Trinidad's Guardian Life
looks at more
Jamaican investments

Unlike its competitors in the insurance and financial services sector in Jamaica, Guardian Life's real estate portfolio in Trinidad and Tobago has performed remarkably well..

With arrangements for Guardian Holdings to take over the assets of three insolvent Jamaican insurers nearing completion, Chairman of the Trinidad-based insurance giant's operations in Jamaica, Arthur Lok Jack, has already expressed his interest in acquiring other business assets on the island.

Guardian Holdings, one of the largest financial services groups in Trinidad, was invited along with other regional companies to bid for the portfolio after Jamaica's Finance Minister Dr. Omar Davies, announced in February 1999 that the asset portfolios of Mutual Life, Crown Eagle and Dyoll Life, would be sold to other insurance companies instead of being restructured.
"Apart from Guardian Life, five other companies outside Jamaica including Barbados Mutual, Life of Barbados, Colonial Life Insurance Co (Trinidad) and two local insurers, submitted bids for the insurance portfolio," states the Financial Sector Adjustment Company (FINSAC), which was set up by the Jamaican Government to manage the asset portfolios of the ill-fated financial services group.
Guardian Holdings received the more lucrative portion of the portfolio, winning control of the Individual Life, Pension and Annuities assets. The Group Life and Health portfolio was divested to Jamaica's First Life Insurance Company Ltd.
Confirming his intension to invest in Jamaica, Lok Jack also expected Guardian Holdings to be fully listed on Jamaica's stock exchange by January 2000. He said despite the difficulty involved in maintaining currency stability, the low inflation rates have created new investment opportunities, both on and off the stock market.
Lok Jack is also Chairman of Associated Brands Industries (ABI), maker of Sunshine Snacks and Devon biscuits. He was also appointed head of the Caribbean Cement Company after it was purchased by Trinidad Cement Limited in early 1999.
The Jamaican Government's tight monetary policy has effectively controlled inflation but very little cash is available for the financial markets. And, despite good returns from some sectors, stock prices have remained relatively low.
In addition to the greater buying power from Trinidad's stronger currency, the low inflation rate has also enhanced the long term returns of investment projects undertaken by foreigners.
Lok Jack, whose ABI manufacturing operation is planning to build a factory in Jamaica, said price stability is all-important for business success. It allows companies to plan in a predictable environment and contain costs.
"Inflation is still too high but is heading in the right direction," says Lok Jack, who pointed to the importance of low inflation in the development of the economies of Jamaica's major trading partners. He said in previous years annual inflation in Trinidad was below four or five percent, while it was running at more than 20 percent in Jamaica. Trinidadian manufacturers had an edge as prices rose in Jamaica while labour and other costs in Trinidad remained low.
During this period, our competitors in Jamaica were forced to keep pushing up prices to meet cost pressures while efficiency gains in Trinidad led to stable prices and increasing disparities between the shop price of similar Jamaican goods.
Lok Jack also announced that Earl Moore, who was relieved as a senior executive at the Jamaica Mutual Life Assurance Society three years ago, was appointed to run the company's day-to-day operations and those of two other insurance portfolios acquired by Guardian Holdings.
Speaking to reporters after the agreement was announced, Dr. Terrence Farrell, executive director at Guardian Holdings, said his insurance group was attracted to the deal because the potential for competition from outside the region was becoming increasingly evident.
"We felt the best way to prepare for this is to become larger through acquisitions and mergers," he added.
"When FINSAC invited the company to bid for the portfolios, we immediately saw it as a strategic opportunity which fitted well into our plans for Guardian Life. It will allow us to grow our business very quickly in a short space of time.
"What will arise is a fairly large Caribbean-owned life insurance company, which will be in a better position to stand up to international competition, which we know is going to be arriving on our shores very soon." The bid price for the entire portfolio was reported to be US$32.76 million.
In 1998, Guardian Holdings' financial returns showed assets of US$380 million against liabilities of US$300 million.
The deal requires Guardian Holdings to pay FINSAC US$27.5 million for the individual life and pensions portfolios of Mutual Life, Dyoll Life and Crowne Eagle. The sales staff of Jamaica Mutual Life and Crown Eagle Life insurance companies are also expected to be absorbed into the operations of Guardian Holdings.
