The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian families and businesses were yesterday warned that property insurance costs will “no doubt be higher” in 2023 even though the country “dodged a bullet” with Hurricane Nicole.

Patrick Ward, Bahamas First’s president and chief executive, told Tribune Business the only issue is “by how much” premium prices for property-related catastrophe cover will rise as a result of the “hard” reinsurance market conditions faced by local underwriters and counterparts throughout the global.

Asserting that the increases are largely beyond the control of Bahamian insurers, he explained that the main driver is reinsurance demand outstripping supply at a time when the market was already cutting back its exposure to hurricane-prone nations in the Caribbean and wider region.

Local property and casualty underwriters are currently in the middle of negotiations to acquire sufficient reinsurance in time to renew these treaties for January 1, 2023. As a result, Mr Ward told this newspaper it was too early to determine the extent of next year’s insurance premium hikes for Bahamian consumers as the industry was still working to pin down its own costs.

The prospect of further cost increases is among a multitude of unresolved issues that the Bahamian insurance industry has been trying to obtain clarity on for months. These include the Government’s plan to change the industry’s taxation structure, as well as the VAT treatment of private medical claims paid by health insurers.

The 2022-2023 Budget sought to switch the entire industry - property and casualty insurers, as well as their life and health counterparts - from the 3 percent tax paid by consumers on insurance premiums to a 2.25 percent annual Business Licence fee based on “turnover”.

The sector has ever since been seeking clarification on the precise definition of “turnover”, and if it means “gross written premium” or “net premium earned”, as this is critical to determining how much tax will be paid. With no answers forthcoming on that, as well as the altered VAT treatment of private medical claims, Mr Ward said the Bahamas Insurance Association (BIA) is now awaiting a response from the Prime Minister to its latest letter.

And, compounding the domestic uncertainties, Bahamian insurers are also waiting to here whether pending changes in German law will force that country’s reinsurers to withhold a portion of their claims payouts as a result of the country’s latest ‘blacklisting’ by the European Union (EU).

While Nicole largely sparing The Bahamas has eased some of the reinsurance pressures, Mr Ward said the outcome will have no bearing on the fall-out from $60bn worth of insured losses and damage caused by Hurricane Ian in the US. This, he indicated, will only make reinsurers even more reluctant to underwrite hurricane-related losses in The Bahamas and wider Caribbean.

“There is no doubt prices will be higher,” Mr Ward told Tribune Business of the insurance consequences for Bahamian homeowners and businesses. “By how much is yet to be determined. The cost of insurance for catastrophe exposures will definitely be higher. I don’t think other classes will be impacted, but property coverage for catastrophe exposure definitely will be higher next year.”

Asked how much higher, he replied: “It’s too early to be definitive yet. We have to pin down our own costs for next year. How much we charge next year will be driven by how much our own costs go up.” 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.

As a result, reinsurers and their prices largely dictate local premium pricing in The Bahamas. Mr Ward said this was not unique to this nation, adding that developed countries are facing the same situation “because of the acute nature of the capacity crunch.

“On a global basis, the reinsurance market in its totality is moving further away from the catastrophe exposure they took in prior years and are recalibrating their risk appetite,” he added. “The net effect is that the demand for reinsurance capacity is higher than the supply of that capacity.

“I think that if there had been a major loss in The Bahamas market it would have made the cycle of reinsurance contract renewals for 2023 more complicated than it already is. There’s no question we are in a very hard market, and the availability of capacity is an issue at any price.

“The absence of a major loss so late in the season took a bit of the pressure that would have been there off the table, but even though we dodged a bullet with Nicole it’s still going to be a difficult renewal season.”

Hurricane Dorian’s devastating $3.4bn in total losses and damage exposed the need for Bahamian families and businesses to protect what is often their greatest investment, namely homes and property, but the necessary coverage is becoming increasingly expensive and - in some cases - unaffordable for a growing percentage of the market.

Mr Ward, meanwhile, said resolving domestic taxation issues is also preoccupying the Bahamian insurance industry. On the switch from the premium tax, he said: “All I can say is that I know the BIA has written to the Prime Minister and we are awaiting a response. If that response does not come in a specified timeframe, I suspect you will be hearing from the industry on a more formal basis.

“It is becoming more critical from a time basis. Nothing has been resolved, and we are pressing as hard as we can on our side to clarify the position.”

Both Mr Ward and Anton Saunders, RoyalStar Assurance’s managing director, described Nicole as a “very minimal event” in terms of payouts for the Bahamian insurance based on the number of claims and level of damages reported to-date.

“We can all thank our lucky stars that with all the things going on in the insurance market right now this is not something we have to deal with,” the Bahamas First chief said. “Let’s put it this way. If something had happened it would have made it worse because we have a cycle of negatives that we have to deal with. It [Nicole] doesn’t add to the stress; let’s put it that way.”

German reinsurers may have to withhold up to 15 percent of claims payouts to Bahamian underwriters with effect from January 1, 2023, under a new law in that country designed to deter companies from doing business with so-called ‘tax havens’. The Bahamas, in Germany’s eyes, falls into that category as a result of being blacklisted by the EU for being non-cooperative in tax matters.

Mr Saunders said he understood The Bahamas’ compliance with the EU’s substance reporting requirements will be reviewed in February next year, which would be too late for the insurance industry. He added that the sector, as well as their German reinsurance counterparts, are analysing the implications and will know more come December 15.

“The Bahamas government is not going to have any bite at the pie until February because that’s when the next review happens,” the RoyalStar chief said. “We will see what ourselves and our German partners can come up with to resolve the matter. We are where we are on the blacklist. How we got there, whose fault it is, is not my concern. We are there and need to get off it.”