By NEIL HARTNELL
Tribune Business Editor
Bahamas First’s top executive yesterday said there was “no reason to change” investment strategy after profits fell 41 percent in 2018 due to a negative $6.7m swing in portfolio values.
Patrick Ward, also the property and casualty insurer’s president, told Tribune Business there would be no “abrupt” shifts in its allocations even though last year’s outcome was “disappointingly lower” and depressed the effects of a strong underwriting performance.
Net underwriting profits, representing Bahamas First’s core business of insuring risk, rose by 1.3 percent year-over-year to $34.354m even though Mr Ward revealed that the carrier only achieved about 50 percent of the targeted premium rate increase for its Bahamian and Cayman property portfolios overall.
Speaking after AM Best, the international insurance rating agency, reaffirmed the high-level creditworthiness and claims-paying ability of Bahamas First’s Bahamian and Cayman underwriting subsidiaries, he added that the group was drawing significant encouragement from “the early signs of economic turnaround” in this nation.
Voicing optimism that “the ground work has been laid for good things to happen”, Mr Ward said the anticipated economic growth should translate into further top-line premium income increases in 2019 following a year in which it rose 8.1 percent.
He added that Bahamas First was aiming to “repeat or even exceed” 2018’s net underwriting performance, although this - as for all property and casualty insurers - will be highly dependent on the 2019 Atlantic hurricane season.
Bahamas First’s 2018 annual report, released yesterday, revealed that total profits for the 12 months to end-December fell 41.1 percent year-over-year, dropping by $7m from $17.0689m in 2017 to $10.057m this time around.
The Cayman Islands accounted for more than 60 percent of Bahamas First’s 2018 bottom line, a reversal of the 2017 position, with its life and health portfolio generating more than half of group-wide profitability. In contrast, the Bahamian property and casualty business produced one-third of group profits at $3.414m.
Mr Ward blamed the “unrealised” losses in Bahamas First’s investment portfolio for “90 percent” of the bottom line decline, with the $2.5m fall in the value of its Commonwealth Bank shareholding leading the way.
But, despite the $6.7m year-over-year “swing” from a $4.165m gain in 2017 to a $2.542m loss last year, the Bahamas First chief said there will be no major change in the group’s investment strategy.
“Long-term we’re happy with the allocation of our investments and the general direction they’ve been going, so there’s no reason for an abrupt change in investment strategy or allocation of investments,” he told Tribune Business.
Insurers tend to view income from their investment portfolio more as the icing on the cake, and never rely on this to generate profitability. They concentrate far more on generating returns from their core underwriting of insurance risks, and here the performance was much better for Bahamas First.
“From a group standpoint we were very much on track from an underwriting profitability standpoint with a very encouraging year,” Mr Ward said. “Had the investment income gone in the same direction or remained relatively flat we would have mirrored the results of 2017.
“We always aim to have a very healthy underwriting return because, at the end of the day, it’s the key driver of our results. It’s one of the elements of the business that we have under our control to some extent. We have a better ability to control the variables, and it’s a better measure of performance of the company over a given period of time.”
Mr Ward said the slight year-over-year improvement in net underwriting income to $34.4m, which he described as “a new record milestone for the company”, was achieved despite Bahamas First failing to fully achieve its desired increase in property insurance premiums in both The Bahamas and Cayman Islands.
“During the last quarter of 2017 and continuing into 2018, a mandate was given to both The Bahamas and Cayman underwriting teams to implement rate increases for property business with catastrophic exposures for most locations within each territory,” Bahamas First’s management wrote in the annual report.
“We did not achieve the full extent of the targeted rate increases, but we did have some level of success, particularly in The Cayman Islands, where the percentage increases were more pronounced.”
Mr Ward told Tribune Business that Bahamas First achieved about 50 percent of the targeted increase, revealing: “Let’s just say we started the year with the intent of achieving an average premium increase across both territories of about 10 percent.
“When you look at the combined impact, property margins in terms of premium year-over-year, it showed about a 5 percent increase.” Acknowledging the “unrelenting, intense competition” in the property and casualty insurance market in both territories, Bahamas First’s annual report said it had still managed to achieve gross and net written premium increases.
The former rose by 8.1 percent from $143.2m to $154.8m, while the latter increased by 3.5 percent to $65.2m from $63m. Gross property insurance premiums. combining both The Bahamas and Cayman Islands, increased from $65m to $69.2m year-over-year.
Turning to the future, Mr Ward said Bahamas First was eyeing improved top-line premium growth in 2019 as a result of the strengthening Bahamian and Cayman economies, and was seeking to match 2018’s underwriting performance weather permitting.
Bahamas First’s annual report said there was “a growing sense that [The Bahamas] has turned the corner in terms of economic expansion”, a view that was shared with Tribune Business by Mr Ward yesterday.
“One thing I will say is we’re very encouraged by emerging signs of an economic turnaround in The Bahamas, and the robust growth we’re seeing in Cayman,” he said. “In terms of the economic environment in both jurisdictions, we think the ground work for good things to happen has been laid. As both economies grow, the portfolio will grow and broaden with that.
“2019 has the potential to be a better year in terms of top-line growth. Underwriting profitability depends on controlling cost factors we have control over, so to the extent we control those variables as we did in 2018, we have the opportunity to repeat our underwriting performance or exceed it.
“We’ve been working very hard to put a foundation in place that allows us to have consistency with results from an underwriting perspective, and we’re very confident that model is working for us on a consistent basis,” Mr Ward continued.
“We’re looking for a repeat of 2018 in terms of the underwriting aspects, and hopefully with a better investment result, but that’s outside our control.”