FamGuard profits 'over $6m' if not for Prime hit


Tribune Business Editor

FAMGUARD Corporation yesterday told Tribune Business it would probably have generated "in excess of $6 million" in net income for 2011 had it not been for the Prime rate cut, disclosing that it suffered "close to a $1.3 million hit" through the impact on its reserves and investment income.

Patricia Hermanns, president and chief executive of the BISX-listed insurance holding company, said FamGuard's $5.218 million net income - a modest 1 per cent increase on 2010's $5.164 million - came in "close to expectations" and was a worthy performance given "all the challenges" the company faced in 2011.

"We were pleasantly surprised at the outcome given that we had the decrease in the Prime rate," Ms Hermanns told Tribune Business. "We're very sensitive to reductions in interest rates.

"The Prime change reduced net income somewhat, and if that had not occurred we would have been quite a bit ahead of 2010. We would probably have been in excess of $6 million without that change."

FamGuard, in common with all other Bahamian life and health insurers, was forced to increase its policyholder reserves to meet the expected reduction in future investment-related income as a result of the 75 basis points Prime Rate cut to 4.75 per cent, while also taking a hit on that investment income.

Ms Hermanns told Tribune Business that on the reserves front "the hit was just under $1 million", and in line with the guidance provided in FamGuard's 2010 financials, which warned that a 1 per cent cut in the Prime rate would force it to increase reserves (reduce profits) by around $940,000.

While FamGuard had been able to mitigate the reserves impact to some extent, as a number of its insurance policies permitted adjustments in the event of a Prime rate cut, Ms Hermanns added that the Central Bank action also meant investment income for 2011 was relatively flat year-over-year.

"That is reflecting the impact of the reduced yields," Ms Hermanns explained, "because the majority, if not all, investment assets are Prime tied, so the interest income generated by those investments would have decreased.

"We were very happy with the outcome for the year, given the challenges we were faced with - the Prime reduction, and the reduction in investment income on fixed assets. That would have impacted us by close to $1.3 million.

"The fact we were slightly ahead of [2010] is quite a good thing, given all those challenges. It was close to expectations."

Meanwhile, Ms Hermanns told Tribune Business that FamGuard, the BISX-listed holding firm for life and health insurer, Family Guardian, and its affiliates, had seen total assets under management in its wealth management division hit $36 million by 2011 year-end.

The division includes the FG Financial and FG Capital Markets subsidiaries, the latter of which manages three mutual funds. Noting that FamGuard had only launched its wealth management division in 2008, Ms Hermanns added: "We've seen quite a bit of growth since 2008, when we launched. It's done very well, and we've been very happy with the growth of that."

Another strong growth area, she told Tribune Business, was annuities, which "grew quite aggressively last year" by $14 million. That was on top of the $11 million growth in annuity deposits seen in 2010.

And Ms Hermanns also disclosed that FG Insurance Agents & Brokers, FamGuard's general insurance agency, had generated some $2.9 million in premium income in the 16 months to end-December 2011, having launched in September/October 2010.

"We have been growing our premium income, and it's reflected to some extent in our income statement and other operating income," Ms Hermanns told this newspaper.

"We've seen growth in other operating income, which includes income we see coming from the property and casualty business. Over 2010, that contribution increased by $300,000, most of it being revenue generated from property and casualty."

And, in a bid to deliver "added value" to its health insurance policyholders, Ms Hermanns told Tribune Business that in March 2012, Family Guardian had teamed up in a deal with Aetna.

"We have an exciting initiative where we have teamed up, and established a partnership, with Aetna, which is a major third party provider - one of the largest networks in the US," she added.

"We have formed an alliance with Aetna for the purposes of providing policyholders with care in North America and internationally, predominantly in North America. We believe this will provide added value to policyholders, particularly in the quality of healthcare support."

Emphasising that FamGuard was looking at an improved 2012 financial performance, compared to 2012, Ms Hermanns told Tribune Business: "Our goal is to deliver over and above what we accomplished in 2011. We're hoping we would do better than 2011.

"We're moving forward. We're hoping to build on the growth in 2011. We're focused on trying to maximise revenue streams from all lines of business we offer, and in particular are focusing on added value to the client base - particularly our health clients - and enhance service across the board, electronic as well as face-to-face access."


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