The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The National Insurance Board (NIB) took a $10.026 million hit last year as a result of its loss-making investments in BISX-listed Bank of the Bahamas and Cable Bahamas.

The nation’s social security system, in its just-released annual report for the year to end-December 2015, revealed that the value of its combined holdings in the two companies has decreased by more than 50 per cent in just two years.

This fell from $60.202 million at the beginning of 2014 to $29.65 million at year-end 2015, largely due to NIB’s share of Bank of the Bahamas’ consistent, multi-million dollar losses.

However, the one-off accounting write-down associated with Cable Bahamas’ US operations, and increased preference share dividends as it invests for future growth, also resulted in NIB taking a ‘double whammy’ in 2016 through its $14.731 million loss.

NIB is the largest shareholder in Cable Bahamas via its 22.16 per cent equity stake, while it holds 28.21 per cent of Bank of the Bahamas’ voting shares, enabling it to classify both companies as associate investments.

While the $10.026 million loss acted as a drag on NIB’s ‘bottom line’, the social security system still managed to more than double total comprehensive income, which grew by 130.4 per cent from $11.5 million to $26.5 million.

However, a closer inspection shows that the improvement was largely driven by the removal of $11.2 million in National Prescription Drug Plan costs that were present in the 2014 financial statements.

NIB incurred zero such costs in 2015, with the annual report saying they were being “recorded as a receivable” - meaning a debt owed to it - from the Government. No explanation for this change was easily observable in the report.

Elsewhere, NIB increased its loan exposure to loss-making government entities by a further $9.9 million in 2015, as it took credit extended to the Water & Sewerage Corporation and the Broadcasting Corporation of the Bahamas (ZNS) to $15 million and $4.1 million, respectively.

The new $4.1 million loan to ZNS, extended in July 2015, was designed “to fund its infrastructural repairs and upgrades”. It appears to have been granted on very generous terms, with the 3.5 per cent interest rate more than one percentage point below Bahamian Prime, and a repayment term of 20 years - thus ensuring the monthly reimbursements are low.

Meanwhile, the Water & Sewerage Corporation received an extra $5 million that was priced at Bahamian Prime and repayable over 10 years.

This sum was seemingly intended to supplement an earlier $10 million loan designed to finance the construction of a wastewater treatment plant at Gladstone Road, which will serve the Baha Mar project whenever it eventually opens.

Some observers may question the appropriateness of such loans for a social security system whose prime obligation is to payout long-term (pension) and short-term (sickness, industrial) benefits to the Bahamian people, particularly the terms granted to ZNS.

Elsewhere, NIB’s total contribution income grew by 6.5 per cent year-over-year, rising to $260.5 million from $244.5 million.

This just outpaced the growth in benefit payouts, which expanded by 6 per cent to $258.8 million from $244.1 million.

“The increase can be explained partly by the July 2014 ceiling increase and additional efforts in the area of compliance,” NIB said of the increased contributions.

“Benefit expenditure also increased in 2015 with the natural annual growth in pension expenditure, coupled with the July 2014 pension increase. There was an increase in unemployment benefit payments in the last few months of 2015, mainly due to redundant employees in the hospitality sector [Baha Mar].”

NIB’s investment income for 2015 was up by 3.3 per cent at $68.8 million for 2015, compared to $66.6 million the prior year. Administrative expenditure was $47.1 million, slightly up from $46.3 million in 2014, although as a percentage of contribution income it dropped from 18.9 per cent to 18 per cent.

The rate of return on NIB’s investments rose slightly year-over-year, from 3.7 per cent to 4 per cent, while the total value of its investments declined slightly by 1.6 per cent - from $1.611 billion to $1.586 billion.

NIB’s total reserves rose by 1.6 per cent during 2015 to close the year at $1.725 billion, up from $1.698 billion.