Last year was pretty dicey for many businesses. For some it was even an out-and-out nightmare. Not so for NCB Insurance. Pension fee income climbed almost 50 percent and overall profits soared almost 140 percent from JM$711m to JM$1.692bn. While the Jamaican pension market looks set to consolidate further, 2010 gives every sign it could be another bumper year for NCBIC. Strong cost management is keeping overheads down – good for operational profitability and lower client fees. And considerably beefed-up market regulation is also positive reinforcement, supplying much-needed confidence in this very competitive market. NCB’s own underlying assets are robust and clearly transparent.

How long have you been established, how many people do you employ and what makes you different?
NCB Insurance Company Limited (NCBIC), formerly OMNI Insurance Services Limited is a subsidiary of the financial giant, National Commercial Bank Jamaica Limited: a company that has maintained roots in Jamaica for over 170 years starting as the Colonial Bank of London in 1837.

2010 will mark 21 years since NCB Insurance Company opened its doors. Under our original name, OMNI Insurance Services Limited, the first bancassurance product was introduced to the Jamaican market in 1989 with the launch of our flagship long term savings and investment insurance product – OMNI.

NCBIC entered the pension funds management business in 2007 through the transfer of the pension portfolio from our sister company, West Indies Trust Company Limited (WITCO) who up to this point had provided this service to the Jamaican market for over 40 years. We are the largest segregated pension funds manager in Jamaica with pension funds under management of approximately JM$42.5bn at the end of our last financial year, September 30, 2009.

In addition to pensions and bancassurance products, NCBIC offers annuities, creditor life insurance, group life insurance and other individual life insurance products.

We currently have 122 employees including sales representatives.

We are different from our main competitors in that we primarily offer a premium service through our focus on segregated funds management (both on a credited interest rate and unitised funds bases). The main competition offers mostly pooled pension funds management.

NCBIC also offers a personalised service to our pension funds clients through dedicated client relationship officers who are highly knowledgeable on pension regulations and pension administration in general.

How has your pension portfolio and company profit growth performed in the last year, and why?
NCBIC’s pension portfolio performed well in the last financial year. Our fee income increased by 46 percent from the year before and was 26 percent better than budget. The pension business line (including annuities) contributed approximately 23 percent to the company’s overall profit of JM$1.7bn for the year.

Overall company profits grew by 138 percent from JM$711m at the end of September 2008 to JM$1.692bn at September 30, 2009. This performance was largely driven by:
»    significantly improved interest income from our bancassurance business
»    significantly improved pension fee income
»    strong cost management  

Tell us about the pensions market in Jamaica generally – how developed is it?
Based on recent data from our regulators, assets under management for superannuation funds (both Defined Benefit and Defined Contribution) currently stands at approximately JM$215.5bn (this represents pension funds that fall under the Pensions Act 2004). Unfortunately this represents pension benefits for less than 10 percent of the workforce. This means that most of the employed labour force in Jamaica has no formal retirement plan in place.

Having said that, with the introduction of Approved Retirement Schemes (ARS) early in 2009 we expect this to change gradually, as more persons will have the opportunity to take advantage of a formal retirement plan. Under the new regulations, individuals can now save up to 20 percent of their income in an ARS. This has created a flurry of activities including launch of several new products from a number new entrants to the pensions planning market, to public education programmes sponsored both by providers and the regulators. This has raised the level of awareness to a much higher level than existed a mere 12 months ago.  

For Jamaicans, what brand values does NCB Insurance communicate to them?
NCBIC is the company that helps you to meet your needs. We help our clients to prepare for life by providing sure money at the right time; whether this be to satisfy a long term investment need; for a child’s education; for retirement income; financial support for critical illness or life insurance coverage.

How competitive a market place is it?
The market has always been highly competitive as all the main life insurance companies offer pension funds administration and investment management services. In addition, prior to 2006 when the Financial Services Commission (FSC) introduced regulations to govern the pension funds industry there were many self managed funds. Convincing sponsor companies that we (professional, pension fund managers) could do a better job of administering the business for them was always extremely difficult as they preferred to retain control.

In early 2009 the FSC started to approve individual retirement plans (an alternative to superannuation funds) and this has made the market even more competitive still, allowing a much wider range of institutions to take part in the pensions business. With the introduction of ARS, not only are we competing with other insurance companies but securities dealers and credit unions can now obtain licenses to offer both pension administration services for superannuation funds and ARS.

Of course, from the client’s perspective this is a good thing as they now have a wide range of options to choose from.
 
Typically what is a good example of a product from your own pension portfolio? How popular is it proving?
Currently superannuation funds are the main products available and Defined Contribution (DC) plans are now the preferred option. Sponsor companies have moved aggressively away from defined benefit plans in recent years with the industry seeing several windups in favour of conversion to DC plans.

Though early days, we expect that ARS products will become more popular even for companies, as many smaller firms are likely to take this more cost effective less complex approach to providing pension benefits for their employees.

What about fees – how are you keeping these down for clients?
For NCBIC our fee structure is generally based on fund size, contribution levels and activity levels. We believe that we provide a premium service at a very competitive price and we review our fees every two years.

Of course we practise strong cost management which ultimately means less cost to pass on to our customers.

Do you employ a network of IFAs to support you – or is commission/sales- based?
Currently we rely on a small team of salaried business development and client relations officers to seek out new business and maintain relations with our clients. We constantly monitor the market for opportunities to tender for new business. These sometimes come to us through direct requests from employers, newspaper invitations to bid and we also leverage our NCB Group network for referral opportunities.

With the upcoming introduction of our ARS we will be utilising our insurance advisor sales team located in approx. 40 locations island-wide (in conjunction with our business bankers from our parent company) to identify opportunities for new business from individuals and small companies.

