The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

J. S. Johnson is targeting a “modest single digit” bottom line increase for 2013, its managing director yesterday saying profits would increase “for sure” given reduced claims losses last year.

Alister McKellar, the BISX-listed broker and agent’s managing director, told Tribune Business that the better claims performance - despite Hurricane Sandy - would have a “positive effect carrying forward into 2013”.

Speaking after J. S. Johnson suffered a 20 per cent decline in its consolidated net income to $4.672 million for the first nine months of 2012, Mr McKellar said the drop largely related to claims losses its affiliated underwriter, Insurance Company of the Bahamas (ICB), suffered in 2011.

ICB, and the rest of the Bahamian property and casualty industry, were hit by Hurricane Irene and the two Bay Street fires that year.

Due to time lags, J. S. Johnson, which owns 40 per cent of ICB, only felt the full effect of these events in 2012.

These largely manifested themselves in a negative $2.45 million swing on fees and commissions earned by ICB, which went from a positive $1.047 million in 2011 to a $1.409 million loss for the first nine months last year.

Those fees and commissions are largely earned from reinsurers, and Mr McKellar told Tribune Business of the swing: “That’s all driven by loss experience, so if we don’t have the losses, that income comes back in....

“The bottom line is that if you have a bad year claims wise, you catch a cold the next year, and if you have a good year you’re going to get rid of this flu. It’s the fickle part of the business. You just can’t control it. It’s swings and roundabouts.

“We are encouraged by the improvement in loss experience in 2012, and that will have a positive impact in 2013. It’s a significant improvement and bodes well, barring any unforeseen losses. That’s the key; building on the positive clams experience from 2012.”

J. S. Johnson’s net claims incurred fell by 56.3 per cent during the nine months to end-September 2012, dropping from $2.691 million in 2011 to $1.177 million, providing Mr McKellar with reason for optimism in 2013.

This was despite Hurricane Sandy’s emergence in the 2012 fourth quarter, with the J. S. Johnson managing director disclosing that total claims from that storm would be less than ICB’s initial $3 million top-end estimate.

Noting that this sum would be much less than Irene claims from the previous year, Mr McKellar said: “That, in turn, will have a positive effect carrying forward into 2013. We don’t have the legacy of a bad year the year before.”

He added: “We are very much holding our own. The losses that Sandy inflicted on us and the market were far less than for Irene the previous year.

“The two fires in 2011 were a big impact on the market as a whole. We expect every couple of years there’s going to be a hurricane that impacts us, but historically the attritional losses in this market have been very good. We didn’t have anything of that significance [the fires] in 2012.”

Racardo Underwood, J. S. Johnson’s managing director, added: “There are going to be cyclical ups and downs related to losses.”

The consolidation of ICB’s financials into J. S. Johnson’s annual financial statements has introduced a certain element of volatility into the BISX-listed company’s performance. A good year for claims losses boosts ICB’s and, by extension, J. S. Johnson’s net income, but a bad year reduces the bottom line for both companies.

Mr McKellar acknowledged that the ‘average person’, looking at the year-to-date figures for 2012, might believe the “results are bad and it is all doom and gloom”, without realising it all stemmed from the year before.

Based on the improved 2012 performance coming through in 2012, Mr McKellar said J. S. Johnson was eyeing “modest single digit growth for 2013” in its net income line.

Despite a flat Bahamian economy following the 2008-2009 recession, the J. S. Johnson managing director said development and investment had continued, “maybe not at the same pace as five years ago”.

The BISX-listed broker and agent had been careful to provide insurance coverage to the projects that were progressing, Mr McKellar confirming that it was involved with both the Baha Mar and Albany developments.

“It’s just making sure that whatever economic development is going on in the country, we’ve positioned ourselves as best we can to access that business,” he explained.

Going forward, economic growth remains vital to prospects for both J. S. Johnson and the wider Bahamian insurance industry. An improving economy means more jobs and higher salaries, which translates into more expensive cars and auto insurance coverage, plus rising real estate values and property insurance premiums. Essentially, insurers should see improvements in volume and business yields with a growing economy.

“Everyone is looking for the turn,” Mr McKellar told Tribune Business. “I think everyone is of the view that we’ve bottomed out, and we’re starting to see a very slow pick up.

“It’s [economic growth] very important, otherwise we’re basically in a standing still position. It’s business as usual; you’re up and down, good year and bad year, on the underlying results. If there’s not an improvement, then again, you look - as everyone is - at expenses.”

Given J. S. Johnson’s size and position among the market leaders, Mr McKellar acknowledged that it was difficult to achieve organic growth. The intense competition between both underwriters and agents/brokers meant it was an intense battle for market share.