By NEIL HARTNELL
Tribune Business Editor
A Bahamian insurer yesterday reached “the mountain top” after being upgraded to the industry’s highest-possible financial strength rating, revealing that its 50 per cent profit retention policy had ‘paid dividends’.
Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that conservative investor payouts had enabled it to build up a $45 million capital base - a ‘war chest’ that could be used to finance acquisitions.
Hinting that the property and casualty underwriter was currently looking at such expansion opportunities, Mr Saunders said the only other Caribbean insurer to currently enjoy A. M. Best’s highest ratings was Bermuda Fire & Marine (BF&M).
Looking ahead to 2014, Mr Saunders predicted it would be as profitable for the Bahamian general insurance industry as 2013 and 2012 had been, barring any major hurricane impact.
And, while the sector’s Value-Added Tax (VAT) ‘exempt’ status is likely to increase the industry’s claims costs by 8-10 per cent, Mr Saunders said this was vastly more preferable to a 15 per cent premium rise which “consumers cannot afford”.
Speaking after A. M. Best, the leading international insurance credit rating agency, upgraded RoyalStar’s financial strength rating to ‘A’ (Excellent) and issuer credit rating to ‘a’, Mr Saunders said: “We’re at the mountain top. There’s no more way up.
“The rating that we have now, the only other Caribbean company that has it is Bermuda Fire and Marine among indigenous Caribbean companies.”
RoyalStar had previously been rated at ‘A-’ or ‘a-’, and he added that the upgrade showed A. M. Best had recognised the company’s reinsurance programme, plus commitment to policyholder service and commitment.
“The rating upgrades reflect RoyalStar’s consistent operating and overall profitability, long-term maintenance of its excellent risk-based capitalisation levels, and its proven risk management strategies,” A. M. Best said.
“RoyalStar’s risk management strategies include a prudent underwriting philosophy, which has resulted in a resilient underwriting performance that places the company among the top performers in the Caribbean region.”
Noting that RoyalStar’s new JFK Drive headquarters showed the underwriter’s commitment to the Bahamas, Mr Saunders told Tribune Business: “We are here to protect the Bahamian people, and to ensure the protection given to them is first class.
“Our philosophy has been around from the 1994 hurricane season and we are sticking to it..... It’s a combination of sticking to our principles, sticking to our philosophy, not wavering with what the competition is doing, and sometimes you’re lucky in this industry.”
Mr Saunders added that RoyalStar had always maintained a conservative dividend policy, paying out no more than 50 per cent of annual profits to its investors, which include Sunshine Holdings, Star General and various overseas groups.
This, he explained, had enabled RoyalStar to build up a $45 million capital base.
“It gets to the point where you ask: ‘What do you do with this money?’” Mr Saunders told Tribune Business.
“I’m sure with this excellent rating we will have people heading our way, and we have to be careful what partners we do business with.”
He explained that this included both agents and potential mergers and acquisitions opportunities, adding that there were “always things on our radar”.
“But this company has maintained a philosophy that we must know partners well before we do business with them,” Mr Saunders said. “There are some things we are looking at now, and if something breaks you’ll be the first to know.”
Focusing on the year ahead, Mr Saunders said all Bahamian property and casualty underwriters now had their reinsurance programmes in place.
“We don’t expect any change in premiums, and 20145, barring the winds blowing in the hurricane season, should be just as good as 2013 and 2012,” he told Tribune Business.
Acknowledging the benefits to consumers from insurance premiums being treated as VAT ‘exempt’, the RoyalStar chief nevertheless acknowledged: “On the claims side, yes, there’s going to be an uptick in costs.
“The offset will be Customs duty reductions on parts. Claims costs should run about 8-10 per cent higher because of the labour, service portion of the claim, but some of that will be picked up by the reinsurance programme.
“We’ll take that instead of the 15 per cent increase in gross written premiums, which the Bahamian public cannot afford.”
On the downside, A. M. Best said: “RoyalStar writes all of its business in the Caribbean, which exposes it to frequent and severe weather-related events.
“Although this makes RoyalStar dependent on reinsurance as part of its overall risk management strategy, its panel of high-quality reinsurers mitigates much of this credit risk.”
It added that positive rating factors were “partially offset by RoyalStar’s geographic concentration, dependency on reinsurance and exposure to severe weather-related catastrophes, as well as sluggish economic conditions in the Bahamas.
“Furthermore, the Bahamas and other Caribbean insurance markets have become increasingly competitive as indigenous and outside insurers seek to gain market share in the region.”
Yet, ending on a positive note, it added: “A.M. Best believes that RoyalStar is well positioned at its current rating level, and the ratings are not expected to be upgraded and/or its outlook revised in the near term.
“Key rating drivers that may lead to negative rating actions include a decline in risk-adjusted capitalisation or prolonged adverse operating results that are exacerbated by a series of large catastrophic events.
“Positive rating triggers include continued strong underwriting results in conjunction with surplus appreciation and improvements in the Bahamas’ macroeconomic environment.”