By NEIL HARTNELL
Tribune Business Editor
Insurance Company of the Bahamas (ICB) yesterday said it was “not too despondent” over 2011’s 70.5 per cent drop in net income, telling Tribune Business its $1.16 million bottom line was
“pretty reasonable” in a year when it incurred $13 million in gross catastrophe claims.
Tom Duff, ICB’s general manager, told this newspaper that in common with all other Bahamian general insurance underwriters, its 2011 results were impacted by claims incurred from Hurricane Irene and the two major fires that hit Bay Street.
Despite these ‘catastrophic’ events resulting in ICB suffering net claims (its share of the insurance payout) totalling $1.6 million, Mr Duff said ICB’s net income represented a 5.3 per cent return on capital.
But he, in common with other Bahamian general insurance industry executives, is anticipating a tough 2012, with top-line gross written premiums likely to remain “flat” and real recovery not occurring for another two-three years.
“If you look at the cost of Hurricane Irene, plus our share of the various fires, you’re looking at $13 million in gross claims,” Mr Duff told Tribune Business. “Some $6.7 million came from Irene, and $6.3 million from the fires, at a gross level.
“Taking that into account, and that our net share of those claims was about $1.6 million, if you add that back into the equation we’d have been pretty close to Budget for the year had those exceptional items not happened.
“Having said that, in a bad year for the industry, a challenging and disappointing year for the economy, we were able to produce net income equivalent to a return on capital of over 5 per cent.”
Despite ICB’s net income declining year-over-year to $1.16 million for the 12 months to end-December 2011, compared to $3.937 million for 2010, Mr Duff added: “Every so often, because of the nature of the business we’re in, we have years like this. We’re not too despondent.
“It’s still pretty reasonable in a difficult year. 2010 was an exceptional year, a banner year for trading profits, so we did not expect that in 2011. We would have been close to budget if not for exceptional items. Our results are pretty similar to what you will have seen with our major competitors.”
ICB is the general insurance underwriting carrier through which J. S. Johnson, the BISX-listed broker and agent, places much of its property and casualty business, and Mr Duff predicted that 2012 would “be another challenging year”.
This, he explained, was due to the continued headwinds being experienced by the overall Bahamian and world economies. “Disposable income is still under threat because of unemployment and rising fuel costs,” Mr Duff said.
“That’s going to keep insurable income at fairly flat levels for the industry, and most companies will be looking to achieve flat premium income as a general target. We’re looking at two-three years down the road before we see a general economic recovery.”
Like its competitors, Mr Duff said ICB’s motor insurance portfolio had “come under pressure” during the last few years due to Bahamians holding off on new car purchases, switching from comprehensive to cheaper third party coverage, and the higher duty rates imposed on new vehicle imports.
There was better news elsewhere, with the ICB general manager adding: “Our marine business has achieved some healthy growth, particularly on the hull side, and we’re looking forward to continuing that.”
Noting that ICB’s financial performance, together with the industry’s, depended on the Bahamas avoiding catastrophic events such as hurricanes, Mr Duff said that absent the likes of Irene in 2011 there was “a good opportunity for companies to achieve budget, and we expect that to be the case this year.
“While insurance companies might be squeezed by the economy, if we can avoid the catastrophe losses we will still be in position in 2012 to make reasonable returns for our shareholders - certainly better than in 2011.”
Writing in ICB’s 2011 annual report, Mr Duff said the year’s gross written premiums had increased by 2 per cent year-over-year to $42.714 million, compared to $41.91 million in 2010.
He added: “ICB’s statement of financial position was well able to withstand the losses produced by Irene, since the company has been able to produce healthy trading profits over the previous five years.
“At a total gross cost of $6.7 million, losses from Irene severely depressed our underwriting result for 2011, and this was compounded by higher than expected loss ratios in all our main lines of business.
“Nevertheless, the company was still able to produce a bottom line trading profit of $1.16 million. This represents a return on capital of 5.3 per cent, which is not unreasonable in a year in which the company suffered a major hurricane loss.”