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Bahamas First Suffers $6.5m Bottom Line Hit

By NEIL HARTNELL

Tribune Business Editor

BAHAMAS First Holdings' (BFH) chief executive yesterday expressed concern about the "unprecedented" level of fire claims the general insurance group incurred in 2011, telling Tribune Business that together with Hurricane Irene-related losses these produced a collective $6.5 million bottom line hit.

Describing the 60 per cent year-over-year net income reduction that Bahamas First Holdings suffered as result of gross insurance claims hitting $58.8 million as "a pity", Patrick Ward, who is also the group's president, said the bottom line impact took the gloss off a year in which it achieved its second highest net underwriting income ever.

He added, though, that Bahamas First Holdings had been able to "contain" the net $6.5 million hit from the fire and Hurricane Irene claims, together with lost reinsurance commissions, to the income statement.

As a result, there was no impact on Bahamas First Holdings' capital at a group level, which closed 2011 at $44.5 million or $1.08 per common share, or at its property and casualty carrier, Bahamas First General Insurance Company. The latter ended the year with a capital level $6 million ahead of the minimum requirements set by the new Insurance Act and accompanying regulations.

And, looking ahead to 2012, Mr Ward said Bahamas First Holdings was confident it would enjoy "a solid year" subject to any catastrophe events such as hurricanes.

He added that with further consolidation anticipated in the Bahamian insurance market, especially on the agency and brokerage side, Bahamas First Holdings - well-known for being acquisition ready - would look to add its 100 per cent wholly-owned agency portfolio "if the fit was right".

Speaking to Tribune Business after the carrier unveiled a 60 per cent net income drop from $2.5 million the previous year to just $1 million for the 12 months to end-December 2011, Mr Ward said of the final outcome: "It's a pity, because we were having a very good year otherwise.

"If you look at the underwriting income, even with those extraordinary fire claims and hurricane claims, on a group basis is was $18.9 million, which was the second highest level ever since the group was formed.

"The net income, from a bottom line perspective, of the accumulated hurricane and fire claims was $6.5 million. If you add that $6.5 million back, that indicates the kind of year we would have had if not for those claims."

This implies that Bahamas First Holdings would have generated net income of around $7.5 million for 2011 if not for the 1,000 Hurricane Irene-related claims, together with losses incurred on fire claims resulting from blazes at Automotive & Industrial Distributors (AID) and the Betty K dock in downtown Nassau. The group's net underwriting income for last year was only surpassed by the $24 million it generated in 2010.

The AID fire, which burned down that company's Wulff Road headquarters, was described by Mr Ward as a "multi-million claim" and the single largest fire-related one he could remember.

He emphasised, though, that Bahamas First Holdings was worried about the increasing frequency and size of fire-related claims in the Bahamas, suggesting the problem was being exacerbated by poor water supply (fire fighting) and a rising number of old buildings needing repair.

"One of the things we're concerned about is the fire claims situation in the Bahamas," Mr Ward told Tribune Business, "because we have a number of aging commercial and residential buildings in need of a revamp from an electrical system perspective.

"There always seems to be problems from a water supply perspective, so that losses that could have been contained within certain limits end up being major fires. It's not just an insurance problem - people have fire-related losses going beyond the insurance recovery."

Mr Ward described the AID fire claim as "probably the single biggest fire we've had for some time. Certainly, in my memory I can't remember one as big as that". He was unable to quantify the size of the AID claim, saying a business interruption element still needed to be quantified.

On a positive note when it came to the claims impact, Mr Ward added: "We were able to contain it to an earnings event, so capital remained intact." From a Bahamas First General Insurance Company perspective, the group's underwriting arm was "$6 million ahead of the minimum requirement", while its Cayman First subsidiary was "ahead of where we need to be" in meeting that nation's capital requirements, which are currently being reviewed.

The $58.8 million in gross claims incurred by Bahamas First Holdings in 2011 was said by Mr Ward to be "entirely" responsible for the year-over-year increase in its combined ratio from 98 per cent to 103 per cent.

The group's expense ratio, though, fell from 37 per cent to 33 per cent last year, and the Bahamas First Holdings chief executive added: "We're expecting to see that go down" further in 2012.

Comprehensive net income attributable to Bahamas First Holdings' owners fell to $0.5 million in 2011, compared to $3.7 million in 2010, with consolidated net income per share down from $0.10 to $0.01. Gross written premiums only fell by 1 per cent to $152 million, while trade accounts receivables declined from $33.7 million in 2010 to $27 million last year.

Looking ahead, Mr Ward said of 2012: "We expect the underlying portfolio to perform well. We're very optimistic, subject to extraordinary claims events, that we're going to have a very solid year. We're very happy with the first quarter."

He added that the troubled Cayman First health portfolio, which was inherited via the acquisition two years ago, had turned around, while the prospect of listing Bahamas First Holdings on BISX set to be further discussed with shareholders at the May 24 annual general meeting (AGM).

When it came to complying with the new Insurance Act, Mr Ward said the group's only outstanding issue was the composition of the Bahamas First General Insurance Company Board between affiliated and non-affiliated directors - something the regulator has given the entire industry more time on.

"What we're trying to do this year is monitor events as they occur, as we still think there's some scope for consolidation in the industry, and there's likely to be some further developments along that road," Mr Ward added.

Agreeing that the agent/broker segment of the market was likely to see the consolidation, Mr Ward told Tribune Business that the group would consider acquisitions. "If the right fit comes along, absolutely," he said.

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