The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First has been unable to meet new property insurance demand that “exceeded our expectations” despite securing additional reinsurance capacity for 2022 in a bid to generate growth.

Patrick Ward, the BISX-listed property and casualty insurer’s president and chief executive, told shareholders in the company’s 2022 third quarter report that it has been forced to “refocus” on existing homeowner and business clients due to the lack of additional reinsurance capacity.

“Because capacity for catastrophe-related property business is becoming more difficult to secure on the global reinsurance markets, even at significantly higher prices and more restrictive terms, we have not been able to accommodate as much new property business as we would have wished in either jurisdiction (Bahamas and the Cayman Islands),” Mr Ward wrote.

“Prior to the start of 2022, we secured some additional capacity in anticipation of organic growth, but the actual demand has exceeded our expectations. The lack of additional capacity has caused us to refocus our priority on existing customers for the remainder of the year as we take steps to manage our exposures and ensure that we are positioned to look after their requirements.

“We anticipate that the renewal of our reinsurance programme for 2023 will be particularly challenging, as more and more reinsurers announce their intent either to withdraw or reduce their exposures within the region. Nevertheless, we are confident that our strong relationships with the key reinsurers that support us will inure to our benefit.”

With global reinsurance capacity restricted, and that sector demanding higher prices to continue covering property and other risks in The Bahamas and throughout the Caribbean given the multi-billion dollar hurricane-related payouts in recent years, premium costs paid by Bahamian businesses and households will likely both further increase and remain high.

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. This means premium pricing in The Bahamas is largely dictated by reinsurers, and the cut-back in supply with the global reinsurance market pulling back from the Caribbean due to hurricane-related losses, means these cost pressures will only further rise.

And, elsewhere, Mr Ward warned that inflation and global supply chain backlogs are increasing insurance claims payouts on auto accidents as repair costs have risen. “As we move further past the lockdowns that were characteristic of the pandemic, we are experiencing an expected increase in motor claims frequency but with an elevated cost per claim for physical damage due to the rising inflation impact. This is true in both jurisdictions,” Mr Ward added.

“The effect of inflation is a huge topic globally, particularly within the insurance/reinsurance industry as it has significant implications for current and future claim costs and pricing decisions. We have developed mitigation strategies to combat this issue, which have been deployed across the group. Our health line of business also saw an increase in the dollar value of claims paid, but the loss ratio declined slightly because of the higher premium levels associated with this class.

“As the operating environment continues to normalise, we expect operating expenses to return closer to pre-pandemic levels, and this accounts for some of the increase in expenses for the current quarter and the year-to-date result when compared to the prior periods in 2021. Additionally, expenses related to government taxes, provisions for bad debt and bank charges accounted for a significant potion of the overall increase.”

Mr Ward focused on Bahamas First’s net income performance for the nine months to end-September, which stood at $1.155m compared to a $825,425 loss for the same period in 2021. But, when declines in the value of the insurer’s investment securities were taken into account, Bahamas First incurred a total comprehensive loss of $452,096 for the first nine months to-date - albeit a 54.6 percent decline on the prior year’s ‘red ink’.

And, while the Bahamian operations generated $1.842m in net income for the period to end-September 2022, and the Cayman property and casualty business a further $1.553m, the latter territory’s health portfolio dragged the overall group down by producing a $2.24m loss.

“The group’s profit for 2022 year-to-date is $1.2m compared to a loss of $0.8m for the first nine months of 2021. Unfortunately, the unrealised losses booked for our available-for-sale (AFS) investments increased from $1.3m at the end of the second quarter 2022 to $1.6m at the close of the third quarter,” Mr Ward said. “This has resulted in a reduction in comprehensive income of $0.3m for the current quarter.

“The impact of the fair value adjustment on our AFS investments reflects the level of global volatility in the international bond markets. We typically hold these investments to maturity so, barring any adverse event, we expect to recover both the original investment in addition to the interest income associated with these globally diversified investments.

“Given the direction of recent actions against The Bahamas’ sovereign debt rating and the uncertainty surrounding the future outlook, we continue to prioritise having a geographically diversified investment portfolio to protect against the potential downside risks of a single jurisdiction concentration,” he continued.

“The growth in top-line revenue continued in the 2022 third quarter with gross premiums reaching $148.6m by the close of the period. This compares with $135.9m for the same period in 2021.” Hurricane Ian’s devastating impact on Florida and elsewhere in the US is estimated to have caused $60m in insured losses.