1. Capacity Building & Institutional Strengthening Ravi Rambarran Sagicor Financial Corporation June 2006

2. Agenda 1.Introduction 2.Insurance Industry – Last Two Decades 3.Sagicors Cross Border Experience 4.Sagicor Today 5.Global Life Insurers 6.Impediments 7.Possible Solutions

3. Introduction Capacity Building : the ability to increase the breadth and depth of risks undertaken Institutional Strengthening : the ability to meet claims as risks occur Balancing act between capacity building and institutional strengthening

4. Insurance Industry – Last two decades In need of restructuring from as far as the 1970s: –Small maturing markets; –Low revenue growth; –Declining profit margins; –Increasing unit costs –Branches of foreign companies The companies lacked scale and so ripe for consolidation.

5. Insurance Industry – Last two decades Foreign companies exited The economics remained the same; The issue of control delayed any meaningful solution for sometime.

6. Insurance Industry – Last two decades Most companies talking consolidation by beginning of the 1990s; It took the crisis in Jamaica to kick start the process in late 1990s; Three regional companies : Sagicor, Guardian, CLICO Further consolidation required e.g. Trinidad

7. Insurance Industry – Last two decades The companies now have increased scale through consolidation; The economics of the industry has improved marginally; The companies still uncompetitive by international standards; All of the companies are looking extra region for a long-term solution.

8. Sagicors Cross Border Experience Increased Scale mainly through acquisitions 15 acquisitions between 1991-2005 spanning USA, Jamaica, Trinidad, Barbados, Bahamas, Panama & Cayman

9. Sagicor Today Sagicor Group is a widely held public company : -Market Cap of BD 1.2 billion -Capital of BD 748 million (1989: BD16 million) -Profits BD 137 million (1989:BD 3 million) -Assets BD 6.4 billion(1989:BD 308 million) -Rating BBB+ by Standard & Poors and A Excellent by AM Best Sagicor Group operates in four main lines of business: –Life and health insurance, annuities and pensions –General insurance –Property development –Banking and other financial services

10. Impediments Industry Issues: –Continued lack of long-term assets to support liabilities so there is a significant mismatch between assets and liabilities –Investment portfolios concentrated in sovereign bonds with some no longer being sovereign –Restrictions on intra regional investment and possible build up of asset bubbles –Regulatory policy focused on institutional strengthening with little focus on capacity building and hence regional competitiveness –Regulatory policy is more entity specific than risk specific and so ignores convergence between insurance and banking

11. Global Life Insurers All amounts in USD billions CompanyCountryCapCapitalProfits American International GroupUSA153889 Manulife Financial CorporationCanada90213 INGHolland85459 AXAFrance60356 Met LifeUSA37295 PrudentialUSA37223 GeneraliItaly36142 AVIVAEngland32264 AEGONHolland26273 Hartford Financial ServicesUSA25152

12. Impediments Industry Issues: –Multiple capital adequacy standards across region –Multiple regulatory reporting standards across region –Multiple approval processes for products across region –Multiple tax regimes across region

13. Impediments Industry Issues: –Higher level of insurance liabilities as a result; –Double whammy in that less capital available for capacity building and –Companies forced to raise capital in thin markets and high cost of capital environment to finance capacity.

14. Impediments Industry Issues: –Introduction of several new accounting standards adversely affecting reported performance; –Lack of appropriate financial instruments to neutralize the impact of the new standards. –Greater pass through of risks to end users who are unaware of risks –Continued pressure on unit cost as insurance portfolios mature; –Further restructuring required to achieve international competitiveness.

15. Proposals Comfort with Duopolies Compulsory credit rating Single regulatory regime in terms of capital standards, product approval, risk specific monitoring, reporting standards and timelines for response Single tax regime Removal of restrictions on intra regional investment More long term issues by sovereigns Outsourcing of state retirement programs