The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer believes it will be “challenging” to repeat a 2015 performance which saw its net income increase by 72.3 per cent year-over-year.

Timothy Ingraham, Summit Insurance Company’s president, said the more than-$1 million bottom line improvement had exceeded the underwriter’s own expectations by around 10 per cent.

He told Tribune Business that the year-over-year increase had largely stemmed from an improved claims experience, following a 2014 in which Summit faced hefty insurance payouts over incidents such as the fire that destroyed Bahamas Food Packaging’s (Bapak) premises.

“I think that we exceeded our expectations slightly,” Mr Ingraham said. “It turned out to be a very good year for us.

“Given that the economy is still in a depressed state, the results were a pleasant surprise for us.”

He told Tribune Business that Summit’s $2.708 million net income had beaten the property and casualty underwriter’s own expectations by “roughly about 10 per cent or so. It wasn’t huge”.

“A lot of that would have been down to claims,” Mr Ingraham added. “We had fewer claims in 2015 than we had in 2014.

“In 2014 there were several large losses, and the Bapak fire would have been one which happened right at the end of the year. That’s the main one that comes to mind, though there were a few others.”

Bapak’s premises in the Soldier Road Industrial Park were destroyed in the Christmas Eve 2014 fire, and last year also saw some significant losses for the Bahamian property and casualty market as a whole.

Mr Ingraham disclosed that Summit “paid out just over $1 million” in damages claims as a result of Hurricane Joaquin, which devastated the southern Bahamas in late September and early October.

Despite this, Summit saw its net claims incurred decrease by 26.3 per cent year-over-year, dropping from $3.854 million to $5.228 million.

With its catastrophe and excess of loss reinsurance costs also down by almost $1.5 million, or 30 per cent, to $3.443 million, Summit enjoyed a near-$3 million decline in direct expenses.

That represented a 26.7 per cent fall, from $11.084 million in 2014 to $8.125 million last year, ultimately producing a 28.3 per cent increase in Summit’s underwriting profits.

They rose from $3.324 million to $4.263 million year-over-year, as the dramatic decline in direct costs more than offset the reduction in Summit’s top-line and net premium income.

Mr Ingraham said Summit, which gained 95 per cent of its business through Insurance Management, its affiliate broker/agent, was not immune to the pressures impacting the rest of the Bahamian property and casualty market.

Apart from the struggling economy, which was inducing Bahamians to either reduce sums insured or drop coverage altogether, the Summit president acknowledged the international forces that were also influencing this market.

Excess global reinsurance capacity has also contributed to the downward pressure on Bahamian property and casualty premium rates, given the sector’s heavy reliance on its underwriting support.

Mr Ingraham said the reduction in prices had helped to offset the initial impact of 7.5 per cent Value-Added Tax’s (VAT) addition to insurance premiums, which occurred on July 1 last year.

However, the rate softness has forced insurers such as Summit to take a hard look at their insurance portfolios, in a bid to ensure the premiums charged reflect the risk being underwritten.

“I think it will be difficult to match last year for a number of reasons,” Mr Ingraham told Tribune Business of Summit’s likely 2016 performance. “Our income is falling off, as is the rest of the market.

“It won’t be impossible to match last year’s numbers, but it will be a challenge. In this part of the world, it depends on how the wind blows, and how significantly the wind blows.

“If there’s no significant wind storms, I think you’ll still see us struggle a little bit because of falling prices. I think 2015 really saw the pricing start to decline.”

Summit, in common with its Bahamian competitors, saw its gross written premiums fall 4.6 per cent year-over-year in 2015.

With its top-line dropping by more than $1.5 million to $32.694 million, and premiums ceded to reinsurers increasing, Summit’s net written premiums fell by almost $2 million in 2015.

They dropped by 14.6 per cent year-over-year, declining from $13.532 million to $11.559 million.

Pointing out that Bahamian carriers typically renew their reinsurance treaties in January, Mr Ingraham said further unanticipated falls in local premium rates inevitably created “a negative gap”.

“We are very heavily linked to the international reinsurance market, and the local companies rely on them to provide us with their capital,” he added.

“We have very little choice with their prices. For most companies, it’s going to be upwards of 60 per cent of premium income taken in that is going to be paid out to reinsurers.”

Mr Ingraham confirmed that the Bahamian property and casualty market’s 2016 performance will depend greatly “on where rates go and premium income”, the level of claims and losses suffered.

He acknowledged that 2015’s rate reductions had helped “cushion the blow” of VAT for consumers, with premiums ending up at the same level as the prior year despite the new tax’s impact.

“I still think it’s a negative impact from an insurance point of view,” the Summit chief said of VAT. “If you reduce your premiums to soften the blow, your income will be less.

“We are seeing premium income falling, which we think is indicative of people choosing not to insure. Some of that is because of other pressures; they can’t cut out groceries, their light bill and other things.”

Mr Ingraham conceded that Bahamian property and casualty premiums could also harden if there was a reduction in global reinsurance capacity, either as a result of a major catastrophe payout or investors flooding back to equity markets.

He added that Summit also had “our eyes open” for potential growth opportunities, but indicated nothing had arrived yet.

“If something comes along that we think will benefit the company, our Board will take a look at it and see if we want to get involved,” Mr Ingraham told Tribune Business.

“I think the market here is competitive and saturated, but when you look around the region, you have more of the same; saturated markets with lots of competition and declining rates.

“In that environment, you have to be careful where you venture and what you are doing.”