Statement by Dr. the
Hon. Omar Davies, Minister of Finance
You will recall that I previously outlined a strategy for the divestment of the insurance portfolios of Jamaica Mutual Life Assurance Company, Dyoll and Crown Eagle Life Insurance Companies. The strategy involved merging the portfolios of the three companies and putting them to tender.
The objectives were to:
3. Today, I am pleased to announce that the process has been successfully concluded.
4. You will recall that in my previous statement a two-phased approach was outlined to deal with problems of the insurance sector.
5. In the first phase the lump-sum interest sensitive policies were separated from the remaining portfolios of the insurance companies and these were sold separately. To date, lump-sum policyholders who have signed the FINSAC agreement will recover $1.768B which they had placed with Mutual Life, Crown Eagle Life, and Dyoll Life.
6. In the second phase the Individual Life, Pensions and Annuities, Other Group and Health Portfolios were valued and put to tender. Expressions of interest were received from nine companies, three local and six from other countries in the Caribbean. The portfolios were valued as follows:
(Valuation in $J millions)
Values include a small portfolio of foreign businesses which were converted to Jamaican dollars at a rate of $38.50 to US$ 1.00.
7. A set of predetermined criteria was used to determine whether the potential owners met minimum requirements. These were among other things:
a . fit and proper;
b . non-receipt of FINSAC support; and
c . The Insurers Capital Adequacy
Failure to meet one or more of these three criteria means instant disqualification.
8. Based on these criteria eight of the nine companies were allowed to proceed. They are as follows:
The criteria set out below were applied to these eight companies:
9. Points were awarded to each bidder based on these criteria and bidders withthe highest points emerged the winners.
10. I am pleased to announce that based on the evaluation process the following companies are the successful bidders:
The bid price for the entire portfolio was $1,310.3M.
11. The Supervisor of Insurance for Trinidad and Tobago has indicated that Guardian Life is one of the leading Health and Life Insurance Companies in Trinidad, is financially sound and has filed all the required returns with the Supervisory Authority.
12. Assets amounting to $5.5 Billion will need to be transferred to the purchasers. Of this amount it is expected that $2 Billion 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.
13. The remaining $3.5 Billion will be in the form of a Government debt instrument. It is proposed that a significant portion of this instrument be in the form of a 1 0 year or longer term bond instrument.
14. The removal of this $2 billion in assets from the FINSAC controlled companies will leave the three companies with mainly real estate and hotel assets valued in excess of $8 billion which will be sold by FINSAC as soon as suitable buyers are found. Sale of these assets will in time offset the payment of $3.5 billion now being put up by the Government.
15. In-anticipation of the question of why hold $8 billion on assets yet add another $3.5 billion to Government's already high domestic debt, I must stress that these are assets which cannot be transferred to the purchasers since this would leave them with too high a concentration of assets in real estate, one of the main factors which led to the demise of Mutual Dyoll and Crown Eagle.
16. The actuaries have established a mix of assets which matches the liabilities the winning bidders will be assuming, including real estate, policy loans, equities, bonds and treasury bills. In this mix, real estate cannot be too heavy if the long term financial health of the companies are to be maintained.
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