IMF queries supervision of Bajan insurance sector

(Barbados Nation) The International Monetary Fund (IMF) has raised serious questions about the supervision of Barbados’ insurance sector.

An IMF Financial System Stability Assessment (FSSA) released on Monday evening said the “lack of adequate supervision of the insurance sector” exposed the sector to “material risks”.

In its executive summary, the IMF said profitability and capital adequacy in this sector were “difficult to assess due to incomplete and inadequate data”.

The IMF study which was completed on July 11, 2008 said: “single negative events may significantly damage the reputation of a jurisdiction in an increasingly regional and global market”.

While the institution noted on-site inspections, the IMF said, “The sector remains largely self-regulated owing to continuing shortages of qualified staff, inadequate regulation and out-of-date financial reporting.”

To address the situation, the IMF said “greater cooperation and exchange of information, particularly with the authorities in Trinidad and Tobago, are necessary to facilitate effective assessment of financial soundness and the protection of Barbadian policyholders”.

When it came to the domestic banking sector, the IMF said the financial system had benefited from strong economic expansion, which boosted credit demand that contributed to a steady improvement in banks’ asset quality.

“Capital adequacy for locally incorporated banks remains above the minimum required and profits remain at healthy levels,” the IMF noted.

However, it warned that the banking system was “vulnerable to credit quality shocks, and an extreme but plausible decline in tourism receipts or construction activity, would reduce banks’ capital to below regulatory minimum”.

While not naming the bank, the IMF said “even under a credit risk baseline scenario one bank’s capitalisation would fall below regulatory minimum”.

In its assessment of credit union activity, the Washington-based institution said the Registrar of Co-operatives Department was “slowly building capacity” to adequately supervise the sector.

It acknowledged the Registrar of Co-operatives Department continued to carry out joint inspections with the Central Bank of Barbados. However, the IMF said “the number of inspections conducted has decreased sharply and the joint inspections are not yet being conducted with the recommended frequency” of the 2002 Financial Sector Assessment Programme (FSAP) team.

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