Nov 2016 Financial News

FSC considering change to minimum capital requirements (Jamaica)

Nov 02, 2016

In response to a call from the Private Sector Organisation of Jamaica (PSOJ) for an adjustment of the minimum capital test for insurance companies in Jamaica, the Financial Services Commission (FSC) said this is already being closely examined.

It is also giving the reminder that all risk assessment tools used for the insurance industry are applied in the interest of consumers.

“The Financial Services Commission (FSC) supervises and regulates the insurance industry in order to protect its users. In accordance with this core mission, the FSC must honour its commitment to ensure that the strength and integrity of the industry is maintained,” the FSC said in response to a query on the issue from the Jamaica Observer.

“Therefore, careful consideration must be given to any amendments to the regulatory framework in order to ensure that such changes will not jeopardise the industry and the people it serves,” the FSC added.

One of the tools used by the FSC to assess the strength of general insurance companies is the Minimum Capital Test (MCT).

This is a risk-based capital adequacy test, which requires that insurers hold a minimum level of capital that is sufficient to withstand a range of adverse events, as explained by the FSC.

Last week, PSOJ President PB Scott and Gray “Butch” Hendrickson, chairman of Continental Baking Company and new inductee in the PSOJ Hall of Fame, together made a call for the reduction in the MCT ratio used by regulators for insurance companies. A reduction, they argued, could release billions of dollars which could be put to productive purposes.

“The MCT for general insurance companies is 70 per cent higher than the next highest globally,” Scott said in his address at the Hall of Fame induction ceremony at the Jamaica Pegasus Hotel last Wednesday, adding that it restricts development.

“If we were to simply dial this back to 150 per cent from the 250 per cent, that alone would potentially release approximately $40 billion of capital to risk weight assets that would employ people, and we would still be equal to Canada,” he argued.

There are nine general insurance companies in operation locally with $64 billion in assets as at December 2015. Capital and surplus were reported at $23.4 billion for the period.

The MCT was introduced six years ago by the Financial Services Commission (FSC) and was based on the system used by Canadian insurance regulators, assessing the riskiness of assets and policy liabilities of the sector. However, the FSC set a higher bar for local insurance companies.

Scott, explaining that he understood the context of such high ratios to be the meltdown of the 1990s, said that “capital must have regulation that does not impair growth”.

Hendrickson, echoing the call, added that a reduction of the minimum capital test for insurance companies could “unlock billions in investment funds”.

The FSC told the Business Observer that it “periodically reviews these capital standards in consultation with the industry, and has scheduled an assessment of the existing framework for next year”.

In the meantime, the FSC said it is in dialogue with stakeholders about the level of the capital standard, with a view to determining an optimal position that balances growth and stability of the insurance industry.

Any change considered, it said, would ultimately be tested against its ability to provide protection for clients within the insurance industry.

Source:
BY AVIA COLLINDER
collindera@jamaicaobserver.com
Business reporter
Jamaica Observer
Wednesday November 2, 2016   

http://www.jamaicaobserver.com/business/FSC-considering-change-to-minimum-capital-requirements_79011