The Tribune

By NEIL HARTNELL

Tribune Business Editor

A BAHAMIAN general insurer has told Tribune Business it would probably have generated $3-$4 million in net income for 2011 had it not been for Hurricane Irene and fire-related claims, its bottom line finishing 71.8 per cent down on the previous year's results.

But despite the year-over-year swing from $2.431 million to just $684,865 in net profit, a drop also impacted by a "$2 million swing" on its unearned premium reserve, Summit Insurance executives described the underwriter's performance as "positive" given the circumstances it had to contend with.

Timothy Ingraham, Summit's president, told Tribune Business that the carrier incurred more than 400 Irene-related claims worth a gross $6.5 million. It also provided insurance coverage to the properties impacted by the two Bay Street fires - the Betty K complex and Pompey Museum - and saw "just over $3 million in claims from those two".

As a result, Summit's net incurred claims increased by 57.3 per cent year-over-year to hit $7.211 million, compared to $4.585 million in 2010, and were the major factor behind its bottom line drop.

Still, Mr Ingraham told Tribune Business that Summit - the carrier through which Insurance Management places most of its general insurance business - was among the few Bahamas-based businesses likely seeing some spin-off benefits to-date from the New Providence Road Improvement Project.

Suggesting all the roadworks were acting as a possible impediment to excessive speeding, Mr Ingraham said the carrier's loss ratio on its auto portfolio "would have improved by at least 10-15 per cent" in 2011 compared to 2010.

And he expressed hope that the new Christie administration would continue the capital works projects left in place by the FNM until completion, as performance bonds/contractor liability insurance had been a growth area for Summit in 2011.

"Considering Irene and that we had some participation in the two fires on Bay Street, along with a couple of other significant fires, I think it's a positive result," Mr Ingraham said of Summit's 2011 performance.

Industry-wide, Bahamian general insurers saw reduced net income in 2011 as a result of Hurricane Irene and fire-related claims. Examining Summit's bottom line performance more closely, Mr Ingraham added: "The huge chunk, the lion's share, was definitely as a result of Irene.

"The claims there would have been over 400, and we paid somewhere in the region of $6.5 million for all the losses incurred in Irene. Between the two Bay Street fires, we had just over $3 million in claims from those two. We also had a private house that was fire damaged, and another business that had fire damage. Fires and hurricanes; those are the reasons we're in business."

Mr Ingraham told Tribune Business that the 2011 results were also impacted by the change in its unearned premium reserve, which was related to the restructuring of its reinsurance treaties.

In 2010, Summit reduced the amount of risk that it retained on its books from its auto and liability insurance portfolio, enabling it to reduce its unearned premium reserve by $572,603. Yet last year, it elected to increase the risk it retained from those two categories, forcing it to grow its unearned premium reserve by $1.492 million.

"That's about a $2 million swing," Mr Ingraham told Tribune Business. Explaining why Summit chose this course, given the negative impact on its financials, he added: "It was as a result of restructuring treaties. It was the reinsurance treaties that we had, which we terminated."

Bahamian general insurers buy large amounts of reinsurance, but Summit felt the changed terms of this particular treaty were "unfavourable" to it and renegotiated them.

"One of the reinsurers terminated the treaty; it was very amicably done, and one remained on it," Mr Ingraham said.

"The unearned premium reserve was also affected by the increase in premium income. It wasn't unexpected. We knew from the beginning of the year, as a result of the change in treaty structure, that it would affect the results.

"When we terminated a part of the treaty, we had to do the portfolio transfer, as we were capturing more of the risk than we did in the past."

Summit's written premiums increased by 8.5 per cent to $42.385 million in 2011, up from $39.079 million the year before, but the $2 million swing in the unearned premium reserve dropped net premiums written from $15.64 million to $15.265 million.

And, due to the rise in net claims incurred, Summit's direct expenses rose 19.2 per cent to $14.185 million, compared to $11.904 million the year before, while its underwriting gain fell by 71.1 per cent - to $1.08 million from $3.737 million.

On the positive side, Mr Ingraham added: "One other feature last year was the decrease in auto and motor losses which, oddly enough, was partly due to the roadworks and fact people could not get up to speed.

"It would have come down at least 10 per cent on the loss ratio. It would have improved by at least 10-15 per cent."

Hurricanes remain the key determinant of Bahamian general insurance industry profits, and while storm season has just begun, Mr Ingraham said the first part of 2012 had gone better than last year.

"The first five months have definitely been better than the first half of last year," he told Tribune Business. "We had the first Bay Street fire on Valentine's Day. The first half has definitely gone better than last year."

But, with the economic outlook still uncertain and commercial banks reluctant to lend, Mr Ingraham acknowledged that "finding new business is going to be a challenge".

Summit was anticipating written premiums would remain flat for 2012, and Mr Ingraham added: "If we see any kind of growth at all, we'll consider it a pretty good year. Maintaining what we have will be a positive at this point. Lastsyear we had quite a bit of construction in the local economy, and I don't think we're going to see as much in the second half this year as last."

Projecting forward, the Summit president told Tribune Business: "If we hadn't had the hurricane and unearned premium income issues last year, we'd have probably been looking at net income in the $3-$4 million range. That, if all goes well, is where we could end up, but that's everything lining up and working well."