Health Check: Insurance Companies

Insurance companies remain the second largest players in Barbados’ financial system with combined assets of $4.22 billion, reveals the 2018 Financial Stability Report. However, the publication, a joint effort by the Central Bank of Barbados and the Financial Services Commission, reports a mixed performance by the sector.

Life Insurance vs. General Insurance

Although the overall sector recorded a more than 10 percent increase in assets, this was almost completely driven by the life subsector. That subsector, which controls three-quarters of the insurance sector’s assets, saw its value improve to $3.19 billion. In contrast, the smaller general insurance subsector recorded an uptick in assets of approximately 1 percent during the year.

Both subsectors saw reduced profitability as compared to 2017, but while the general subsector recorded a negative return on assets, the 4 percent achieved by the life subsector was on par with what was seen between 2014 and 2016.

Debt Restructuring

Both subsectors were significantly impacted by the 2018 domestic debt restructuring, as insurance companies invest heavily in government securities. The Financial Stability Report explains:

The 2018 domestic debt restructuring contributed to this reduced profitability, as the sector invests significantly in government securities. The Financial Stability Report explains:

“The Insurance Act CAP 310 requires companies to have assets equivalent to their liabilities held in the statutory fund and further requires the sector to hold 80 percent of the assets in the statutory fund as local instruments. For much of the industry, the assets of choice were Government bonds.”

Of the two subsectors, life held substantially more government securities – four times the value – however the general subsector’s holdings accounted for a larger percentage of its domestic investments – 88 percent. Compounding this, the general subsector has relied on investment income to offset low profitability in other areas of business.

Life insurance and general insurance, while both part of the larger insurance sector, fared differently in 2018. Both subsectors felt the effects of the debt restructuring and faced lower profitability, but the general insurance subsector has experienced a challenging few years, leaving it more severely impacted by the adverse conditions seen in 2018.

Read the 2018 Financial Stability Report’s section on the insurance sector here.