The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First believes it is on track to match or “slightly exceed” last year’s $5.689 total comprehensive income in 2013, as it continues to seek both local and Caribbean acquisition opportunities.

Patrick Ward, the property and casualty underwriter’s chief executive, indicated to Tribune Business that 2014 would likely provide more opportunities to expand its agent/broker force via acquisition.

And he added that it was also “mandatory” for companies such as Bahamas First to target regional expansion, in a bid to diversify both revenue bases and risk.

Mr Ward was speaking after A. M. Best, the global insurance industry’s credit rating agency, last week reaffirmed Bahamas First’s top ‘A-’ (Excellent) financial strength rating and ‘a-’ issuer credit rating.

However, A. M. Best for the first time mentioned “lingering economic and fiscal concerns” as a negative factor when assessing the so-called creditworthiness of a Bahamian insurance underwriter.

Mr Ward told Tribune Business he was “not surprised” A. M. Best would refer to the Government’s strained finances, but described it as “another caution” for the Bahamas.

“If you look at the number of times during 2013 that we’ve either had rating actions or warning signals from Standard & Poor’s and other entities, that’s sounding another caution,” he told Tribune Business. “I’m not surprised to see them flagging that particular aspect up.”

“If there’s a deterioration in the overall position of the country, it impacts our ability to underwrite business, and potentially it could have a negative impact on the country’s performance.

“If there was a significant deterioration in the level of economic activity, the number of clients able to afford to maintain their insurance policies will be reduced, and if there’s a reduction in GDP our ability to maintain our existing business platform will be adversely affected by that.”

In reaffirming Bahamas First General Insurance Company’s top rating, and that of its Cayman First affiliate, A. M. Best said: “The ratings of Bahamas First reflect its continued excellent capitalisation, historically favourable operating performance and leading market share in the Bahamian market.

“These factors are supported by Bahamas First’s local market expertise, conservative catastrophe programme and solid risk management programmes.

“These positive rating factors are offset by Bahamas First’s dependence on reinsurance, geographic concentration and catastrophe exposure, particularly to hurricanes in the Caribbean. Additionally, there is increased competition within the Bahamian insurance market, and lingering economic and fiscal concerns about the Bahamas’ overall economic outlook.”

Mr Ward said he was especially happy that A. M. Best had praised its risk management, an area Bahamas First has focused on in the past two years.

Now armed with A. M. Best’s positive comments, he added: “It also gives us an opportunity to market the company as a stable insurance operator and one that offers the public the highest level of protection.”

Despite the unexpected multi-million dollar claims stemming from May’s flooding in eastern New Providence, Mr Ward told Tribune Business that Bahamas First was “trading at acceptable levels of profitability”.

“From a group level, the 2013 results will be close to 2012, if not slightly in excess of where we ended up last year, with total comprehensive income of $5.589 million,” he added.

“The biggest issue is the unknown impact VAT will have,” Mr Ward said of 2014. “It will impact our administrative costs and claims costs, and we can’t put a number on that at this point. Because it will come in the middle of the year, it’s more difficult to judge the overall impact.”

He estimated that Bahamas First currently had a 33 per cent, or one-third share, of the Bahamian property and casualty insurance market based on gross written premium (GWP).

The underwriter has always been an aggressive player, never standing still, and Mr Ward indicated it remains in acquisition mode in the Bahamian insurance market should the correct opportunity arise.

“We’re always on the look out; that hasn’t changed,” he told Tribune Business. “There is likely to be some activity in the market in 2014, and as a result of that we’re trying to position ourselves to take advantage of opportunities that fit the profile of target companies.”

Bahamas First has already extended its ambitions beyond this nation’s borders via its Cayman acquisition, and Mr Ward confirmed it is looking for other regional opportunities.

“We think the future for companies in the region mandates that you look at diversifying your revenue streams,” he said. “It helps from the perspective of diversifying risk, but also gives you a more stable revenue base.”

Bahamas First is concentrating on English-speaking, common law jurisdictions with stable currencies. “Anything that fits into that general outlook will be of interest to us,” Mr Ward said.

“I wouldn’t say we’re close [to a deal] at this point, but there are always interesting conversations taking place.”

As for Bahamas First’s Cayman subsidiary, Cayman First, A. M. Best said: “The ratings of Cayman First recognise its improved capitalisation and positive non-health operating results, along with its expertise in the Cayman market.

“Cayman First’s ratings also reflect improvements in the company’s health business and the winding down of litigation from prior ownership, which continues to have a negative impact on the company’s earnings and capital position.”

Mr Ward told Tribune Business the assessment “validates” the initiatives Bahamas First put in place to “turn around” Cayman First’s health portfolio, a strategy that was starting to bear fruit.

Looking ahead, A. M. Best said: “While the outlook for Bahamas First’s ratings is stable, positive rating actions could occur if the company exhibits sustainable long-term improvements in operating performance, coupled with improvements in the Bahamas’ macroeconomic environment.

“Negative rating triggers could include protracted, adverse operating results that are exacerbated by a large catastrophic event or a significant decline in risk-based capitalisation.

“Negative rating triggers for Cayman First would include deterioration in its operating results, in particular from its accident and health business, or a decline in equity resulting in increased leverage metrics. Positive rating triggers would include continued improved profitability and organic surplus appreciation.”