Camilo Thame, Business Reporter
Chairman of the National Insurance Fund, Easton Douglas (right), affixes his signature to the final copy of a construction contract financed by the National Insurance Fund, August 2005. With him is Horace Dalley, former Minister of Labour. - file
The National Insurance Fund suffered a $1.6 billion loss during the year to March 2006.
The loss would have led to the assets available for disbursements to beneficiaries declining by three per cent, if new contributions had not netted $4 billion.
In its annual report for the fiscal year ending March 31, 2006, the Labour Ministry noted that its income received from investments and other activities declined during the year owing largely to low increases in interest income of 4.2 per cent and the $1.6 billion loss.
"Of particular importance is a loss incurred on investments during 2005/2006 of $1.62 billion," was all the report said.
It remains unclear what caused the loss, but the fund's balance sheet at year-end pointed to a 40 per cent decline in the value of stocks listed on the local stock exchange - from $6.77 billion at the end of the 2004/2005 fiscal year to $4.84 billion - which it held in its investment portfolio.
Chairman of the fund, Easton Douglas, told the Financial Gleaner that the loss was not incurred as a result of the bearish mood of the stock market, which has been on a gradual downward slope since April of last year.
He had not confirmed the actual cause up to press time, yesterday.
According to industry sources, pension funds are generally guided by a simple principle - the returns on investments should at a minimum cover the expenses incurred in managing the fund and paying out benefits.
Less income
During the last fiscal year, the fund, which is managed internally, returned less income than needed to cover the $3.5 billion in pension benefits.
The overall deficit lead to a three per cent decline in assets from $39.6 billion to $38.5 billion. Net contributions totalling $4.1 billion pushed up the fund's total assets to $42 billion.
Over the previous four years, the NIF has managed to return from its investment more income than needed to cover its costs, creating a neat surplus, which policymakers have eyed over the years for reallocation to pet projects.
Prime Minister Portia Simpson Miller, the most recent one, reallocated $1 billion for small business projects earlier this year, the same year when the $1.6 billion loss was incurred.
Annual contributions aside, the net assets of the fund increased by nine per cent on average each year between 2001 and 2005.
Although not too modest an increase, some analysts remain sceptical about the make-up of the NIF portfolio, of which more than 70 per cent is in bonds and government paper.
"Seventy per cent is probably normal within this environment but not prudent," cautioned one analyst.
"Jamaica is very young, the average age is in the thirties, therefore, a significant number of people will be retiring in another 30 years. The managers of the fund really should have more invested in higher returning instruments now."
Of the 2.65 million people residing in Jamaica, 72 per cent are under the age of 40, while persons of age eligibility (65 for men and 60 for women) for NIS benefits total 236,000 or nine per cent of the total population.
camilo.thame@gleanerjm.com
NATIONAL INSURANCE FUND: SCHEDULE TO INVESTMENTS AS AT MARCH 31, 2006
| Unaudited | Audited | | 2005/06 | 2004/05 |
| $'000 | $'000 |
| Mortgage Loans | 5,243 | 8,349 |
| Other Loans and Promissory Notes | 2,296,581 | 2,322,494 |
| Quoted Ordinary Shares | 4,844,788 | 6,765,807 |
| Jamaica Local Registered Stock | 12,869,649 | 10,617,236 |
| Unit Trust and Giltedge Fund | 231,965 | 249,393 |
| GOJ Repurchase Agreements | 4,969,886 | 3,058,042 |
| Foreign Currency Bond and Deposit | 5,866,936 | 5,276,323 |
| Investment Debenture | 3,610,915 | 4,641,602 |
| GOJ-Land & Infrastructure Bonds | 1,200,400 | 1,200,400 |
| GOJ-Investment Bond | 1,433,586 | 479,988 |
| GOJ-Local Registered Bond | 400,342 | 178,997 |
GOJ-A/C Receivable | 135,707 | 169,633 | |
GOJ-Treasury Bills | - | - |
| Investment Properties | 3,471,220 | 3,456,716 |
| TOTAL | 41,337,218 | 38,424,980 |
