Trinidad and Tobago's insurers are focusing on building brands and efficiency

In global terms, Trinidad and Tobago ranks as a small, if well established, national market for insurance. General insurers wrote gross premiums of around TT$3.20bn ($494.1m) in 2013, while life and health insurers wrote gross premiums of about TT$3.4bn ($524.3m), according to figures published by the Association of T&T Insurance Companies (ATTIC), the industry trade association. Regionally, non-life insurance premiums written in Latin America and the Caribbean in 2013 amounted to $96.69bn, having risen by 7.2%, according to data from Swiss Re’s “sigma 3/2014” study. Meanwhile, life insurance premiums were up 12.2% year-on-year at $80.36bn. Of the 88 countries worldwide for which Swiss Re publishes data, T&T is the 81st-largest national non-life insurance market and the 66th-largest life insurance market.

Income Related

Given that T&T is one of the richest countries in the region in terms of per capita income – with a GDP per capita of around $21,300, according to IMF estimates – it follows that density (premiums per capita) is higher than in other parts of Latin America and the Caribbean.

In 2013, total density was around $768 – including $372 in general insurance, $74 in health insurance and $322 in life insurance premiums. Across the region as a whole total density was $300 – including $169 in non-life insurance and $131 in life insurance premiums – according to Swiss Re. Insurance penetration (premiums as a percentage of GDP) in T&T was broadly in line with regional averages in 2013, across the insurance sector as a whole (3.7%), for general insurance (1.79%) and for life insurance (1.55%). “In the last 10 years T&T has passed the income point at which people start to invest in their future needs. Nevertheless, penetration as a percentage of GDP is still moderate and there are still opportunities to expand,” Ravi Tewari, group CEO of Guardian Holdings, told OBG.

Regulation

The insurance sector is regulated by the Central Bank of T&T (CBTT). As of early 2015, the CBTT identified seven active life insurance companies, 17 active general insurance companies and seven active composite insurers, which carry out both life and general insurance business. In practice, several of the companies are members of the same corporate group.

Further, five companies accounted for approximately 76% of the gross premiums written for non-life insurance, virtually all health insurance premiums and more than 90% of life insurance premiums.

The CBTT reported that total premiums rose by 9.2% in the year to September 2013. Over the previous five years, the general trends in profitability have been favourable. The CBTT noted, for life insurance companies, the expense ratio (expenses including commissions as a portion of net premiums written) fell from 40.6% in 2009 to 36.4% in the period to September 2013. In contrast, for general insurance companies, return on equity (ROE) – pre-tax profits as a percentage of shareholders’ funds – increased from 16.7% to 18.6%. In relation to the nine months to the end of 2014, Guardian Holdings, the T&T-based and listed composite group that is one of the largest insurers in the region, noted that property and casualty insurance premiums, which protect against property losses to your business, home or car and/or against legal liability that may result from injury or damage to the property of others, were 8% higher than they had been in the previous corresponding period. Premiums in the life, health and pensions business were up 6%.

General Cover

ATTIC’s data shows that property insurance accounted for just over half of all premiums written by general insurers in 2013, while motor vehicle insurance accounted for just under a third. Other lines included workmen’s compensation (4%) and general accident/casualty (3%). A variety of minor lines accounted for the remaining 10% or so of general insurance premiums. Property insurance consists mainly of household cover in a country that is exposed to earthquakes but which is generally regarded as being to the south of the hurricane belt. T&T is a member of the Caribbean Catastrophe Risk Insurance Facility (CCRIF). Formed in 2007 as the world’s first multi-country risk pool, the CCRIF provides earthquake, hurricane and excess rainfall covers to the governments of the member countries and territories.

The nature of T&T’s economy means that there are substantial industrial and specialty risks to be covered. These risks are generally handled by multinational reinsurance giants which do not have a physical presence in the country, such as ACE. The multinationals may use a local general insurer to manage their large industrial accounts within T&T. The general insurers are heavy users of outward reinsurance. According to ATTIC, TT$1.98bn ($304.5m) of the TT$3.20bn ($494.1m) in general insurance premiums written in 2013 were ceded to reinsurers.

Sector Players

By far the largest general insurance company in terms of premiums written is Guardian General, whose market share in 2013 was just under 43%, according to ATTIC. Guardian General is a subsidiary of Guardian Holdings, and is active in 21 countries and territories in the British and Dutch Caribbean (including Belize and Guyana). Guardian General accounted for over half of property insurance premiums written in 2013. Its share of the motor vehicle insurance market was 22%. As is the case in other non-life insurance markets, rates have been soft, given the surfeit of capital that is available globally and the comparative absence of major catastrophe losses in 2014.

In mid-2013, Guardian Holdings began a rebranding exercise designed to introduce a single, unified image for the group everywhere it operates. Previously, its subsidiaries had typically operated under legacy names. Guardian General is embracing new technology, but has to be careful not to do so in a way that alienates the brokers who distribute its products. Brokers account for 80% of T&T’s general insurance sales.

