The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian homeowners and businesses are unable to absorb further increases in catastrophe-related property insurance premiums, a leading insurer acknowledged yesterday, as the industry kept a wary eye on Tropical Storm Isaac’s potential impact on the US Gulf Coast.

With reinsurance costs possibly coming under pressure once again if Isaac causes substantial damage in the New Orleans area, Patrick Ward, Bahamas First’s president and chief executive, said the fact that Bahamian properties were better able to withstand such storms was often negated by limited market capacity.

Although Bahamian building codes were much stricter than in many other Caribbean states, even Florida, this in theory reducing storm damage risks, Mr Ward said the market’s “beauty contest” characteristics meant this nation needed to offer reinsurers the same potential returns as the neighbouring US state to induce them to provide coverage.

“I think it [Isaac] is something we need to be aware of, and at least keep a close eye on because if it impacts New Orleans in the same way as Katrina did, there could be a significant knock-on effect for insurance premiums in 2013,” Mr Ward told Tribune Business.

“That’s on the back of increases we’ve been seeing from January to April to July. Reinsurance increases have been implemented on a fairly progressive basis for catastrophe-related property premiums.”

Due to the large quantities of reinsurance bought annually by Bahamian property and casualty underwriters, and increase in these premiums are inevitably passed on - to some extent - to local homeowners and businesses in their premium prices.

Mr Ward, though, said it was still “hard to say” if Bahamian insurers would face an increase in reinsurance costs when they went back into the market in late 2012 for 2013 coverage.

He added that if Isaac and other future storms were “pretty benign” and inflicted no substantial insured losses, and there were few catastrophic events elsewhere in the world, “our expectation is there will be no significant effect for 2013”.

That would be just as well for Bahamian homeowners and the private sector.

“I think it would be difficult for the market as it currently is to absorb additional increases, and that’s primarily driven by the fact the overall economic environment is not conducive to price increases,” Mr Ward told Tribune Business.

“Regardless of what the true technical rate may be, I think Bahamian businesses and homeowners would find it very difficult to pay further increases.

“We’re very cognisant of that, and so anything that can be done to mitigate the potential impact of further increases we do.”

Acknowledging that the Bahamas was at less risk of suffering hurricane losses than many Caribbean neighbours and parts of Florida, the Bahamas First chief added: “The damageability of homes in the Bahamas is less than in other places in the region, no question about that.

“But one has to look at how prices are derived. You’re talking about a commodity that has limited supply.

“When reinsurers determine where to put capacity, they assess the level of return depending on the level of claims anticipated in a certain period of time.”

Mr Ward added: “The Bahamas is so close to Florida, we’re put in the danger zone, so to a large extent we have to show we represengt the same risk profile as businesses and homes in Florida to justify this capacity being put in the Bahamas as opposed to Florida.

“If you remove that element, the Bahamas scores very well on damageability, but you’re talking about finite capacity being made available by a limited number of players, and they have to make a decision where to put that capacity every year to get the best return. It’s a beauty contest.”