Insurer Exceeds Targets Despite 6% Top-Line Fall


Tribune Business Editor


Bahamas First yesterday said it beat its 2014 underwriting income targets by between 5-10 per cent, despite encountering margin pressures that cut top-line premium income by more than $9 million.

Patrick Ward, Bahamas First Holdings’ chief executive, told Tribune Business that the general insurer “fully expects to repeat” last year’s $9.903 million total comprehensive income performance in 2015, provided there are no hurricanes or a major economic “fall-off”.

Apart from Value-Added Tax (VAT), Mr Ward warned that increased competition in the Bahamian property and casualty industry would continue to pressure premium rates, impacting margins for all underwriters.

Given these constraints, the Bahamas First chief said the carrier was “still actively looking to expand our footprint” beyond this nation and the Cayman Islands via further Caribbean acquisitions.

And, while no such deals are currently being “pursued” in the Bahamas, Mr Ward said the group’s strategy is to retain its existing client portfolio while exploiting new business opportunities that “make sense”.

He also confirmed that Bahamas First had increased its equity holding in its Cayman affiliate to 87.64 per cent via a rights issue. The purchase funded by a $5 million loan that was subsequently injected into Cayman First to finance the construction of its new headquarters building.

Speaking after Bahamas First’s total comprehensive income increased by 53.7 per cent year-over-year, from $6.442 million to $9.903 million, Mr Ward said the group suffered no client losses despite the premium pricing pressures.

“We were roughly 5-10 per cent ahead of budget on underwriting income,” he told Tribune Business. “In terms of the core results, we were very close to expectations, and exceeded them where the core underwriting results are concerned.

“The health portfolio results were significantly in excess of budget, and even the property and casualty portfolio in the Bahamas and the Cayman Islands exceeded budgetary expectations.”

While total underwriting income for the 12 months to end-December 31, 2014, was flat, standing at $84.881 million compared to $84.872 million in 2013, Bahamas First’s total underwriting expenses dropped by 6.6 per cent.

This decline, from $60.049 million in 2013 to $56.085 million last year, resulted in Bahamas First’s net underwriting income increasing by 16 per cent year-over-year - from $24.823 million to $28.796 million.

That was achieved despite a 6 per cent year-over-year fall in gross written premiums (GWP), which dropped from $161.319 million to $152.229 million.

Mr Ward, though, said he was more focused on net written premiums as the driver of Bahamas First’s risk underwriting performance, and these fell by only 2 per cent in 2014.

“Our strategy is that while the top line may move up and down, what we are focused on at the end of the day is net written premium, which really drives the underwriting results,” he told Tribune Business.

Mr Ward said this “slipped” from $61.491 million in 2013 to $60.545 million last year, which he blamed on “the intense pressure” that premium rates were subjected to as a result of increased competition in the Bahamian general insurance market.

“We’ve seen a 6 per cent reduction in premiums year-over-year on the top line,” the Bahamas First chief added.

“That has a lot to do with competition, as well as the level of discounting. We haven’t lost 6 per cent of our client base. It’s more a margin pressure than loss of business per se.”

Mr Ward suggested that competition would likely intensify further in 2015 and this, together with the levying of 7.5 per cent Value-Added Tax (VAT) on insurance premiums from July 1, would force many Bahamas-based underwriters “to make tough decisions regarding product pricing”.

To counter the increased challenges facing Bahamas First in its domestic market, Mr Ward confirmed that the property and casualty underwriter’s ambitions for further Caribbean expansion remained undiminished.

“We’ve made no secret of the fact that we’re still actively looking at expanding our footprint, and the fact we’re facing so much competition coming into the market emphasises the point that, in the future, the companies that will be most impactful in the region will be those with operations around the Caribbean,” Mr Ward told Tribune Business.

He added that Bahamas First was eyeing no further agent/broker acquisitions in this nation “at this stage”, but said: “Our position is that if an opportunity presents itself that creates viable opportunities for the group, we will take a look at it, but we are not actively pursuing anything in the Bahamas.”

Mr Ward explained that Bahamas First’s strategy is to focus internally on the factors within its control, given that all the potential negatives facing the group are largely outside its control.

Besides retaining its existing business book, he explained that Bahamas First’s goal was “when new opportunities come up, pursue them to the extent it makes sense to us from a financial standpoint”.

Mr Ward identified such opportunities as new construction projects in the Family Islands and New Providence, identifying the former as more fertile ground, plus purchasers of new cars.

“Barring any unusual loss activity, we fully expect to have a repeat of what we did in 2014,” he told Tribune Business, adding that his definition of ‘unusual loss activity’ included “any significant fall-off in business” as a result of VAT and/or an economic downturn.

“The only thing that we are concerned about is in this environment, where you have a pretty soft economy, you have VAT impacting potential new sales and business development,” Mr Ward said.

“People have seen their disposable income go down, so that’s going to constrain the amount of new business you’re going to see.”

Mr Ward added that the future for Bahamas First’s Cayman business was looking much brighter, with the claims litigation it inherited upon acquisition at the “back end” of resolution.

And the $5.398 million, 10-year loan that Bahamas First obtained to finance the Cayman First deal was fully repaid in 2014 - some six years early.


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