By NEIL HARTNELL
Tribune Business Editor
A Bahamian insurer says an “out of the ordinary” increase in motor vehicle theft claims was among the principal factors why it missed profit projections for 2021.
Timothy Ingraham, Summit Insurance Company’s managing director, told Tribune Business it was “watching” the situation closely to ensure last year did not become due to what he described as “a noticeable jump” in auto thefts compared to prior years.
While unable to provide statistics, he revealed that the claims upsurge in this category - as well as for liability insurance and physical injuries associated with motor vehicle accidents - had helped to drive a 20.7 percent year-over-year increase in net claims incurred compared to 2020.
Disclosing that Summit, the carrier through which Insurance Management places much of its property and casualty business, had passed several auto-related incidents over to the Royal Bahamas Police Force for further investigation, Mr Ingraham told this newspaper that increases in the carrier’s unearned premium reserve and an impending switch in insurance industry accounting practices had also impacted 2021’s bottom line.
While net income fell by 42.6 percent year-over-year, dropping to $700,049 from $1.22m in 2020, a $456,058 gain on the unrealised value of its investment holdings enabled Summit to produce a 34.5 percent gain in total comprehensive income to $1.205m.
“They were slightly off, slightly under what we had originally projected,” Mr Ingraham nevertheless said of Summit’s 2021 financial results. “You can see claims, with net claims incurred, went up by about 20 percent. We hadn’t quite anticipated that.”
Asked what had driven the more-than $500,000 net claims increase to $3.266m, he replied: “Mainly some liability claims and some motor claims. We saw an increase in motor vehicle theft and bodily injuries in some areas as well. We’ve turned it over to the police to look at; any matter that looked out of the ordinary we’ve turned over to the police to look into. It was just one of those years with a slight increase in claims.”
Mr Ingraham, when questioned over the extent of the motor vehicle theft rise, told this newspaper: “I don’t have the specific numbers in front of me, but it was a noticeable jump. It was a little more outside the ordinary. A little bit.
“It’s always concerning when you see something out of the ordinary, and we continue to watch it to make sure it’s not a trend. Every now and again you have an aberration, and have a run of two or three things, but it’s something we’re watching and keeping an eye on.”
Detailing other issues that caused Summit to miss its forecasts for last year, Mr Ingraham added: “Gross premium income increased year-over-year, which meant we had to increase our unearned premium fund, so that took a bite out of the bottom line.”
The carrier’s gross written premium rose by more than $4.5m year-over-year, growing by 11.7 percent to $43.069m from $38.542m in 2020. To cover the extra risk, the unearned premium reserve increased by $651,468 - a more than $500,00 jump compared to the prior year.
Personnel and general and administrative expenses also rose, the latter by more than 25 percent to $1.151m. “We had a slight increase in that,” Mr Ingraham said. “We are preparing for things like IFRS 17 (international financial reporting standards). That will be one of the expenses for that; just general expenses.
“This year we are supposed to publish two sets of financials, one on an IFRS 17 basis and one on a traditional basis. Next year we are supposed to move over to IFRS 17. That basically looks at insurance contracts, and we have to change the way we treat insurance contracts and the way we account for them.
“It’s probably one of the bigger changes in insurance accounting for a number of years. It brings a more actuarial approach to some elements of the financial statements. Other than those two extraordinary items, the unearned premium reserve and claims increase, we’d be right around where we thought we’d be. Without that, we’d be pretty much where we anticipated.”
Mr Ingraham also joined his insurance industry colleagues in saying the sector was still trying to determine the impact of the Government’s plan, as unveiled in the 2022-2023 Budget, to replace its existing 3 percent premium tax with a 2.25 percent Business Licence fee levied on “turnover”.
Asserting that definition of “turnover” will be critical to how the tax is calculated, and its impact on the industry, the Summit chief said: “We’re still in the process of evaluating that and trying to determine what exactly will happen. Right now we’re trying to speak to the tax authority to get a full understanding of what they are proposing before we come to any conclusions.
“Obviously one thing at the moment is that premium tax is based on premium, and what is your definition of turnover? That we have to get clarification on. The immediate thing is to try and get a deeper understanding of what is being proposed before we come to any significant conclusions on it.”
Patrick Ward, Bahamas First’s president and chief executive, previously told Tribune Business on Budget Day that there was insufficient time to implement the changes prior to the 2022-2023 fiscal year’s start on July 1.
“We’re obviously going to have to study that in more detail,” Mr Ward said of the proposed Business Licence fee change. “To what extent is that going to apply to gross or net earnings. That’s an important distinction. Outside of that we don’t have an understanding of what impact this is going to have.
“We couldn’t possibly say what difference this is going to make without knowing the full details of that proposal.” Asked whether there was sufficient time for the Bahamian insurance industry to adjust to the changes, the Bahamas First chief added: “No, and that’s something again that we will have to take a look at.
“That would involve a change in the computer system in terms of programming. Without the details it’s difficult to say, but I can say now that it’s unlikely to be enough time to make the change.” Anton Saunders, RoyalStar Assurance’s managing director, told this newspaper that beside informing the insurance industry it was mulling such a change there had been no consultation with the Government on the Business Licence switch.
“This is the first time I’ve seen it,” he added. “I know they had a meeting saying they were proposing it, but there was no consultation. I cannot comment. We have no idea what they are proposing and what is the turnover rate. We really need more detail on what they’re proposing and what the realities are going to be.”