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Report: NIB must diversify from investing in govt bonds

The National Insurance Board (NIB) needs to expand its investment portfolio beyond government securities and small foreign bonds, a recent actuarial report said.

Earlier this week, Guardian Business reported that the Eleventh actuarial valuation of the National Insurance Board as of December 31, 2018 recommended that NIB develop clear financing and funding objectives in order to ensure the sustainability of the fund and its obligations to deliver benefits.

But with government bonds representing the majority of NIB’s investments, and less than ten percent in overseas investment, the actuarial report said diversification is a way of reducing the overall risk of the portfolio, and can be carried out in both the local and foreign portions of the portfolio.

“The current assets portfolio has about 60 percent in government securities or related investments. This is a high concentration in one type of risk exposure, and the investment policy should address this issue. Recently, in July 2014, about BSD$130 million of finance leases have been renegotiated downward with the government. Debt restructuring can considerably affect a social security scheme, where a large proportion of the portfolio is invested in government securities,” the report said.

“A more detailed risk analysis should be included in the investment policy. Considering the relative size of The Bahamas’ investment market, the allocation of investments outside the country could be increased to improve diversification. As at December 2018, around seven percent of investments were in outside bonds, notes and equities.

“This low figure shows that there is room to invest overseas in private equities, real estate, infrastructure investments and emerging markets. Where investments are made in foreign currency, the fund may be subject to currency risk. If the NIB decides to invest more heavily in foreign currency (or to maintain the present proportion of its assets in foreign currency) it may be appropriate to adopt strategies to manage the currency risk.”

Actuarial scientists said in the report that in order to restore the short- and medium-term financial sustainability of NIB, an increase of the contribution rate by 2 percent (over the existing 9.8 percent) every two years starting on July 1, 2022 and ending on July 1, 2036 is needed.

They said this increase should happen alongside the development of clear financing and funding objectives to sustain the fund in the long term.

Prime Minister Philip Davis maintained earlier this week that his administration will not increase the rate of contribution at this time because of the strained economic climate.

Financial experts have long called for the government to look at ways to diversify NIB’s investment opportunities in order to strengthen the fund.

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Paige McCartney

Paige joined The Nassau Guardian in 2010 as a television news reporter and anchor. She has covered countless political and social events that have impacted the lives of Bahamians and changed the trajectory of The Bahamas. Paige started working as a business reporter in August 2016. Education: Palm Beach Atlantic University in 2006 with a BA in Radio and Television News

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