Nicole ‘unnecessary evil’ amid reinsurance fears


Tribune Business Editor


A Bahamian insurer yesterday branded sub-tropical Storm Nicole “an unnecessary evil we don’t need” as he voiced fears that claims payouts could be impacted by the country’s European Union (EU) blacklisting.

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that “we don’t need another Dorian” as he warned that German reinsurers may be forced to cut their claims payouts to Bahamian hurricane victims by 15 percent unless there is a rapid adjustment to that nation’s laws.

Three German reinsurers - Munich Re, Hanover Re and R & V Re - are among the biggest partners for Bahamian and Caribbean underwriters, but that country has enacted a law designed to deter its citizens and companies from doing business with so-called ‘tax havens’.

Inclusion on the EU’s blacklist, as has just happened to The Bahamas, will see a nation caught by Germany’s criteria. Mr Saunders explained to this newspaper that Germany’s new law, which takes effect from New Year’s Day 2023, could result in reinsurers having to withhold up to 15 percent of the claims payout to Nicole victims if any of these are still outstanding at that date.

Warning that The Bahamas is “running out of time” to address the issue with Germany, Mr Saunders said of Nicole: “This is something that we can’t control but don’t really need at all given the other challenges we have in this market right now. It’s an unnecessary evil that we don’t need.”

Besides the German reinsurance issue, Mr Saunders said the Bahamian industry’s transition from a 3 percent premium tax to a Business Licence fee - as set out in the 2022-2023 Budget - remained unresolved despite negotiations having been held with the Government.

And, with Bahamian insurance premium costs already under “strain” due to reduced reinsurance capacity and higher prices, the RoyalStar chief warned this may become worse if Nicole strengthens after passing The Bahamas and inflicts significant damage on Florida’s east coast to go with what Hurricane Ian did on the west.

Mr Saunders said Nicole’s threat should serve as a wake-up call for all parties to work swiftly on addressing the Bahamian insurance industry’s existing challenges. “Dealing with the reduction in reinsurance capacity was a challenge before this. It continues to be a challenge,” he told Tribune Business.

“We have our German reinsurance issue, we have issues with the Government and our tax share; none of those have been resolved. We hope they will be resolved as quickly as possible and, with this (Nicole), we hope everyone understands the need to speed up discussions.”

Mr Saunders said the EU blacklisting would not prevent German reinsurers from underwriting risks in The Bahamas. Rather, he added: “If they write the business, 15 percent of the claims they pay out will be withheld by the German government. That’s a no, no. I need money to pay claims. I know the Government is trying their hardest to work on it with the Germans but time is not on our side.

“The issue becomes, if something happens and nothing changes, the German law comes into effect on January 1, 2023, and so if there are outstanding claims and their law stays as is, then the payout for this potential hurricane will be impacted.”

Bahamian property and casualty underwriters must acquire huge amounts of reinsurance annually because their relatively thin capital bases mean they cannot cover the multi-billion dollar assets at risk in this nation. The global reinsurance market has been recently been pulling back from the Caribbean due to hurricane-related losses, and the EU ‘blacklisting’ could lead to a further scaling back of coverage availability as well as demands for higher prices and terms.

Already-expensive insurance coverage, especially that which protects properties and other assets against hurricanes, would only increase further due to the cutback in reinsurance supply. In turn, this would push premium prices beyond the reach of more Bahamian businesses and households, making insurance increasingly unaffordable in a climate where the threat posed by Dorian-style storms is growing.

“We are making no projections on rates and capacity right now because we know both are under strain and this really adds to it,” Mr Saunders told Tribune Business of Nicole. “We also have to remember that if this storm hits us, it ‘s going to hit Florida again. I can guarantee you that whatever happens in The Bahamas, the damage will be worse in Florida. We get lumped in with Florida.”

Declining to make any predictions on the likely damages and insured losses from Nicole, he added: “It depends on how strong it is. If it goes through at a Category One or less it will be minimal damage, but we anticipate at a minimum that flooding and storm surge will probably be the greatest threat at this moment.

“If it gets stronger than that, then all bets are off. We have all the models out and fingers crossed. These things we can’t control. We just have to prepare for it and hope for the best. We are as ready as we can be. We have our adjusters on stand by. We have our reinsurers on stand by. Any legitimate claims out there we will pay. We can rest assured that something will get hit in The Bahamas.”

Mr Saunders said Grand Bahama and Abaco, as well as the Berry Islands and Bimini, appear to be “the most vulnerable areas”. Meanwhile, Patrick Ward, Bahamas First’s chief executive, told this newspaper that when it came to Nicole-related claims payouts “we certainly expect a lot less than Hurricane Dorian” both in terms of number and value.

However, he added that the storm’s late season emergence would impact reinsurance treaty renewals that Bahamian property and casualty underwriters are currently locked in negotiations over. “It’s going to make it more complicated,” Mr Ward said. “On the one hand we had Ian that just took place at the end of September, and here we are going into mid-November and we have another potential storm that could impact Florida as it leaves The Bahamas.

“The reality is we’re already facing a market where capacity is reduced and costs are higher. This just puts a further element of uncertainty into the whole mix. We could have said we were loss free for a third year in a row from a catastrophe standpoint but that doesn’t seem to be the case now.”

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