Published On:Friday, November 20, 2009

By NEIL HARTNELL

Tribune Business Editor

BAHAMAS First, the Bahamian general insurer, is poised to expand into the Caribbean through the acquisition of Sagicor General Insurance Company (Cayman), Tribune Business can reveal, in a deal likely to be confirmed imminently.

Insurance industry sources confirmed to this newspaper yesterday that a Letter of Intent for Bahamas First's purchase of the Caymanian company had been signed, and that the deal could be announced as early as today.

That was unconfirmed yesterday, though. When contacted by Tribune Business in Miami, Ian Fair, Bahamas First's chairman, replied: "It's premature for us to make any comment."

It was also unclear whether Bahamas First was acquiring 100 per cent of Sagicor General Insurance Company (Cayman) share capital, or just the 75 per cent stake held by its ultimate parent, Sagicor Life Jamaica. The latter holds its stake in the Cayman firm through its wholly-owned subsidiary, Sagicor Life of the Cayman Islands.

The purchase price is also unknown, although insurance industry sources expressed doubt as to whether Bahamas First would pay book value - or match the $15 million in net shareholder equity that Sagicor General Insurance Company (Cayman) had according to its 2008 year-end accounts - due to the fact that the company had performed relatively poorly in recent years and not been very profitable.

There were also questions as to why Bahamas First would seek to enter the Cayman general insurance market, given that property and casualty, plus auto rates, were falling.

This was coupled with the fact Cayman was viewed as having the highest risk profile in the Caribbean, given its relatively flat geography (storm surge exposure) and high concentration of development (meaning risk) in a small area.

Tribune Business was told that according to its 2008 financials, Sagicor General Insurance Company (Cayman) wrote $46 million of gross premiums that year, some 31 per cent of which were health premiums.

Insurance industry sources believe Bahamas First, which is solely a general insurer, will either sell or spin-off the health portfolio given that it does not fit its business model. Some 69 per cent, or $31.74 million of its premiums, were on the general side in 2008.

Still, the Bahamian insurance industry has been this economy's most aggressive sector when it comes to overseas expansion, and Bahamas First follows just several weeks behind BAF Global Group.

British American Financial's parent unveiled its acquisition of British American Insurance Company (Cayman) from the receivers earlier this month.

Meanwhile, some 24.2 per cent of the remaining Sagicor General Insurance Company (Cayman) share capital is understood to be owned by the Caymanian government, which effectively took over the firm in its previous guise, Cayman General, when the firm hit financial trouble as a result of enormous Hurricane Ivan-related payouts.

Tribune Business was told yesterday that it was widely understood that the Cayman government accepted a lower claims payout from Cayman General, $70 million instead of $140 million, in return for taking over effective control and its equity stake. Sagicor Life of the Cayman Islands then entered the picture two months after Ivan had passed, taking an initial 51 per cent stake in November 2005.

Patrick Ward, Bahamas First's president and chief executive, recently told Tribune Business that Bahamas First General Insurance Company will pass the "important milestone" of $50 million in capital by year-end.

General

He added that Bahamas First General Insurance Company, the main subsidiary of Bahamas First Holdings, was "tracking better than 2008" when it came to its bottom line net income for 2009, although the swing in the unrealised value of its investment portfolio remained a concern largely due to its substantial holdings of Commonwealth Bank stock.

Mr Ward said: "By the end of 2009, the capital of Bahamas First General Insurance Company will be in excess of $50 million, and the risk profile we have on the books will not be significantly different from the year before. "We will have a much more superior balance sheet capital position that we had the year before. That's an important milestone for us to have, $50 million in capital.

"We have followed a strategy in the last two to three years of increasing Bahamas First General Insurance Company's capital by not sending any monies to the parent via dividends. That, with good results, has allowed us to build up the capital of Bahamas First General to the level we enjoy today."

And Mr Ward said the company's financial performance for year-to-date was ahead of 2008, when Bahamas First General Insurance Company sustained an 86.4 per cent decline in net income to $1.656 million, almost entirely due to a $12 million swing into the red on the unrealised losses suffered on its equity portfolio.