In terms of premiums written in 2013, the second-largest general insurer is Tatil, a subsidiary of the ANSA McAL conglomerate, which is based and listed locally. Its market share overall is just under 10% and Tatil’s portion of motor vehicle insurance is around 13%. Three companies vie for third place in the market, with shares of 7-9%. Colonial Fire and General Insurance Company, known as COLFIRE, is a general insurer that was formerly part of CL Financial Corporation, the conglomerate which collapsed in the wake of the global financial crisis of 2008-09. Beacon is a privately held T&T-based composite insurer which has branches and agencies throughout the eastern Caribbean. Sagicor is a Barbados-based and listed composite insurer which rivals Guardian Holdings for leadership across the region as a whole. Smaller general insurers include privately held local firm Maritime, Massy United (a subsidiary of Massy Group, one of the leading local conglomerates, with a regional presence), privately held composite player TrinRe, New India (the local subsidiary of one of the large non-life insurance companies owned by the government of that country), the local operation of St Maarten-based NAGICO and local general insurer Furness Anchorage. One company which did not provide details of premiums written in 2013 to ATTIC was Gulf Insurance, which was purchased by Surinam-based Assuria in early 2013.

Life & Health

Group health products dominate sales of health insurance in T&T. According to ATTIC, individual health insurance products accounted for a little over a quarter of premiums written in 2013. Guardian Life of the Caribbean (GLOC), a sister company of Guardian General within Guardian Holdings, is by far the largest player with a market share of 62%. Sagicor is the second-largest provider of health insurance, and accounted for just over one-fifth of premiums written in 2013. It is followed by Beacon as the third-largest health insurance provider with just over 8% share. The fourth-largest provider of health insurance in 2013 was Pan-American Life Insurance Group (PALIG), a New Orleans-based life insurer whose geographic footprint includes the US, Colombia, Mexico, Central America and much of the Caribbean.

PALIG entered the local market in 2012 via its purchase of ALGICO from MetLife. ALGICO had previously been a subsidiary of American International Group (AIG). Tatil and Maritime are also active in health insurance. As is the case for general insurance, brokers dominate distribution of health insurance products.

GLOC has life insurance and pensions businesses in T&T, Barbados, and St Vincent and the Grenadines. Through another operation, Guardian Life Limited, Guardian Holdings is also a major player in Jamaica’s life insurance market. Fatum Holdings is the legal entity through which Guardian Holdings operates in the Dutch Caribbean. GLOC accounted for a little under one-half of all life insurance premiums written in T&T in 2013, and a higher share of new business premiums. Sagicor is the second-largest provider of life insurance, in terms of 2013 premiums. Both companies, and most of the smaller players, distribute their products and solutions mainly via tied agents.

An exception is ScotiaLife, a part of Canada’s Scotiabank group, which distributes its offerings substantially via the branch network of the group’s universal bank subsidiary in T&T. ScotiaLife dominates the market for non-tax-exempt individual annuities. It is also the second-largest player in the group life market with a 20.5% market share, after CUNA Caribbean Insurance Society (the regional subsidiary of the US-based CUNA Mutual Group), which sells funeral cover and creditor life insurance to every credit union in T&T through group life contracts and accounted for 42% of premiums written in 2013. ScotiaLife is a minor player in the market for ordinary, non-participating life insurance products, which accounted for just under 43% of total life insurance premiums written in 2013. Individual non-participating annuities accounted for a little less than 30% of life insurance premiums written that year. Group life sales were around 7% of the total. Aside from GLOC, Sagicor and ScotiaLife, the life insurers include PALIG, Maritime Life, Tatil Life and Beacon.

Organised Savings

As is the case in most countries, life insurers are essentially in competition with other institutions for people’s savings. According to the CBTT, there are 150 private occupational pension plans that are registered under the Insurance Act. As of the end of July 2014, these pension plans’ assets amounted to around TT$45.8bn ($7.1bn). The CBTT notes on its website that a new Occupational Pensions Plan Act is being developed to ensure that the pension plans are run in accordance with international best practice. The National Insurance Board of T&T (NIBTT) is the central institution of the first pillar of the country’s social security system. In the September 2012 fiscal year – the latest for which data is available – it received contributions from 489,553 individual contributors and 19,643 employers: the NIBTT made payments to 155,201 beneficiaries, of whom 125,185 were classified as long-term beneficiaries. As of end-September 2012, the NIBTT’s total assets amounted to TT$22bn ($3.4bn). The NIBTT’s latest quinquennial actuarial review was published in mid-2012.

