The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First Holdings (BFH) is on course to generate 2012 profits that will be “multiples” of last year’s $1 million net income, its chief executive yesterday disclosing that an international rating agency had “validated” the turnaround strategy for its Cayman operation.

Disclosing that insured losses related to Hurricane Sandy would be 50 per cent of what was incurred from Irene in 2011, Patrick Ward, who is also the general insurance group’s president, said it had once again received a “tremendous endorsement” from A. M. Best.

In particular, the leading credit rating agency had upgraded the outlook for its Cayman Islands subsidiary, Cayman First Insurance Company, from ‘negative’ to ‘stable’.

And A. M. Best also maintained the ‘stable’ rating on BFH’s main Bahamian asset, Bahamas First General Insurance Company, along with the two subsidiaries’ financial strength rating of A- (Excellent) and issuer credit ratings of ‘a-’.

Mr Ward told Tribune Business that the A. M. Best upgrade was effectively an endorsement of the Bahamian insurer’s turnaround strategy for the $20 million group medical and benefits portfolio held by its Cayman subsidiary.

It inherited this when it acquired Cayman First in early 2011, and Mr Ward said: “We’re obviously very happy because it validates what we’ve been doing and saying with that operation for the past 18 months.

“We had an internal focus over the group medial and benefits part of their portfolio, which is over $20 million in premium income.

“As a result of claims containment initiatives, repricing of the portfolio and tightening up of the underwriting criteria, all of these things worked in concert to bring improvement in that account, and we’re looking at a significant turnaround in underwriting profit.

“As a result of that, it’s [Cayman First] going to see the biggest bottom line improvement for quite a long time.”

Mr Ward added that BFH targeted Cayman First’s medical insurance portfolio for improvement from the day it acquired the company, having picked up on the issues during due diligence.

“All our efforts in that regard are coming to fruition,” the BFH chief said. He added that Hurricane Ivan-related litigation, which was also inherited from Cayman First’s previous owners, was coming to a close.

Cayman First accounts for one-third of BFH’s total business, the Bahamas remaining very much its core market.

Bahamas First’s foreign venture was both designed to expand its geographical spread of risk, given the frequency of hurricanes, and counter the increasingly competitive and crowded nature of the Bahamian property and casualty underwriting market. Both issues were cited as risk factors by A. M. Best.

Speaking to the wider impact of the A. M. Best rating, Mr Ward told Tribune Business: “It’s a tremendous endorsement of Bahamas First going forward.

“The marketplace is becoming increasingly competitive because of new entrants, and one thing we want to do is ensure the client base is being evaluated by an independent source.

“We find it’s [the A. M. Best rating] increasingly important. There are clients that do business with us that will not do business with Bahamas First if we did not have that rating at the level we have it.”

Hinting that Bahamas First might use its high A. M. Best rating to differentiate itself from rival underwriters, he added: “That is a positive evaluation, and it’s going to be one of the distinctive features in the marketplace going forward. It’s one of the things regulators take comfort in today; it reaffirms or affirms views they hold about things.”

While Hurricane Irene sparked a year-over-year net income drop from $2.5 million to $1 million in 2011, Mr Ward said just the reverse was set to happen with BFH’s 2012 financials despite Hurricane Sandy.

“There is no question that the Sandy losses are nowhere near Irene,” he told Tribune Business.

“At this stage we’re reasonably sure that the ultimate loss will be 50 per cent of Irene, and we expect the overall results for Bahamas First and the group, once we factor in all the consolidated results from all the companies, will be significantly better than last year.”

Asked just how much better, Mr Ward replied: “It will be multiples of the previous year. No question about that. It will be at least double, and probably more than double.”

When it came to total Hurricane Sandy insured losses/claims, the BFH chief said: “I would say that at this point we’re looking at between $12.5 million and $15 million.

“But that’s a top end number, and the trends are indicating lower than that. Yet, if we’re being conservative, it’s $12.5-$15 million.”

Mr Ward said the Bahamian property and casualty markets were looking at $30-$35 million in total Sandy losses.

In its analysis, A. M. Best said: “As the primary holding and major source of earnings for BFH, the ratings of Bahamas First General Insurance (BFG) reflect its continued excellent capitalisation, historically favourable operating performance and leading market share in the Bahamian market.

“These factors are supported by BFG’s conservative catastrophe programme, local market expertise and solid risk management programmes.

“These positive rating factors are offset by BFG’s dependence on reinsurance, geographic concentration and catastrophe exposure, particularly to hurricanes in the Caribbean. Additionally, there is increased competition within the Bahamian insurance market and lingering economic and fiscal concerns about the Bahamas’ overall economic outlook.”

Mr Ward told Tribune Business that Bahamas First was more optimistic about the Bahamian economy than the A. M. Best report made out, saying that recovery signs meant “the level of concern we have is lower than it would have been a couple of years ago”.

Meanwhile, on BFH’s Cayman subsidiary, A. M. Best added: “The ratings of CFIC recognise its capitalisation and positive non-health operating results, along with its expertise in the Cayman market.

“CFIC’s revised outlook acknowledges the improved operating results from its accident and health lines of business. Additionally, the revised outlook reflects CFIC’s winding down of litigation from prior ownership, which had a significant negative impact on the company’s earnings and capital position.”

Looking ahead, A. M. Best added: “While the outlook for BFG’s ratings is stable, positive rating actions could occur if the company exhibits sustainable long-term improvements in operating performance, coupled with improvements in the Bahamas’ macroeconomic environment.

“Negative rating triggers could include protracted adverse operating results that are exacerbated by a large catastrophic event or a significant decline in risk-based capitalisation.

“Negative rating triggers for CFIC would include deterioration in its operating results, in particular from its accident and health business, or a decline in equity resulting in increased leverage metrics. Positive rating triggers would include continued improved profitability and organic surplus appreciation.”