The Tribune

By NEIL HARTNELL

Tribune Business Editor

THE Insurance Advisory Commission's (IAC) chairman yesterday predicted that consolidation will occur among Bahamian general insurance carriers within the next two-three years, arguing that the industry's 2011 average Return on Equity (RoE) of 3.6 per cent meant "there must be some unhappy players".

Addressing a Bahamas Institute of Chartered Accountants (BICA) seminar, Chester Cooper said regulatory pressures and the need for cost cuts would drive consolidation across the Bahamian insurance industry, not just in the general (property and casualty) underwriting sector.

He said: "When I joined the insurance industry 10 years ago there were about 10 life insurers. Now there are three main players remaining, serving 300,000 persons. I am of the view that there will be further consolidation in this sector.

"Further, on the property and casualty side, there remain six or seven companies. With average ROE around 3.6 per cent for 2011, you don't have to be a chartered accountant to deduce that there must be some unhappy players here. My firm prediction is that there will be consolidation within the next 24-36 months."

With regulatory pressures forcing Bahamian insurance industry players to switch their focus from sales to compliance, Mr Cooper, who is also president and chief executive of BAF Financial & Insurance, said companies would increasingly focus on achieving greater efficiencies and cost savings to compensate for "a flattened bottom line".

"The search for these efficiencies will force more centralising of back office functions as well as mergers, with the expressed interest of massive cost cutting," Mr Cooper said.

"Cost and the pressure of regulations will also result in further consolidation of small sole proprietorship and family-owned agencies. It is conceivable that there will remain a few large corporate brokers and a few boutique players. There will be further consolidations."

In a thinly-veiled reference to Scotiabank (Bahamas), and its ambition to enter the Bahamian insurance market, Mr Cooper told BICA members that the trend of "local banks becoming more interested in insurance has caused some consternation among insurers and intermediaries".

He added: "A particular bank, for example, is pushing their way into insurance without fully following what is viewed by insurers as the "standard rules of engagement". In this regard there needs to be regulations here to protect consumers from what may be viewed as anti-competitive practices."

Elsewhere, Mr Cooper described as "a bit of an anomaly" the fact that Bahamian insurance carriers paid almost $16 million in collective taxes to the Government in 2011 - a sum almost as large as its total $17 million net income.

Noting that 1,200 workers were employed in the life and health insurance segment, and the same number in general insurance and intermediaries, Mr Cooper said the net income was split between $5 million generated on the general side and $12 million by life and health carriers.

The Bahamian general (property and casualty) industry accounted for $300 million in premium income in 2011, Mr Cooper said, with life and health premiums totalling $250 million. Some $80 million worth of claims were submitted to Bahamian general insurance carriers last year, and $225 million to their life and health counterparts.

On the capital side, the Bahamian general insurance category had $142 million at end-2011, and the life and health segment $275 million. The life and health insurance industry has just under $1 billion in total assets.

Noting that BAF Financial had expanded into the Cayman Islands and Turks & Caicos, and was looking into other markets for growth opportunities outside the Bahamas, Mr Cooper described Latin America as "a prime target" for Bahamian insurers.

He said: "The offshore insurance sector, which has shown great returns for Cayman and Bermuda, will attract new interest as domestic insurers seek to export locally grown expertise, while expanding their reach and portfolio beyond the borders of the Bahamas. Our educated workforce, and mature legislative and regulatory framework, will play positively into this trend."

Mr Cooper also warned that the mechanisms for delivering insurance to Bahamian consumers would change, with this nation one of the few where it is mandated that it be sold only by intermediaries.

Social media, he added, was set to play a key role, with legislation permitting e-signatures ultimately coming to allow the "straight through processing" of insurance applications.