Despite lower expenses NIS still in $892M hole - BoG

Despite lower expenses NIS still in $892M hole – BoG

Jul 09, 2022 News

Kaieteur News – The National Insurance Scheme (NIW) depended on by thousands of Guyanese, at the end of March this year, was still in a financial hole to the tune of some $892M.

Despite lower expenses NIS still in G$892M hole

The state of affairs is illustrated in pellucid fashion in the most recent quarterly report to be released by the country’s central bank—Bank of Guyana (BoG).

According to the recently released document, NIS’s overall balance recorded a lower deficit of $892M.

It was noted that this, however, did reflect a lower deficit relative to the corresponding period for the previous year.

At the end of March 2021, NIS’s deficit stood at G$908M. According to the BoG, “this position was reflective of lower total expenses by 10.6 percent to $8.2B.

Vice President Bharrat Jagdeo in April during a press engagement lamented “Government will, and has to, intervene through various provisions to ensure people receive their benefits…We will cure the deficit using whatever means, the consolidated fund or whatever are the means to direct contribution into the NIS, to ensure that for the next 100 years, its fine, and that people can receive their benefits.”

He had also called the scheme bankrupt.

According to Jagdeo, there was in 2015 an operating surplus of $968,783,000. “In 2016, $161,025,000, that was an operating surplus, it still had more money. In 2017, $175 million in deficit; in 2018, $1.6 billion in deficit; in 2019, $1 billion deficit; in 2020, $1.7 billion in deficit. So this is what has happened, you see it has moved from an operating surplus to what has turned into a huge operating deficit…that is what I mean it was factual, I can substantiate this,” Jagdeo said in qualifying his position.

Meanwhile, as it relates to the domestic insurance sector generally, BoG noted in its report that this component of Guyana’s financial sector “was adequately capitalised as both the life and non-life insurance sectors’ assets exceeded their respective solvency requirements.”

The insurance sector, according to BoG, accounts for 7.13 percent of total financial sector assets and 26.89 percent of non-bank assets as at end-March 2022.

It was noted that, “although the insurance sector is sound with manageable risks, there are potential systemic issues from concentration of assets.”

In the life insurance sector, BoG said, capital growth has been on an upward trajectory, amounting to G$43B, reflecting the sector’s ability to meet its financial obligations when compared with the financial risks acquired.

Additionally, it was noted that too that the industry’s investment assets portfolio was fairly stable and large.

In the non-life sector, BoG reported that its capital has also been increasing steadily to G$28B. The report, in its analysis, did point out that “asset quality was maintained and the industry’s risk retention has been showing a decline, indicating lower risk in relation to potential future claims. Meanwhile as it relates to pensions, BoG noted that this accounts for 6.9 percent of the total financial sector assets and approximately 26.1 percent of non-bank financial institution assets, reflecting its influence as an institutional investor.

To this end, BoG reported that total private occupational pension plan assets increased by 16.0 percent to G$113.3B as at March 2022.

According to the Bank, “Pension funds’ vulnerability to market risk was moderate and stable,” however, (Defined Contribution) DC pension funds continued to be largely exposed to insurance companies having investments in deposit administration contracts.”

Nonetheless, “the sector has been robust throughout the period with average asset growth outpacing the average growth of pension fund liabilities with an estimated solvency level of 159.8 percent.”

According to BoG, real net returns on investments of pension fund assets increased from -0.23 percent in December 2021 to 11.96 percent in March 2022 and this was primarily due to the high appreciation rate of some Defined Benefit (DB) funds’ investments.

The bank did caution that overall, less than favourable investment returns continued to be a going concern, and as such, “market rates continued to be monitored.”

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