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Cayman Ensures Bahamasfirst Model 'Makes Sense'

By NEIL HARTNELL

Tribune Business Editor

BAHAMAS First's 33-37 per cent market share meant it needed to diversify risk concentration outside this nation to "make our business model work in the long-term", its chief executive confirming yesterday that it has increased its stake in its Cayman affiliate to 83.48 per cent.

Patrick Ward, who is also Bahamas First Holdings' president, told Tribune Business that the Bahamian general insurance holding company had grown its equity shareholding in Cayman First from an initial 75.24 per cent following the latter's September 2011 rights offering.

Emphasising that its Cayman expansion was set to be "an even bigger benefit than before", Mr Ward also disclosed to this newspaper that Bahamas First was seeking to grow its marine insurance portfolio by attracting boats currently covered in the Florida market back to the Bahamas.

And, suggesting it was possible to match 2011's 10 per cent growth in the number of vehicles insured by Bahamas First this year, Mr Ward also told Tribune Business the insurer was "close" to its target of reducing equity holdings to between 25-30 per cent of its total investment portfolio.

The diversification provided by its 2010 entrance into the Cayman Islands general insurance market was vital in mitigating the $6.5 million hit Bahamas First suffered in this market last year via Hurricane Irene and assorted fire claims, events that dropped its 2011 net income 60 per cent year-over-year to $1 million.

And Bahamas First has increased its Cayman equity following last September's 'one share-for-every-two-held' rights offering by Cayman First, picking up 499,785 of the 500,000 new shares issued to increase its shareholding by 8.24 percentage points.

Noting that the Cayman Islands government was the only other substantial Cayman First shareholder, with a pre-right issue stake of 24 per cent, Mr Ward said all other investors owned collectively less than 1 per cent of the company.

"As we suspected, the government did not increase its shareholding, and outside that the rights offering would be mostly subscribed by Bahamas First," Mr Ward told Tribune Business, adding that with its enlarged 83 per cent stake, the Cayman affiliate would "be an even bigger benefit than before".

Mr Ward said the rights offering had initially been contemplated to bolster Cayman First's capital base ahead of a potential litigation-related claim that might be made on the company.

The size of that claim, though, was much reduced, but Bahamas First still felt it was "an appropriate time" to bolster its subsidiary's capital "with an eye to the future", given the Cayman Islands' developing capital and solvency requirements.

Explaining the rationale for Bahamas First Holdings' diversifying and expanding outside the Bahamas, Mr Ward disclosed to Tribune Business: "A company that has the kind of market share that Bahamas First does sees the benefits of diversifying more, probably, than a company with smaller market share.

"Our business model in relation to our size does not work on a long-term basis unless you diversify market risk. The concentration of market share does not make sense in the long-term."

Based on premiums written, Mr Ward told this newspaper that Bahamas First's average market share of the Bahamian general insurance market was between 33-37 per cent, and "in some lines it will be even higher".

Unveiling Bahamas First's plans to expand its marine book of business, Mr Ward added: "That's one product line where we feel we can actually grow, because the concentration factor is not the same as buildings or vehicles with fixed amounts of space.

"With the marine portfolio, the concentration of risk has different dimensions. There are a number of boats, private yachts that are utilising the Florida market as their insurance location. There are compelling reasons to do so, price and availability of coverage, but what we are looking to do is attract some of that market back to the Bahamas."

Bahamas First Holdings' investments portfolio, which totalled $38 million at year-end 2011, reduced equities as a percentage of total holdings from 39 per cent to 33 per cent over the year as part of a deliberate strategy.

"There are two reasons," Mr Ward explained. "One is that the method for solvency calculations, as prescribed by the Insurance Commission, favours other types of investment over equity investments.

"We also have certain thresholds we want to have in terms of the percentage of equity holdings as a percentage of the overall investment portfolio. We're working our way down to that level. We're close to it."

Mr Ward confirmed to Tribune Business that this "threshold" was in the region of 25-30 per cent of Bahamas First's total investment portfolio. He emphasised that it could be reached through either exiting existing equity holdings or reducing their weighting via other types of investments.

"The key is to have a balanced portfolio," he added.

Noting that Bahamas First saw a 10 per cent increase in the number of motor vehicles it insured in 2010, Mr Ward said it was "a possibility" that similar growth rates could be achieved in 2011, with consumers attracted to the insurer's 'value added' offering.

"What we've seen is that there are a number of attractions we offer that are very compelling for motor insureds," Mr Ward said. With police officers no longer necessarily required to attend the scene of an accident, he added that the company's First Response service "provides a replacement in some ways for that, and is an attractive feature for a lot of policyholders. We're finding that value added services are a major driver of choice".

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.

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