"Assets amounting to US$137.5 million will be transferred to Guardian Holdings. Of this amount, it is expected that US$50 million could be sourced from the existing assets of Mutual Life, Crown Eagle and Dyoll and other companies controlled by FINSAC. Negotiations with the successful bidders will determine the assets which will be transferred," said Jamaica's Finance Minister, Omar Davies.
The Minister added that the remaining US$87.5 million will be in the form of a Government debt instrument. It has been proposed that a significant portion of this instrument be in the form of a 10-year or longer bond instrument.
In effect, Guardian and First Life will not actually pay over the sums to the Government, but reduce the amount of Government debt they will take over by the amount they have agreed to pay.
Dr. Davies said that a two phase strategy will be used to divest the assets. In the first phase, the lump-sum interest-sensitive policies were separated from the remaining portfolios of the insurance companies and sold separately.
"To date, lump-sum policyholders who have signed the FINSAC agreement will recover US$44.2 million which they had placed with Mutual Life, Crown Eagle Life and Dyoll Life."
In the second phase, the Individual Life, Pensions and Annuities, Other Group and Health portfolios were valued and put to tender. He said expressions of interest were received from nine companies - three local and six from other countries in the Caribbean.
Total liabilities stood at US$125 million, required capital at US$16.6 million and the appraisal value of the portfolio was set at US$35 million.
Barbados investors are also taking note of market developments in Jamaica. Despite losing out to Guardian Holdings in the bid for Crown Eagle's asset portfolio, Barbados Mutual and Life of Barbados are actively considering their investment options in Jamaica.
Barbados Mutual has been studying that possibility since 1997, when a special committee of the Board of The Barbados Mutual Life Assurance Society, headed by deputy chairman, Noel Symmonds, visited Jamaica to evaluate investment opportunities in Jamaica.
The Society, which invests in some 19 countries, offers a wide range of financial services including life and health insurance, pension administration, investment management, retail banking and credit card processing services, to a wide cross-section of individuals and corporations.
A release from the Society said that Barbados Mutual and its wholly-owned subsidiary Capital Life Insurance has received an "A" rating from A.M. Best, one of the world's most respected insurance rating agencies.
The company's quantitative and qualitative evaluations of insurance companies, including the universally recognised Best Rating, have become the standard measures of an insurer's financial strength. A.M. Best assesses the strategic direction and vision of the company by gathering data from the insurers' annual financial statements and from personal interviews with management and other sources before a Best Rating is issued.
The Mutual Group said it earned this rating based upon its strong operating performance, favourable capitalisation and strong market presence in the 19 countries in which it operates.
Its profitable operations have enabled it to grow without debt and maintain a favourable risk-adjusted capital position. Historically, earnings have been derived through its individual life block of business, but in more recent years earnings have been enhanced by the strong market performance in its expanding pension operations and the appreciation of its equity portfolio.
Life of Barbados (LoB), which started business in 1971, operates in seven regional countries and has achieved significant growth over the years.
It has developed expertise in acquisitions, having acquired the portfolios of North American Life Assurance Company in 1971, Confederation Life Insurance Company in 1986 and Manufacturers Life Insurance Company in 1996. LoB is well-diversified and has subsidiaries in general insurance and in finance. It is one of the few life insurance companies in the region to have adopted Canadian Actuarial Standards including minimum levels of capital and surplus to be maintained in the insurance operations to ensure future solvency.
These minimum levels are measured by the formula for Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio as defined by the Canadian Superintendent of Financial Institutions. The amounts required are driven by the types of assets and liabilities held and assumed and their relative level of risk. Under these rules, Life of Barbados has maintained an MCCSR in excess of 150 percent. The increase of this ratio has been identified as one of the company's strategic goals over the coming years, further ensuring the long-term solvency of the company and improving its potential for growth.