News

The National Insurance Board

Press Statement

By Mr. Algernon Cargill, Director,
The National Insurance Board,
September 17, 2009

In 2005, the National Insurance Board (NIB) initiated agreements for the management of a small percentage of its Fund with third party financial advisors. The advisors managed $16 million of the total NIB’s portfolio of $1.6 billion. These advisors, as investment managers, were given full power and authority to invest their portfolios within the guidelines of the approved investment policy statements. They reported to the Board on a monthly basis relative to the valuation of the portfolio and all transactions related thereto.

Following a recent strategic review of these arrangements, the Board agreed to terminate the investment management agreements with the financial advisors. These advisors and other financial institutions were asked to provide proposals for their brokerage and other investment services. It is important to note that the terminated investment agreements only provided for services in the local and Bahamian dollar market with many restrictions. Our strategic review revealed that NIB would not be disadvantaged by bringing the related investment activities in-house and further it would reduce the level of overlap of effort which ultimately resulted in a higher cost structure.

The Board is presently repositioning the way investments are made by utilizing the services of various brokerage and financial institutions which will provide a broader range of both local and international investment opportunities that can be reviewed in-house and executed more expeditiously within the framework of NIB’s investment criteria as defined in the National Insurance Act and our own internal guidelines. This move will also address the re-investment risk for maturing investments and other concerns as noted in the Social Security Reform Commission Report. Repositioning does not mean reduced opportunities or investment inefficiencies. Through prudent management of NIB’s investment portfolio internally, NIB together with consultation from Investment experts internally and externally will be able to ensure that risks are adequately managed, and investment returns maximized. Further, NIB will be able to reduce its expense base and simultaneously ensure a firsthand oversight of our investment portfolio, as a result of employing the same process on an in-house basis.

NIB constantly dialogues with investment advisors locally and internationally as well as other financial institutions with suitably qualified personnel locally and internationally, and we have directly participated in several investment opportunities with leading local and regional financial institutions in recent times that yielded above Nassau Prime returns, and returns more favourable than our current portfolio delivers. Through our in-house expertise, we have already been able to deliver quality service at reduced cost to NIB and we will continue to develop extended linkages locally and internationally to ensure a diversified and balanced portfolio that delivers maximum returns given the constraints that exist locally. Moreover, to ensure that we maximize the return on our portfolio, our internal strategy, exercised by NIB personnel has been to maintain at minimal balances the level of cash deposits with the Central Bank as these balances were not interest bearing and considered an inefficient use of NIB funds.

Local diversification of our portfolio can only happen within the constraints of the domestic investment market and NIB is of the view that the termination of contracts with the financial advisors in no way limits our ability to diversify our portfolio nor does it reduce the investment opportunities available to NIB. While we will no longer have these formal relationships, it does not eliminate the contacts and/or informal relationship and opportunities to optimize the performance of our portfolio.

Foreign investment opportunities will always continue to be an option for NIB, but we are also mindful that the current heavily concentrated local portfolio benefited NIB during the recent global financial crisis as the portfolio did not experience significant erosion in value due to having more international exposure. Moreover, we acknowledge that our investments are concentrated in Government debt issues as well as specific building projects used by the Government and its agencies. These investments have performed satisfactorily and are currently yielding above market returns, providing an opportunity for NIB to ensure that all of its surplus cash is utilized efficiently. The local investment market, including the financial services sector, cannot absorb NIB’s surplus cash nor can it consistently deliver above Nassau Prime returns. Additionally, in recent times, except for one investment opportunity that one of our investment managers did not make available to NIB, we have been able to effectively ensure that all contribution income is invested within our risk and return constraints including investments to The Bahamas Government, through our own internal initiatives. < /p>

NIB is cognizant that it operates in an environment where its investment activities have major impacts on the wider economy and is acutely aware of its fiduciary obligations are to its stake-holders. Its primary focus is to ensure that the fund’s assets are invested in a manner to achieve the required actuarial return to fund its benefit obligations. The recommendations from our Actuarial Consultant together with our own investment intelligence form the basis of our investment strategy and over our history; our portfolio has provided very satisfactory returns. It should also be noted that NIB regularly reports its investment activities to the Minister with responsibility and/or the Ministry of Finance where the responsibility for the fiscal policy of the Bahamas lie. Many of our investments do in fact require ministerial approval under the Third Schedule of the National Insurance Act.