The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Insurers have warned the Government it would be “totally asinine” to reintroduce VAT on residential homeowner premiums given that this will create a multi-million dollar hurricane liability for itself.

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that the industry is seeking a meeting with the newly-elected Davis administration to clarify its VAT treatment of this product given that it potentially threatens to unravel a previous agreement it took both sides three years to negotiate.

He spoke out amid significant confusion over the Government’s plans as it moves to slash the VAT rate to 10 percent by January 1, 2022. Michael Halkitis, minister of economic affairs, last week said medical/health insurance will again be made VAT-able but Mr Saunders said this already attracted the levy - and only residential homeowners insurance is currently treated as VAT-exempt.

The RoyalStar chief said if the exemption was removed it would potentially expose the Government to multi-million dollar VAT refunds payable to insurers on hurricane-related claims, something that the cash-strapped Public Treasury can ill-afford at this time.

He noted that Ryan Pinder, the attorney general, would be well aware of these issues given that he was one of the lawyers who helped negotiate the current settlement on the industry’s behalf before being appointed to the Davis Cabinet.

“The Government has not approached the insurance industry on what they intend to do,” Mr Saunders told this newspaper. “The minister came out and said VAT will be placed on medical insurance. Medical insurance already has VAT.

“The only thing exempt was homeowner’s insurance, and the reason that was exempt was because the Government got themselves in a big issue with the hurricane [Matthew] and ended up owing the insurance industry millions of dollars.

“We have an agreement with them that cost about $1m in legal fees. The present attorney general was one of our lawyers, so he’s aware of that agreement between the VAT Department, Treasury and Bahamas Insurance Association. We will request a meeting with the relevant parties to understand what they are saying. No one has come to us to say whether it’s exempt or not.”

Declining to comment on the potential impact for both industry and consumers until the matter is clarified, Mr Saunders added: “I will say this. It would be an asinine situation if the Government reverts to VAT on homeowners insurance knowing the previous situation.

“It will be asinine, a totally asinine decision, if they revert to charging VAT on homeowners insurance, knowing the impact it has had in the past and impact it will have on the future when claims are paid out. It was a big dispute between the insurance industry and the Government that was resolved.

“It took almost three years to negotiate the matter. We came out with the best happy medium for all of us. We’ll now have to wait and see. You can imagine if that was the situation with Dorian, and the millions of dollars that would have been owing to the insurance industry.”

Clint Watson, the Prime Minister’s press secretary, when specifically asked on Friday whether the Government plans to make homeowners insurance premiums VAT-able again, confirmed that is presently the intent. “As it stands now, yes. They’re trying to zero-out everything,” he replied, while adding that a meeting will be held this week to determine if this applies “across-the-board”.

VAT-related uncertainty impacted the property and casualty insurance sector for a three-year period after Hurricane Matthew struck in 2016. Tom Duff, Insurance Company of The Bahamas general manager, told this newspaper then that the differences stemmed from whether general insurance underwriters could recover VAT on all or only some claims that were settled on a cash basis.

While the insurance industry felt it had achieved “a clear understanding” with the last Christie administration that VAT was recoverable on all such claims, its successor adopted the position that this was only the case where the insured client was a VAT registrant - meaning a business with a turnover greater than $100,000 per annum.

As a result, Bahamian property and casualty insurers were faced with being unable to recover “the VAT portion” of any Hurricane Matthew-related claims paid out to residential homeowners and other non-VAT registrants. Given the $400m in insured damage inflicted by that storm, this had left the industry facing a massive, unexpected multi-million dollar financial burden.

The resolution involved the creation of three different scenarios for separate categories of insurance claim. In the case of a property insurance claim submitted by a VAT registrant, namely a company, insurers will be able to deduct input VAT from both the settlement itself and any professional fees incurred in determining it, such as bills presented by loss adjusters and attorneys.

But, for residential homeowners, since premiums paid by this customer category are VAT ‘exempt’, the industry is currently unable to recover any tax on claims settlement. That., though, could now change depending on the Davis administration’s plans.