It is necessary for those who lead in various disciplines in our country to understand some of the weaknesses of the current system of insurance and banking in order to modify, restructure and/or transform these industries.
The laws and policies of the insurance industry are inadequate and leaves the policyholder high, dry and defenceless in far too many instances. Bahamians need protection and it is the duty of the elected government to provide that relief.
The authorities in the insurance industry have been reviewing the Insurance laws from 1992 and have not been able to produce the Act governing the industry. The Act of 1969 has been amended a few times, but successive governments over the last 30 years have allowed the industry to drift with little protection for the consumer or policyholders.
Any new Domestic Insurance Act must take into consideration ethical underpinnings to govern those who own and manage Insurance companies.
A financial analyst recently wrote, “The proposed merger between Colina Insurance Co. Ltd. (now incorporating Colina Insurance Co. and Global Life Insurance Bahamas Ltd.) and Imperial Life is an issue requiring the most scrutiny not only because of the dominance of the insurance industry it would represent, but more particularly because of the substantial and worrisome level of influence which these insurance subsidiaries and related entities would exert on the domestic financial system, especially the capital market through a system of inter-locking directorates. No other private sector entity has the potential for so enormous an influence on the banking system’s institutional liquidity, or the ability to exert so much pricing influence on insurance and other financial products.
As a dominant player in pension funds and a broker dealer, the Group, through a system of shared directors, or inter-locking directorates, could determine the pricing and the success or failure of private placements and public issues coming to the market. The extent to which this influence could negatively affect the capital market must not be underestimated, especially in light of an extremely competitive environment and an obvious weakness in the insurance regulatory structure. No other corporate entity or arrangement will be so positioned to influence financial markets for its benefits. This would be a great temptation even for the angels.
In considering the capital adequacy of the insurance entities it has to be recognised that the capital at the top of the corporate pyramid is in the final analysis the capital of the last resort for the subsidiaries.
In the acquisition of Colina Insurance by the Group, the assets exchanged were $5.39 million in excess of the assets acquired. There was no obvious reason for a payment of goodwill, and certainly not of the magnitude of 24% of the purchase price. In fact the net profit of Colina declined following the acquisition. This “overpayment” was in effect a dilution of the minority ownership of the parent company, namely, the Bahamian public. The issued and fully paid shares of the company nearly doubled following this transaction.
The unsecured demand loan of $1,207,385 from Colina Insurance Co. to Colina Financial Group appears to be related to the acquisition transaction which is preceded. What the relationship is cannot be determined from the information available.”
By Wendall K. Jones, The Bahama Journal
