By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A Bahamian insurer yesterday branded its top rating as "a feather in the cap", while expressing fears that under-insurance among homeowners may "get more extensive" via the VAT reforms.
Anton Saunders, RoyalStar Assurance's managing director, told Tribune Business that VAT "exempt" status for owners of residential dwellings remains "the big correction in the room" as they will have to increase sums insured under their insurance coverage.
With the industry still adjusting to the budget changes, he said: "There's going to be a degree of underinsurance that is going to be out there because of the exemption on the premium, and that we are not allowed to claim back any claim from the government.
"If you rebuild a home now it will cost you 12 percent more because you have to pay VAT. The public and industry have to be very careful in reviewing sums insured to ensure the incidence of under-insurance does not get more extensive."
Mr Saunders said that unless homeowners increased sums insured under their policies to account for the impact of 12 percent VAT they will be "getting less monies to rebuild" post-hurricane, because it will otherwise be assumed they are willing to take on a greater proportion of the risk.
The RoyalStar chief's comments reinforce the message previously delivered by the Bahamas Insurance Association (BIA), which previously warned that the VAT rate increase - coupled with the 'exempt' status for residential property premiums - would result in homes becoming "underinsured or not insured to true replacement costs".
A BIA ad, spelling out the consequences, states: "Property and casualty insurance member companies of the Bahamas Insurance Association hereby notify the insuring public that when replacement costs increase, the sums insured must also increase. Otherwise, the property may become underinsured or not insured to its true replacement cost."
The Association added that all property insurance policies include an 'averaging' or 'underinsurance' clause, the effect of which is to make policyholders responsible for the extent of the underinsurance - they effectively become their own insurance. "This is often discovered at the worst possible time; at the time of a claim," the BIA added.
The BIA used the example of a $200,000 home that was only insured for $150,000, or 75 per cent of its replacement amount. As a result, the homeowner or 'insured' is left responsible for "self-insuring" the remaining 25 per cent or $50,000.
VAT 'exempt' status for residential property premiums took effect from July 1, and Mr Saunders said implementation had gone well "for the most part". He added: "We are still having little hiccups. We are working through them to have as smooth a transition as possible."
His comments came as A. M. Best, the global insurance rating agency, reaffirmed RoyalStar's 'A' (Excellent) financial strength rating - said to be the joint highest in the Caribbean region. The Bahamian property and casualty insurer also saw its long-term Issuer credit rating maintained at 'a', with a "stable" outlook placed on both.
Mr Saunders said it was "very gratifying" to have the ratings reaffirmed in the aftermath of a 2017 hurricane season that devastated some of the markets in which it operated, namely Turks & Caicos and the British Virgin Islands (BVI).
He added that RoyalStar was looking to its new holding company structure to facilitate investments that will diversify it away from high hurricane exposure risks.
"I think it shows the confidence in RoyalStar," Mr Saunders said of the renewed A. M. Best rating," and hopefully that translates into confidence our clients have in us.
"We continue to control the things we can control to ensure our rating remains as high as possible. It's a feather in the cap of the employees at RoyalStar that we continue to do the best we can to ensure our clients are well served and have a company they can rely on in case of catastrophic and other events."
Mr Saunders added that A. M. Best had "concluded we're deserving of the rating they gave us", pointing out that no other "pure bred" Bahamian insurer - originating or headquartered - in this nation currently possessed an 'A' rating for financial strength. Only Caribbean insurers with branches or subsidiaries in the Bahamas were at a comparable level.
A. M. Best, justifying the rationale for RoyalStar's (RSA) rating, said: "The ratings reflect the company's balance sheet strength, which A.M. Best categorises as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
"RSA 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 RSA to continue to maintain strongest risk-adjusted capitalisation.
"Under the direction of its experienced management team with local market expertise, RSA provides personal and commercial lines coverage throughout the Bahamas, the Cayman Islands, and Turks and Caicos Islands."
A. M. Best said downside risks were largely confined to RoyalStar's concentration of business and risk in the Bahamas, given this nation's vulnerability to major hurricanes. "These strengths are partially offset by the geographic concentration of RSA's business 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.
"RSA mitigates much of its catastrophe exposure through prudent risk management planning, which includes minimising coverage written in flood and storm surge areas, along with its comprehensive reinsurance programme placed with a panel of high-quality reinsurers."
Mr Saunders told Tribune Business that RoyalStar's "model has served us well for the last 14 years" since it became an independent, Bahamian-owned company. He added that it conducts business in four Caribbean territories, which also include the Cayman Islands, British Virgin Islands and Turks & Caicos.
"That doesn't mean we don't look at opportunities," the RoyalStar chief said of further diversification, "but unless it's the right opportunity for RoyalStar we're not going to go anywhere else. If an opportunity makes sense we'll look at it."
Instead, Mr Saunders said the insurer was looking to its new corporate structure, and creation of RoyalStar Holdings as its holding company, for diversification via opportunities to invest outside of underwriting and managing risk.
He pointed to its 20 percent equity stake in the company owning a 100-acre tract of land opposite St Andrews School, around Solomon's Yamacraw, as one such investment opportunity.
"We're more focused on diversification through the holding company, and some investment opportunities that we have in the Bahamas and Turks & Caicos," Mr Saunders told Tribune Business, "where it diversifies us away from hurricane exposure only".
He described the landholdings opposite St Andrews as "the horizontal diversification we want for profitability long-term".
Comments
Well_mudda_take_sic 5 years, 8 months ago
Only a fool would voluntarily put a dollar in the hand of any local insurer today, no matter what the risk the insurer may purport to be insured.
killemwitdakno 5 years, 8 months ago
You;d think 12% would mean national hurricane insurance.
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