Government injects more capital into CINICO

MLA Winston Connolly would like to see solar panels installed on the roof of the Government Administration Building. - PHOTO: CHRIS COURT

Cabinet approved an equity investment of $4.53 million into Cayman Islands National Insurance Company to raise the public sector health insurer’s capital base above the minimum level prescribed by the regulator.

Finance Minister Roy McTaggart revealed the payment in the Legislative Assembly on Nov. 14 as part of other “exceptional circumstance” transactions undertaken by government in the 2018 financial year.

All insurers must maintain adequate levels of capital to be able to satisfy their policy obligations and absorb potential losses.

As a Class A insurer, CINICO is required to meet prescribed capital requirements under insurance capital and solvency regulations issued by the Cayman Islands Monetary Authority to meet its insurance business commitments and adequately manage its risk.

CINICO’s capital fell below the prescribed capital limits this year, prompting CIMA to set a deadline, advising the insurer that it would not allow CINICO to remain below the capital requirements.

Minister McTaggart said that non-compliance with minimum capital levels exposed CINICO to high credit and liquidity risk that could negatively affect the insurer’s financial position and ability to pay for claims.

“Also, there was the possibility that CIMA could have imposed regulatory sanctions, including the suspension of CINICO’s license,” he noted. “The closure of CINICO would be detrimental to the country as CINICO provides health insurance coverage to over 15,000 members that include civil servants and their dependents, pensioners, seafarers, veterans and residents that have low income and those that have impaired health.”

Mr. McTaggart said, during the finalization of the 2018 and 2019 Budgets, CINICO had already advised it would need additional premiums from the government to cover the cost of civil servants’ health insurance.

Instead of revising the 2018 and 2019 budgets to include the increased premium costs across the various ministries and portfolios, government budgeted the increased cost of $4.3 million centrally within the Ministry of Finance and Economic Development, and then reallocated the costs to individual government entities during the financial year.

In the subsequent debate, East End MLA Arden McLean questioned why the payments were recurring and CINICO had fallen repeatedly below its capital requirements.

Minister McTaggart responded, if CINICO’s obligations exceed available funds, the insurer has to “eat into the capital” and take it below the required limits. It was up to government to restore the capital levels “from time to time” through equity injections.

Bodden Town MLA Chris Saunders noted that while private sector insurers made more than $100 million in profits during the past four to five years, government was stuck with losses each year.

Given that additional funds must be appropriated every year and the circumstances could therefore hardly be described as exceptional, he asked what government was doing to find a permanent fix.

Mr. McTaggart said his ministry, in conjunction with CINICO, was preparing a strategic analysis and understanding of CINICO and its operations and “whether what they do continues to be fit for purpose.” That process has begun in terms of defining the scope of the review, he added.

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