The Tribune

By NEIL HARTNELL

Tribune Business Editor

ROYALSTAR Assurance's $41.58 million capital base has given it an acquisition 'war chest', its managing director disclosing to Tribune Business that an attempted purchase in the Cayman Islands last year failed to "come off" due to differences over valuation.

Emphasising that the Bahamian general insurance underwriter was "not sitting back on our laurels and doing nothing", Steve Watson, who is set to step down from his post as RoyalStar's managing director after 13 years at end-June 2012, said it was "always looking" for growth and acquisition opportunities despite its conservative philosophy.

He added, though, that it was often "hard to find value" in potential targets, while also disclosing to Tribune Business that there had been some preliminary internal talks about taking all RoyalStar's investment assets and placing them in its wholly-owned subsidiary, RoyalStar Investments, which owns the insurer's new headquarters building on JFK Drive.

Looking ahead to RoyalStar's future, one without himself at the helm, Mr Watson told this newspaper: "Now that we've built a strong capital base, if we keep building it we'll be able to use that.

"If some opportunity comes along, such as a potential acquisition - and I'm purely speculating - we have the basis to make that acquisition without raising additional funds. And, if we need to raise additional funds, we'll be able to do so because we have the track record of consistent, stable profits."

Despite $1.4 million in net Hurricane Irene claims dropping its 2011 total comprehensive income by 15.7 per cent to $3.478 million, RoyalStar still managed to grow its retained earnings from $20.528 million at year-end 2010 to $21.581 million a year later, with total capital (net shareholders' equity) rising from $40.528 million to $41.582 million.

"We have more than adequate capital given the size of the business," Mr Watson told Tribune Business. "We're always looking [for potential acquisitions] but it's really hard to find value. If opportunities come our way, we're more than willing to explore them.

"We tried to make an acquisition in Cayman last year, and it did not come off. The valuation was a stretch and did not make sense. But if the right opportunity comes along, sure, the company will take a look at it."

Mr Watson declined to name the potential Cayman-based target of RoyalStar's interest. The general insurance underwriter has always had a presence in that nation since its days as Royal & Sun Alliance, and apart from the Bahamas underwrites risks in Turks & Caicos, too.

"We're not sitting back on our laurels and doing nothing," the RoyalStar managing director told Tribune Business. "We'd like to grow, but it's a matter of being profitable. If the opportunity presented makes sense, and doesn't impact the solvency and cash resources of the company, I imagine it would be considered."

Mr Watson previously told Tribune Business that RoyalStar had deliberately sacrificed growth for profitability, this strategy paying dividends over the past nine years through a quadrupling of its capital base and the return of some $16 million to its shareholders.

When it came to looking at other investments, such as real estate, Mr Watson said there was "talk of restructuring and putting all the investments into the investment company", RoyalStar Investments, but this was early days and no decision had been taken yet.

Meanwhile, Mr Watson confirmed that the regulator had given insurance carriers until June 2014 to bring their Board of Directors composition into line with the new Act and accompanying regulations.

He confirmed that there were two key issues, one relating to directors affiliated with the company itself, and the other being directors of insurance underwriters who were linked in some way to agents/brokers.

"Agents are not allowed to be directors of insurance companies," Mr Watson said. "We also had two independent directors, and one-third need to be independent. We rectified that at the recent Board meeting, appointing an additional independent director, and now we're fully compliant with respect to the Board of Directors."

While a reduction on the $4.127 million generated in the 12 months to end-December 2010, RoyalStar produced $2.478 million in underwriting profit in 2011 despite Hurricane Irene's $3 million gross impact, with the bottom line supplemented by $1 million in investment income.

RoyalStar received 271 claims, worth a collective $3 million gross, as a result of Hurricane Irene. The latter figure was "netted down" to $1.4 million, the Bahamian carrier's share of the payout, the remaining $1.6 million being borne by its reinsurance partners.

Without that $1.4 million net payout to its clients, RoyalStar would have been close to its annual target, generating total comprehensive income of close to $4.9 million for 2011 - a figure well in excess of the $4.127 million produced in the 2010 hurricane-free comparative period.

RoyalStar typically aims to generate $5 million in comprehensive net income in a catastrophe-free (hurricane free) year, representing a 12-13 per cent Return on Equity (RoE). Last year's RoE was 9 per cent.

While RoyalStar's top line, gross written premiums, increased by 6 per cent year-over-year in 2011, up from $60.445 million to $64.135 million, average written premium amounts on its motor insurance portfolio dropped by 7 per cent as consumers continued to shift in favour of 'third party' coverage.