of the new ANSA Merchant Bank branch at Grand Bazaar.

“Under this new capital regime (in the Insurance Act), it (insurance companies) will have to have hundreds of millions of dollars in additional capital and that would make a big difference to policyholder protection, and that certainly is a big change that we are looking forward to,” Hiralal said.

“My first task is the implementation, once you get the bill in place, you need to implement it. Implementing it means that insurance companies would now have to calculate their actuarial reserve for the first time on a standardised basis that is developed for T&T, so all companies would be on a level playing field,” he said.

Asked what other measures have been put in place to boost confidence in the insurance sector, Hiralal said the bill also addresses the issue of protecting insurers.

“The other thing that the bill incorporates is the introduction of a stress testing regime where insurance companies, boards and management would have to stress test their operations. What I mean by that is they would have to stress test by using plausible scenarios, severe, but plausible scenarios, to see what impact that would have on their capital position.

“If such scenarios indicate that their capital would drop, then they would have to take strategic decisions to ensure their capital is not depleted.”

Referring to the penalties for breaching the regulations, Hiralal said companies would not be inclined to breach the regulations as the penalties for breaches are stiff.

“The penalties give us the ability to issue an administrative fine. These penalties give insurance companies the ability to pay that fine immediately without going to court, or we can go to court.

“The issue is not the money that you would get from the penalty. The deterrent value of the penalty is what is important and that has more importance than the actual amount of money you are paying.

“Our experience is once you pay the penalty once, you never make that kind of mistake or that kind of error, and that is important, so those penalties would help,” Hiralal said.

Hiralal said the new insurance bill would “represent substantial improvement in insurance legislation”, which is key to regulating and supervising companies.

“We will be supervising the companies in a manner that is consistent with international best practice. Some of the prudential requirements that we are putting in there will go a long way to protecting and promoting policyholder protection.

“At the moment, we don't have that. It is a substantial improvement. We are anxious to see that bill go through Parliament.”

Declaring “we are ready to go”, Hiralal said companies have expressed their support for changes to the bill.

Explaining his role as regulator, he admits that the regulators don’t always have the answers.

“As a regulator, you always want to maintain a healthy sense of skepticism between the regulator and the regulated company because if you operate in that environment, or on that basis, you are operating in a manner where the set interest of policyholders is served.

“The regulators don't know all the answers. Many ways and many times, they are searching for a truth. In order to get to that truth, it really depends on judgement.”

“When you look at any company, positive earnings good governance is really what will ensure that companies remain stable and stay around for a long period of time, so it is important to look at companies from that perspective.”


Source:
Nadaleen Singh
Trinidad Guardian
Thursday January 24, 2013

http://www.guardian.co.tt/business-guardian/2013-01-24/new-insurance-bill-companies-need-increase-capital-above-3m