The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First has seen a 20 percentage point decline in comprehensive insurance policies’ share of its auto book since the recession began, with total Bahamian motor claims increasing by 18.5 per cent in 2012.

Patrick Ward, Bahamas First Holdings’ president and chief executive, told Tribune Business that pre 2008, the property and casualty underwriter’s motor insurance portfolio “would have been more of a 40/60 split” between comprehensive and third party coverage.

But the underwriter’s 2012 annual report revealed that 80 per cent of its motor portfolio now comprised third party policies, meaning comprehensive coverage had seen its share drop from 40 per cent to 20 per cent.

“There’s definitely a shift,” Mr Ward said, in a nod to the continued trend for consumers to seek out less expensive, pre-owned vehicles as opposed to new cars.

This is being influenced by economic pressures, but Bahamian general insurers will not provide comprehensive coverage for pre-owned vehicles beyond a certain age - usually five years-old.

“This is a situation where people are prepared to take more exposure for damage to their vehicles,” Mr Ward added. “But we are seeing more comprehensive coverage now, with a seeming increase in sales of new vehicles.”

Bahamas First said the total number of insured vehicles on its books - both here and in the Cayman Islands - was relatively flat at year-end 2012 compared to the prior year.

Echoing Mr Ward’s comments, the carrier said in its 2012 annual report: “The buying trend towards more pre- owned vehicle purchases continued in the Bahamas and accounted for a more pronounced shift away from comprehensive motor covers to third party covers, resulting in 80 per cent of our total vehicle count falling into this category.”

In contrast, Bahamas First’s Cayman subsidiary, Cayman First, had seen no such shift. The new result was that group-wide, the insurer’s gross written premiums for motor vehicles stood at $35 million, with a “very strong” contribution to underwriting profits.

This was despite a sharp year-over-year increase in the number of motor claims made upon it in the Bahamas.

“The total motor claims frequency in the Bahamas increased fairly sharply from 2,508 to 2,972 claims, but the average cost per claim was contained at the prior year’s level – largely as a result of the significant cost mitigation advantage we derive from the activities of the First Response Unit,” Bahamas First said in its annual report.

Elsewhere, the underwriter, which believes it maintains a 33-35 per cent Bahamian market share based on gross premiums, said that the economic climate was pushing property owners without a mortgage to either drop catastrophe (hurricane) cover or pay a high deductible.

“The net effect is that we’re not seeing a loss of clients, but we are seeing a definite shift of people going to non-catastrophe cover from a property perspective,” Mr Ward added.

“From a personal standpoint, it indicates people are prepared to take on more risk and exposure, and we think it has a lot to do with the economic environment. People are taking a calculated risk.”

Bahamas First’s annual report added: “In the Bahamas, the combined values for all catastrophe-exposed property business have declined by less than 1 per cent over the last five-year period, while the corresponding data for non-catastrophe business has shown an increase of 21 per cent.

“The total values for both categories have increased by 6 per cent over the same time, but a significant number of policyholders have opted for higher deductible levels in excess of the standard 2 per cent.”

Elsewhere, Bahamas First said there had been “a substantial improvement” in its marine insurance portfolio during 2012, with a loss ratio less than 25 per cent of the average incurred over the previous two years. This was largely due to a reduction in thefts

And, while Cayman First’s gross health insurance premiums had dropped from $23 million to $22 million year-over-year, the Bahamian parent said this was due to a focus on improving portfolio quality.

“The total claims incurred in 2012 from this line of business was $15.6 million, down dramatically from the prior year’s total of $18.9 million, a reduction of $3.3 million or 18 per cent,” the annual report noted.

“The Earned Loss Ratio (ELR) for this class was 71 per cent, as compared to 82.4 per cent in 2011, and well within the budgeted target for this line of business.”

Bahamas First’s group-wide net written premium increased by 1 per cent year-over-year, from $61.1 million to $61.7 million.

The growth resulted in a more than $1 million increase in the unearned premium reserve which, together with the $1.5 million swing from the previous year’s release and loss of reinsurance commissions, dropped Bahamas First’s underwriting income from $83.5 million to $79.5 million.

“On a gross basis, the property and casualty account grew by 9 per cent in the Bahamas, while Cayman showed a decline of 4 per cent in 2012, compared to 2011,” the company said.

“Net property and casualty claims reduced to $10.2 million compared to the $12.7 million in 2011, a 17.4 per cent reduction, which is a reflection of the difference in the cost of Sandy versus Irene. The total underwriting expenses reduced to $59.3 million in 2012 compared to $65.4 million in 2011, a 10 per cent reduction.

“The administrative related expenses declined by 2 per cent in 2012, compared to the prior year, while net underwriting income saw a dramatic improvement to $23.8 million compared to $18.9 million, a positive variance of 26 per cent,” Bahamas First said.

“The excellent technical results were primarily driven by the good underlying property and casualty performance in both Cayman and, to a lesser extent, the Bahamas, particularly the significant improvement in the Cayman health account.”

Although down from 2011, Bahamas First said its solvency margin at year-end 2012 exceeded what was required by $4.7 million.

In his message to shareholders, Mr Ward said: “The combined ratio for 2012 reduced to 95 per cent, as a result of the lower claims ratio, and a containment of the expense ratio at 33 per cent.

“As a result of this favourable development, the net underwriting income increased to $23.8 million, which is just shy of the Group’s record of $24 million, which we achieved in 2010.

“The company’s total equity increased to $47 million from $44 million a year ago, an increase of 6 per cent, while earnings per common share increased from $0.01 to $0.14 in 2012.”