ewart s williams : the importance of adequate capitalisation in the insurance industry remarks by mr ewart s williams, governor of the central bank of trinidad and tobago, at the signing agreement between guardian holdings limited and international finance corporation, port - of - spain, 1 december 2010. * * * i wish to congratulate guardian holdings limited on the consummation of this very significant relationship with the ifc. this new partnership should not only strengthen ghl ’ s balance sheet, but should redound to the benefit of the public by increasing the availability of insurance products to markets that are not currently well - served and in this list, i include, small businesses, micro - finance institutions and agribusinesses. over the past several months the insurance industry has been overrun by a chorus of bad news involving institutions in which the central bank has intervened. unfortunately, even with its potential for contagion, the current turmoil obscures an insurance industry with tremendous strengths and resilience. the subsidiaries of the guardian holdings group are an integral part of this structurally strong and resilient insurance sector. since its establishment in june 1996, the guardian holdings group has blossomed into an integrated financial services entity, covering life, health, property and casualty insurance, pensions and asset management. ghl has spread its wings throughout the english and dutch caribbean and is now listed on both the trinidad and tobago and jamaican stock exchanges. guardian life, the flagship company of the group is a major player in the life insurance sector accounting for 38 per cent of the market ’ s contract liabilities. guardian general has become the region ’ s largest indigenous property and casualty insurance company. as the largest general insurance company in trinidad and tobago, guardian general holds 26 per cent of market share and 21 per cent of total assets of the sector. among the many best - practices adopted by ghl is the annual review by a. m. best to assess the financial strength of its insurance subsidiaries and to ensure that the companies are in a position to meet their obligations to policyholders. in june 2010, a. m. best gave a rating of a – ( excellent ) for the financial strength of both guardian life and guardian general. according to best, the excellent rating reflected ghl ’ s improved balance sheet, the decline in total debt and lower intangibles following the write - off of goodwill related to its european property and casualty operations, and its adequate level of risk adjusted capitalization. in the case of ggil,

fixed income markets globally, and most easily in us treasuries, there is little in the way of term premia ( that is, return for holding duration ). there also appears to be very little uncertainty priced in about the movement in short term interest rates. at the end of last year, the term premia had started to rise, separate from any increased uncertainty about short rates, this separation was a good thing. but those premia have now fallen right back. my concern is that both of these will rise in concert, exacerbating the disruptiveness of the sell - off. in thinking about the magnitude and nature of any sell off, an important question to think about is who will take the other side of the trade? how far do prices need to go before someone is willing to take the position? those questions are always relevant but the answers may be different this time around. i will now turn to look at some pricing developments in the foreign exchange market where as i mentioned earlier, there has been some return to more normal levels of volatility in recent weeks. fx the main development in foreign exchange markets in recent months is that the us dollar has appreciated. this has been a long - awaited event by many market participants, including ourselves. a sizeable number of macro funds had lost a fair amount of money over the past bis central bankers ’ speeches year waiting for this event to happen. 1 why the us dollar stayed at its low levels for as long as it did, and why it finally started to appreciate when it did, has baffled many in the market. as keynes famously said, ‘ the market can stay irrational longer than you can stay solvent ’. a few well - known hedge funds came close to proving that proposition over the course of this year. the appreciation of the us dollar was not associated with any noticeable change in interest rate expectations in the us, and, in the case of the aud / usd exchange rate, there was no material change in australian interest rate expectations either. while the us dollar has appreciated, on a trade - weighted basis it is still not that far above its all - time lows reached in 2011. it has only appreciated by 4 per cent in the past few months, which is a small move in the history of swings in foreign exchange rates, where movements of up to 40 per cent have occurred. similarly, while the euro has depreciated in recent months, on a trade - weighted basis the euro is not