Voluntary savings are also channelled through the T&T Unit Trust Corporation (UTC) – a mutual fund company that was formed in 1982 under its own act. In creating UTC, the government sought to mobilise savings and to give all citizens the chance to own a stake in the economy. UTC is working with the CBTT to update the act. As of early 2015, it had around TT$20bn ($3.1bn) in assets under management (AUM). In a country with a total population of 1.35m, and a working population of about 750,000, UTC has 580,000 individual clients, as well as some institutional ones. Until the mid-1990s, it had a monopoly. Today, seven firms (mostly linked to banks, insurers or brokers) offer some 85 mutual funds that are authorised by the T&T Securities and Exchange Commission (TTSEC). Nevertheless, UTC’s market share is still about 48% in terms of AUM. “While the major players in the local mutual fund industry are unlikely to change significantly over the next few years, product innovation will likely usher in new and exciting market developments,” Sekou Mark, vice-president of investment research and portfolio management at UTC, told OBG.

UTC distributes through three channels. It has a network of nine branches across the country (including its headquarters at UTC Financial Centre in Port of Spain’s Independence Square). It also sells through 10 UTC agencies. Similar to wholesalers in the US’s mutual fund industry, these are independent operators who have access to UTC’s data and systems and are remunerated by commissions. UTC also distributes via banks that have adopted open architecture in their promotion of savings products. However, these banks generally also offer their own products, and do not have access to UTC’s data and systems. Like most asset managers and mutual funds, UTC competes on the basis of investment performance. It also competes on brand, resilience through good times and bad, multichannel distribution and innovation. Investors in the TT$10.5bn ($1.6bn) TT$ Income Fund, which invests entirely in fixed-income assets, can access their savings through ATMs. The company also offers a Growth and Income Fund, which invests in equities (local stocks and US stocks, directly and through exchange-traded funds) and fixed-income assets (securities issued by the government of T& T, local corporate paper, regional sovereign paper and US corporate bonds). Most of UTC’s individual investors tend to be risk-averse.

Challenges

Many of the general insurers are having to deal with downward pressure on rates. Anand Pascal, president of GLOC, told OBG that life insurers also face several challenges. Regional players such as Guardian Holdings and Sagicor have to contend with the weakness of the economies of Barbados and Jamaica. In T&T, the abundance of liquidity has caused yield spreads along the local yield curve to compress to unreasonably low levels. This matters because the insurers are legally required to match at least 80% of their liabilities in a particular currency with assets that are denominated in the same currency. The small size and illiquidity of the local stock market also restricts the ability of the insurers to invest in T&T equities.

James Camacho, president of ATTIC and vice-president of operations at Sagicor Life’s T&T branch, told OBG that he regards the local life market (and its counterparts elsewhere in the region) as mature. Although some life insurers may develop new distribution channels, reducing dependence on tied agents, growth in premiums generally will likely be slower than in the past. He mentioned that, “In the meantime, low interest rates will affect investment earnings for a few years.” Pascal noted that clever use of technology makes life easier for the tied agents and clients, but is not really a game changer. “About 45% of the business that we write is processed automatically,” he said. “The agent uses a laptop to show quotes to a client and to submit the quote to a central engine.”

Insurance Bill

In general, the insurers are upbeat about the new Insurance Bill, which has been developed over several years, involving extensive discussions between the CBTT, the government and ATTIC’s members. Perhaps most crucially, it incorporates the wishes of smaller insurers, some of whom might otherwise have found the required adjustments difficult. The new bill also incorporates the minimum continuing capital and surplus requirement regime that is in use in Canada. The bill will not be passed until after the general election in September 2015.

Outlook

At GLOC, Pascal is positive about the company’s prospects. GLOC is undertaking investment in its back office infrastructure. “The aim is to replace legacy systems dating from the 1990s to improve efficiencies,” he told OBG. GLOC remains optimistic despite the difficult conditions facing the economy as a whole. “The quality of our agents and staff will allow us to continue to highlight life insurance needs to our clients,” said Pascal. He thinks that it is possible that the life insurers, collectively, will be able to increase penetration from a level that is quite high by regional standards, although not by global standards.

There are two wild cards that could have an impact on the sector in 2015. One relates to the ongoing saga of the winding up of CL Financial Corporation, which owned failed life insurance company CLICO. T&T-based policyholders of some of CLICO’s products were offered long-dated government bonds. Many of these people have exchanged the bonds for shares in the listed CLICO Investment Fund. At the end of March 2015, the CBTT, which has been organising the financial rescue of CL Financial Corporation and CLICO, announced that following the sale of key assets of CLICO in late 2014, there would be a settlement of claims against CLICO to policyholders of the investment products who had not accepted the government’s original offer.

The state will ensure that those policyholders who had accepted the offer are not disadvantaged for having done so. The government remains in control of the traditional life insurance operations of CLICO, and appears to be looking to sell the business. There are still a number of unknowns, including whether the government is able to execute the deal, who is the buyer and the terms of the purchase.

The other wild card in the sector pertains to annuities. Camacho indicated that “ATTIC has been preoccupied with current rules, which require that sales of annuities need to be approved on a case-by-case basis by the Board of Inland Revenue (BIR).” ATTIC is working to change the system so that sales are approved by the BIR on a product-by-product basis instead. If the changes take place, it should be significantly easier for the life insurers to sell annuities, and in particular to issue them in a more timely manner.