The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FamGuard Corporation’s insurance agency subsidiary is expanding via the acquisition of a rival Nassau-based agent, Tribune Business has been told, with the BISX-listed insurer shrugging off a sharp 64.8 per cent annuity decline to post a slight half-year profit increase.

Patricia Hermanns, FamGuard’s president and chief executive, told Tribune Business that the company was “feeling pretty confident” about its likely 2012 second half and full-year performance after posting a 2.6 per cent net income increase for the six months to end June 30.

While reluctant to disclose details, Ms Hermanns told Tribune Business that apart from enhancing its life and health insurance offerings with new products and upgrades, FamGuard’s agency business, FG Insurance Agents & Brokers, was on the verge of completing an acquisition.

“It hasn’t yet been announced, but we have expanded by the acquisition of another agency. That is imminent,” she told this newspaper. “It should be announced soon, but we are expanding our brokerage entity by acquisition.”

Indicating that the purchase was awaiting regulatory sign-off by the Insurance Commission of the Bahamas, Ms Hermanns confirmed that FG Insurance Agents & Brokers was acquiring another New Providence-based agent/broker, although she declined to name the company.

“It will cetainly allow our premium to expand a bit more rapidly,” she said of the deal, adding that FG Insurance Agents & Brokers would inherit the other company’s client portfolio.

FamGuard thus becomes another major player to enter the consolidating insurance agent/broker market in the Bahamas. To date, Bahamas First has led the way in this field, taking over agencies that have written business exclusively for it, and which it has held first option on, when existing owners decide to exit or retire.

Consolidation has been aided by the new Insurance Act and accompanying regulations, which have imposed increased capital and other requirements on agents and brokers. “With the new insurance regulations, I’m sure that [consolidation] will be one of the things that occurs,” Ms Hermanns agreed.

FamGuard, the holding company for Family Guardian, the life and health insurer, saw its half-year bottom line rise from $2.405 million in the same period in 2011 to $2.467 million this time around. The improvement was driven largely by a 9.5 per cent drop in net policyholder benefits, which fell by over $3.5 million to $34.004 million, compared to $37.565 million the year before.

This more than offset the 6.4 per cent drop in net premium income and annuity deposits, which dropped from $50.134 million during the 2011 first half to $46.935 million this time around - also a decline of more than $3 million. FamGuard’s total income for the 2012 first half fell 5.6 per cent - from $55.95 million to $52.926 million year-over-year.

The first half figures, though, somewhat ‘disguised’ a second quarter performance that saw net income fall 24.5 per cent for the three months to end June 2012, hitting $1.193 million as opposed to $1.579 million last year.

The top-line and total income declines were driven by an-almost two-thirds decline in annuity deposits, which fell from $9.1 million at end-June 2011 to $3.2 million at the same point this year.

Ms Hermanns told Tribune Business the decline was due to May 2011’s cut in the Bahamian Prime rate, to which all annuity deposit rates are linked. When Prime fell, annuity rates did likewise, and they became a less attractive fixed-income investment option.

“Our rate depends on what Prime is, so we reduced the rate on annuities, which slowed the growth,” she explained. “That’s money looking for the best return. We had the reduction, which shows the change in annuities from one year to the other year.”

Despite this, Ms Hermanns said FamGuard’s 2012 half year and second quarter results were “reasonably close” to its internal projections. She added that growth in the company’s life and health premiums “continues at a good pace”, and had helped to offset some of the annuities decline.

“Our business is performing reasonably well,” Ms Hermanns told Tribune Business. “We’ve had the opportunity to see our numbers for two months after the quarter end, and are reasonably comfortable. Our numbers are continuing to show positively, and we continue to grow.

“I don’t like to make predictions from year to year, because so many things can intervene, but in terms of trends we are feeling very good about what we are seeing. At this point, we feel pretty confident in terms of the performance compared to the prior year.”

In a nod to one of the factors that influenced A. M. Best, the insurance credit rating agency, to downgrade FamGuard earlier this year, namely the weighting of mortgage assets in its investment portfolio, chairman Norbert Boissiere, in his message to shareholders, said this asset’s share had been reduced in favour of government and corporate bonds.

Since year-end 2011, mortgages as a share of total investment assets had been reduced from 39.4 per cent to 35.9 per cent of the $178.447 million portfolio, with non-performing mortgages - at 7.4 per cent of such loans - “considerably below” industry average.

Mr Boissiere added that FamGuard’s minimum continuing capital and solvency ratio (MCCSR) had improved since year-end 2011, while over the same period its total assets had risen $8.7 million or 3.9 per cent to hit $231.5 million.

Elsewhere, Ms Hermanns said FamGuard was seeking to enhance both its life and health insurance products by year-end or the 2013 first quarter at latest. “We’re looking to enhance some of our product levels, and add a few products, which we hope to complete before the end of the year,” she said.

“They are in the area of life insurance, and we are also looking toward some product enhancements in our health portfolio, which we are hoping to be well advanced on this year.

“All of our products have to be approved by the Insurance Commission, so there’s an element of time there that we don’t control. Our focus this year, into the first quarter next year, is to really improve our product line-up, enhance it to some extent, and to enhance performance and service levels.”

Ms Hermanns said FamGuard’s approach to its health portfolio, repricing premiums annually if necessary to bring them more in line with risk, had “to some extent” aided the reduction in net policyholder benefits during the 2012 first half.

She added, though, that FamGuard expected to reap further benefits through its tie-up with Aetna as its third-party healthcare provider. “We’ve had a change in third party administrator to Aetna, so we are seeing the benefits in terms of access to the provider network in the US,” Ms Hermanns said.

“We’ve seen some improvements there, and as we continue to work through the transition with Aetna we’re hoping the improvement will continue. It’s a stronger network, and on a volume basis they’re operating at a significantly higher level than the company we had previously utilised. They bring that to the table, which has benefited the health portfolio.”

Ms Hermanns added that FamGuard was “about 90-95 per cent complete” on the installation of its new health portfolio software system, which is designed to improve client service.

FamGuard’s half-year pattern translated into the second quarter, with net premium income and annuity deposits off 10.1 per cent for the three months to end-June, standing at $22.947 million compared to $25.512 million. Total income was down 8.4 per cent at $25.99 million, compared to $28.373 million in the 2011 second quarter.

Helping to somewhat offset this was the 7 per cent fall in policyholder benefits, which dropped from $15.774 million to $14.663 million year-over-year. As a result, net policyholder benefits dropped to $16.841 million from $18.938 million the prior year.

Total benefits and expenses for the 2012 second quarter were down 7.5 per cent, from $26.794 million to $24.797 million.