FSC Implementing New Capital Standard for General Insurers

The Financial Services Commission (FSC) is implementing the Minimum Capital Test (MCT), which is a new capital standard for general insurers, that will better align capital provisions with insurance risks.
Executive Director of the FSC, Brian Wynter, who made the disclosure at a media luncheon held yesterday (May 16) at the Hilton Kingston hotel, said the FSC hopes to complete the introduction of the new standard during the current financial year. The briefing was held to update journalists on the activities of the Commission for 2006/07.
The new regime, which Mr. Wynter said is being introduced through dialogue and consultation with industry players, has “an even more refined approach to assessing and calculating risk, and what the proper capital should be against that risk. This is very important for us in Jamaica, particularly because of the catastrophe risk that we know we have to deal with in the catastrophe-prone geographical location that Jamaica is in”.
Meanwhile, Mr. Wynter informed that during the past financial year, the FSC continued to focus on improving the solvency ratios of regulated insurers by strengthening prudential standards and the processes by which they are managed.
Emphasizing the importance of this type of corporate governance, he said that, “it is a form of self-regulation that studies show improves significantly, the performance of companies, from the point of view of their shareholders and stakeholders. It is also true that this improves their soundness because a well-run company is a company that is very likely to conform to appropriate standards of performance, conduct, and solvency.and so we have been focusing on that in our monitoring to help the industry.”
In addition, he said, capital standards for both life and general insurance companies were increased in keeping with “the path that had been set a few years back in the reform (process) for a steady increase every couple of years in the required minimum capital for the industry”.
At the end of 2006, the capital base of general insurers increased by 44 per cent compared with the level two years ago, while the ratio of capital to total assets improved by 9.5 percentage points. Life insurers registered a 39 per cent increase in capital levels over two years, with the capital ratio remaining broadly unchanged at just over 24 per cent, Mr. Wynter further informed.
During the period under review, the FSC also focused on improving the quality of the reinsurance programmes of general insurance companies, as well as the capacity of the regulator to monitor and assess them. “So, we have increased our own technical capacity to understand the insurance programme so that we can monitor them and also make recommendations for improvement,” he expounded.
Indeed, Mr. Wynter pointed out, during the year, reinsurance reviews were done for all general insurance companies and recommendations were made for the strengthening of the reinsurance programmes of some of these entities. “This is an ongoing activity and a very important one. The mitigation of all risks, in particular, catastrophe risks, require strong capital together with appropriate reinsurance programmes,” he stated.