The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalStar Assurance and its parent are poised to acquire the insurance agency operations of one of their major shareholders, multiple industry sources have revealed.

Numerous contacts, speaking on condition of anonymity, disclosed to Tribune Business that Star General Insurance Agents & Brokers is the acquisition target that both Sir Franklyn Wilson, RoyalStar Holdings’ chairman, and Anton Saunders, its managing director, referred to in interviews with this newspaper last week.

Sir Franklyn did not deny Star General’s identity when it was subsequently put to him, saying merely: “I have no comment.” However, insurance industry sources suggested the deal - which is only awaiting regulatory approval from the Insurance Commission - will effectively represent a form of “reverse takeover” whenever it is concluded.

That is because Star General is a major shareholder in RoyalStar Holdings. It is the minority partner in SunStar Ensure Ltd, the vehicle that collectively owns a majority 53.05 percent controlling stake in RoyalStar Holdings. SunStar is in turn majority-owned by Sir Franklyn’s Sunshine Holdings, with Star General’s holding in that entity thought to translate into just over 20 percent of RoyalStar Holdings.

Tribune Business sources said the rationale for the deal is that it will give RoyalStar Holdings greater control over its distribution channels, and a key agency that writes and issues client policies on its behalf, while also representing a form of succession/estate planning for Star General’s principals.

“I think that is the entity based on my knowledge of what is taking place,” one insurance industry insider said of Star General’s purchase. “I think one of the reasons is that RoyalStar Holdings has been effectively creating a corporate formation very similar to what Bahamas First has set up as a group.

“That is to have ownership of the agencies and risk-taking entity under one consolidated holding company. Buying up agencies gives them another level of control over distribution channels they have. To that extent it makes sense for RoyalStar and, because of succession planning, it makes sense for Star General’s principals.

“It’s probably an easy transaction to complete if both parties are committed to it. The only thing being purchased by RoyalStar is probably the insurance operation. I don’t think it involves purchasing the entity itself.” They source voiced surprise, though, that the impending acquisition was not mentioned in footnotes to RoyalStar’s just-published audited financial statements.

Other Tribune Business sources agreed that the acquisition likely did not include Star General’s equity interest in RoyalStar Holdings. It is understood that other underwriters, including the latter’s major competitor, Bahamas First, as well as life and health insurers are watching the situation keenly as Star General presently writes business for them in its capacity as an agent/broker.

Mr Saunders, though, last week sought to reassure the industry by telling this newspaper that Star General would continue to write business for other carriers as well as RoyalStar. The Star Group, the parent company, has separate agencies for life and health and property and casualty agencies, as well as Star Investments, which is likely the entity that holds the RoyalStar Holdings stake.

Contacts, meanwhile, suggested that selling the insurance agency business effectively represented estate planning for Star Group’s principals, chairman James (JM) Pinder, and Herbert Thompson. “The only thing Star has is the agency business, and the owners are getting on in years,” one source said. “The write quite a lot for RoyalStar.”

Meanwhile, RoyalStar’s strategy of creating a holding company to allow it to diversify into other investments and industries continued to pay-off during a COVID-19 hit 2020, generating a more than $1.1m profit for the group. Added to the $5.233m ‘bottom line’ produced by RoyalStar Assurance, the property and casualty insurer, this took group profits for the year to $6.048m.

That represented a 92.4 percent year-over-year increase on RoyalStar Holdings’ 2020 net income of $3.143m, as the group also benefited from a hurricane-free year and being up against favourable comparatives due to the massive Hurricane Dorian-related payouts in 2019.

RoyalStar Assurance’s net profits increased more than five-fold in the absence of storm-related claims, jumping to $5.233m compared to just $908,705 the previous year. This was further enhanced at the group level by RoyalStar Holdings’ 32.6 percent interest in Fidelity Insurance (Cayman), an insurance agent/broker, which it acquired in late 2019 and other investments.

Fidelity Insurance (Cayman), in its first full year of contributions to RoyalStar Holdings, produced $1.691m worth of net income, of which the latter’s share was $545,395. Equally profitable was its 45 percent share in Gateway Financial Holdings, the entity that acquires delinquent mortgage loans from Bahamian commercial banks and restructures them.

Gateway Financial produced a further $1.167m in net income for its shareholders in the 12 months to end-December 2020, of which RoyalStar Holdings’ share was some $525,836. That, though, was down on 2019, when Gateway Financial generated $3.74m in profits with RoyalStar Holdings enjoying a $1.683m share.