By NEIL HARTNELL
Tribune Business Editor
The Government could be "on the hook" for a $50 million-plus Value-Added Tax (VAT) refund bill as a result of Hurricane Matthew insurance claims, an industry executive said yesterday.
Anton Saunders, RoyalStar Assurance's managing director, estimated that industry-wide gross losses from last October's storm could total $800 million.
He suggested that the 'refund' bill would be 7 per cent of this sum, which is $56 million, and added that the industry and Government will "have to come to a happy medium" on how this will be addressed.
"The insurance industry and the Government have to determine the way forward," Mr Saunders told Tribune Business. "The Government owes the insurance industry refunds [on the Matthew claims], and we have to come to a happy medium on how that will be dealt with."
Mr Saunders said that based on the $112 million worth of gross claims unveiled by J. S. Johnson in its 2016 annual report, and RoyalStar's own $300 million "inclusive of all net refunds", industry-wide insurance claims stemming from Matthew were likely to be around $800 million.
"You do the math," he responded, when asked by Tribune Business how much the collective VAT refund bill was likely to be.
"I believe that figure is going to be $800 million," Mr Saunders said of the gross claims, "and the Government is going to owe 7 per cent of that number."
He suggested the high Matthew-related VAT refund bill was largely of the Government's own making, given that the Christie administration had rejected the industry's arguments in 2014-2015 not to impose the 7.5 per cent levy on property and casualty premiums.
"That is the law they passed," Mr Saunders said, "and they passed that with the reservations of the insurance companies. We told them not to do it. That's the facts.
"Whatever the gross number ends up being, a percentage of that is what the Government is going to end up being on the hook for."
The Bahamas is one of very few nations to levy VAT on property and casualty premiums, given that it is difficult to determine exactly where the 'value has been added' in the production chain.
Mr Saunders, meanwhile, said the Bahamian insurance market was still "trying to find its way from Hurricane Matthew".
"All of us are struggling with a small percentage of the claims, but those are the ones that involve public adjusters," he added. "We are trying to ensure we can settle them as soon as possible in the near future.
"These should be able to be settled if everyone comes to the table with a fair mind. I think that, in the whole market, these are only 3 per cent of the claims."
Public adjusters typically assist clients in cases where the latter disputes the insurance payout offered. Acknowledging that persons and businesses were entitled to engage their services, Mr Saunders said this often delayed payout settlements.
Mr Saunders was speaking after A. M. Best, the insurance credit rating agency, affirmed RoyalStar's top rankings of 'A' (Excellent) for financial strength and its 'a' issuer rating. The company's outlook is stable.
"I think it just reaffirms that the core business of RoyalStar is very strong," he told Tribune Business of the reaffirmed ratings, "the fundamentals we have in place with reinsurance protection and very good service to our clients in the past.
"It also demonstrates that despite the economic challenges in the Bahamas, we were able to overcome those challenges."
Mr Saunders said RoyalStar's A. M. Best ratings were joint top for the Caribbean region, and he added: "It's how you manage risk from a capital standpoint and a reinsurance standpoint.
"We always emphasise at RoyalStar quality over quantity, but when the wind blows we are all affected."
A. M. Best said of its findings: "The ratings reflect RoyalStar's supportive risk-adjusted capitalisation, strong operating performance and its established presence in the Caribbean market.
"The company continues to generate overall earnings, which are derived from its strong underwriting performance and steady levels of investment income, especially in non-catastrophe years. Positive earnings have enabled RoyalStar to continue to maintain more than adequate risk-adjusted capitalisation."
On the downside, A. M. Best largely noted factors outside RoyalStar's direct control. "Partially offsetting these positive rating factors are its geographic concentration in the Bahamas, the company's exposure to weather-related catastrophe events and its dependence on reinsurance to mitigate losses and protect its surplus," the rating agency added.
"Additionally, Caribbean insurance markets remain very competitive as soft market conditions persist. RoyalStar mitigates much of its catastrophe exposure through prudent risk management planning, which includes minimising coverage written in flood and storm surge areas, along with a comprehensive reinsurance programme placed with a panel of high-quality reinsurers."