What about legal or regulation hurdles or challenges for the pension fund industry in Jamaica. How evolved are these? Do you envisage more legislation en route?
Prior to 2004 the pensions industry was largely unregulated. However with the introduction of the Pensions Act in 2004 and the Pensions Regulations in 2006 the entire landscape has changed. The industry is now highly regulated requiring licensing of pension administrators and investment managers as well as registration of superannuation funds, retirements schemes, trustees, appointment of actuaries and auditors etc. 

This was a welcomed change and while there have been teething pains in implementation the overall governance has improved dramatically. 

Yes, additional regulation is anticipated particularly in relation to locking in contributions in superannuation funds and vesting. As well, further synchronisation between the Pensions Act, the Income Tax Act and the Banking Act is expected in respect of tax exempt income and limits for foreign currency investments for pension funds, respectively.

How do your clients ensure they choose the right product for their own circumstances?
In our context the client’s choice would be mainly applicable to an ARS. We expect that once we enter this market a client’s choice of what type of fund to invest their pension contributions in and in what proportion will be based on their risk profile, planning horizon and retirement income needs. Our sales team has been trained to advise customers based on these factors, providing illustrations on projected returns for a proposed portfolio mix and therefore will guide customers through these decisions. 

In case of superannuation funds in Jamaica, product type (DB/DC) and investment portfolio mix are purely determined by the trustees and investment managers, hence the plan member has no real discretion in this regard.

You must be aware of the pension mis-selling scandals that have tainted other countries – what safeguards do you put in place to ensure your customers are not mis-sold a pension?
Well, we feel strongly that the marketing collateral which regulations require must be provided to prospective clients will guard against this. Also the threat of penalties which can be imposed by our regulators, including revocation of license, dictates that we must constantly monitor marketing/sales conduct of our sales team to ensure that customers are sold according to their real needs.  

In addition our offerings and the possible underlying assets are a lot less complex than some of those offered in other territories and this alone makes this potential less likely.

What new products are you introducing in the next 12 months?
All systems are in gear for the launch of a new ARS in the coming weeks. This product will be targeted at persons who do not have the option of a superannuation scheme. We also anticipate that small companies will find this a more affordable option as the administration costs associated with employer sponsored superannuation funds can be quite high and the regulatory reporting quite onerous.

We also plan to develop at least one other insurance product targeted at the employee benefits market. This will be good for bundling employee benefits. Since the 1990s the Jamaican market for insurance products (especially for employee benefits products) has become very focused around two main insurance companies. Employers are now actively looking for options.

Where do most of your assets tend to be invested? Europe? Asia? Property? Blue chip stocks? Growth or value stocks?
We operate on a segregated fund basis therefore each pension portfolio is tailored to the particular client’s risk appetite and their pension liability profile. In determining the recommended asset profile for each pension fund we would examine the historic and projected membership data and test for an appropriate yield/term tradeoff. Our clients mainly consist of local companies which are governed by the Jamaican pension regulations and this limits the investment arena for those clients.

In general, most of our clients opt for a mix of risk-free bonds (40-60 percent), local blue chip stocks (20-40 percent) and local real estate (15-25 percent). Overall, our aggregate portfolios reflect a larger than 70 percent holding in long-term government bonds and other fixed income instruments (mortgages, leases) with real estate and quoted stocks more or less evenly sharing the remainder.

How financially strong is NCB Insurance?
We would say that NCBIC is very strong financially. From a regulatory solvency point of view, NCBIC has for the past five years maintained solvency ratios in excess of two times the regulatory requirement.  We have also maintained a high level of earnings growth and high profitability ratios. We would say that, while we are a fairly small insurance company we are also one of the most profitable.

What opportunities do you envisage seeing in the next year?
We see increasing opportunities in extending our service delivery to our pension clients, we have been working very hard at improving our internal efficiencies and we see significant potential still untapped in several areas related to that line of business. On the insurance side we are looking at more vigorous marketing of our annuities and credit insurance products, we also see market potential in our “instant issue” life products which are attractive to persons seeking lower coverage without the time delay that traditional underwriting presents for the customer.

Further we expect to launch our new ARS product targeted at the self employed, professionals and others who are not members of superannuation schemes.

What about your corporate governance structures – how robust are they?
As an insurance company regulated by the Financial Services Commission and being a subsidiary of a commercial bank governed by the Banking Act, supervised by the central bank and publicly traded, NCB Insurance is compelled to practise strong corporate governance. This means we have in place a number of regulation mandated Board Committees including:
– Conduct Review and Corporate Governance Committee
– Audit Committee
– Investment and Loan Committee

These are constituted in accordance with regulatory requirements (e.g. a specific number of external vs. internal directors) and supported by management committees (e.g. Asset Liability Committee, Investment Management Committee). All committees operate in accordance with documented policies and procedures and terms of reference, and are required to report to the board on a quarterly basis.

NCB insurance is further supported by a strong parent company (NCB Group) structure with oversight from different areas including risk management, group treasury, group compliance, general legal counsel etc.  
The conduct review and corporate covernance plays a  strong role in monitoring issues like related party transactions to ensure that these are in accordance with regulations and can stand the test of sound corporate governance.

How many assets do you have under management?
As of September 2009 our pension assets portfolio was approximately JM$ 42,557bn. At the same date our corporate investment portfolio was approximately JM$22,435bn.

Where will NCB Insurance be in five years time?
NCB Insurance’s bancassurance products (OMNI and OMNI Educator) are household names. In five years we expect to achieve this same dominance for our individual retirement product which will be launched shortly and in fact for all products offered by NCBIC.  

We also expect to continue our profit trajectory year on year, continuing to build a company known for its strength, expertise and innovation.