Margin Squeeze Means Summit Won't Peak In '18


Tribune Business Editor


A Bahamian insurer yesterday said it is unlikely to match last year's 173.4 per cent profit increase due to a "margin squeeze" imposed by increased reinsurance costs.

Timothy Ingraham, Summit Insurance Company's president, told Tribune Business that the property and casualty underwriter was unlikely to scale 2017's peak because a 5-10 per cent increase in reinsurance costs is not being matched by Bahamian consumer premiums.

"For most of us we've incurred some fairly significant reinsurance costs which we're not seeing translated on the ground, so there has been an increase in costs relative to the insurance rates charged to the customer," he explained.

"Our reinsurance costs have increased by more than we see the consumer premiums increasing, so that will narrow margins a bit for 2018. Costs have increased more than rates have increased. Rates are fairly flat at the moment, so we will see a narrowing of the margins."

Mr Ingraham said the increase in costs had been closer to the top end of the 5-10 per cent range, with some underwriters suffering "more than that in some instances" depending on their reinsurance partner and treaty structure.

"When you put your costs together and add them up, every little bit counts in your margins," he told Tribune Business. "The economic outlook generally is cautious optimism. But insurers locally will be challenged with rising reinsurance costs not being matched on the consumer side.

"You will see margins under pressure. We were lucky to have the year we did last year, and this one may not be so magnificent when all is said and done."

Reinsurance costs, and availability, are the biggest factor in determining the home and auto insurance premium rates paid by Bahamian consumers in any given year.

Bahamian insurers have no choice but to purchase huge quantities of reinsurance annually, as their multi-million dollar capital bases pale into comparison to the multi-billion dollar risks they underwrite. This effectively makes them a 'price taker' from reinsurers, which cover the bulk of these risks and their value, and therefore dictate the premium rates charged locally.

Reinsurers are currently seeking to recoup the collective $130 billion loss suffered in the 2017 hurricane season and other natural disasters and this, together with the Bahamas' increased risk, means the premiums they receive from local insurers will rise.

Summit, meanwhile, recovered from the multi-million dollar claims payouts stemming from Hurricane Matthew to near-triple its 2017 profits, which increased year-over-year from $974,295 to $2.664 million. This was largely driven by an underwriting gain that more than doubled to $4.054 million, aided by a $3.3 million fall in total expenses (including claims).

"We were fairly close to what we had anticipated, and it was probably a little bit over where we expected we'd be," Mr Ingraham told Tribune Business. "We won't complain. It was a pretty good year. We'll take that.

"You have with these years to make up for the years that were not so good to remain a viable company in this market. It's critical. These are the years when you build up your reserves for the years when you have hurricanes.

"If you are not having consistent, positive results in the good years you're going to have difficulty building up reserves to carry you through the lean years."

Mr Ingraham said Hurricane Matthew's devastating impact in October 2016 had likely convinced many Bahamians to ensure they were fully covered in 2017, which he attributed to the $910,000 increase in Summit's gross written premiums (GWP) to just under $30 million.


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