The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading Bahamian insurer yesterday said it generated a “significant profit” of around $4 million for 2012 despite Hurricane Sandy, adding that its conservative “philosophy” had been vindicated by an ‘outlook upgrade’ from the sector’s top rating agency.

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that A. M. Best’s decision to raise the carrier’s outlook from ‘stable’ to positive’ was an endorsement of its strategy to “run a good quality business as opposed to a quantity business”.

Emphasising that the property and casualty underwriter did “not need 50 per cent market share”, Mr Saunders said RoyalStar had adopted its present philosophy after the “very scary year” of 2004 - a year in which it had to contend with claims payouts from three separate hurricanes.

Since then, its strategy has been to concentrate on insuring only appropriately-priced risks, in order to generate consistent underwriting profits. This, A. M. Best said yesterday, had placed RoyalStar “among the top of its Caribbean peers”.

Meanwhile, Mr Saunders told Tribune Business that RoyalStar had incurred around $5 million in gross claims from Hurricane Sandy, excluding those related to Grand Bahama International Airport.

Much of that figure will be picked up by RoyalStar’s reinsurance partners, and Mr Saunders said that with $17 million in net written premium before reinsurance, and a $40 million capital base, the general insurer was “in a very good position” to exploit any market opportunities that arose.

He added that RoyalStar was aiming to move into its new JFK Drive headquarters by the end of April 2013, with the company’s major tenant, a Royal Bank of Canada (RBC) branch, installed by next month.

Speaking on the A. M. Best rating, which reaffirmed RoyalStar’s financial strength rating of ‘A- (Excellent)’ and issuer credit rating of ‘a-’, Mr Saunders said the company planned to maintain the approach that saw it praised for “prudent and resilient” underwriting.

“Our philosophy has always been running a quality business as opposed to quantity business,” Mr Saunders told Tribune Business.

“We don’t need 50 per cent market share. All we do is that we want to make sure there is enough reinsurance coverage so that, when the big one happens, we’re still there for our clients.

“They entrust us with their business. We have to ensure that when something happens to them, we are there to take care of their needs.”

He added that RoyalStar’s strategy had its genesis in 2004, a year when it had to deal with multi-million dollar claims stemming from Hurricanes Frances and Jeanne in the Bahamas, and Hurricane Ivan in the Cayman Islands.

“We had a very scary year in 2004,” Mr Saunders said. “We had three hurricanes that affected us, and from that we changed our philosophy.

“We are entrusted with the people’s assets, and if 2004 repeats itself we can bear all the claims and the company will go on into the future.”

Despite facing Hurricane Irene in 2011, and then Sandy last year, Mr Saunders told Tribune Business: “Through it, RoyalStar was still able to make a significant profit, even taking into account those events.

“For 2012, we’ll be around our budgeted figure of a little under $4 million. That money will be pumped back into the balance sheet to ensure we have a strong company. And when we do the final numbers, we might even have a positive surprise.

“We’re not intending to change our philosophy. We look at the market. If the market is soft, we release some of our business. If it’s hard, we increase it. We like consistency; consistency of being boring, consistency of paying claims.”

The RoyalStar managing director added: “We have a consistent capitalisation of about $40 million.

“We are very liquid, we have net written premium of $17 million before contracts for reinsurance, so we are in a very good position to take advantage of whatever market conditions occur.”

Looking ahead to 2013, Mr Saunders noted that new entrants to the Bahamian general insurance market, such as Netherlands Antilles General Insurance Company (NAGICO), would impact its performance.

Expressing scepticism that the likes of NAGICO’s Bahamian subsidiary would be able to maintain reinsurance support for premium rates ‘20 per cent or more’ below prevailing market levels, Mr Saunders told Tribune Business: “We think there’s only so much reinsurance capacity for the Bahamas, so we will not get into any rate wars with anyone.

“We think it should be a consistent year, but we’ll have to see how some of the new players react.”

Mr Saunders said RoyalStar aimed to have the major tenant for its JFK Drive headquarters building, an RBC branch, in the building by end-February 2013. The insurer itself would then occupy its new premises by end-April.

The RoyalStar chief said Royal Bank would occupy 85 per cent of the ground floor space, with the insurer’s “small claims section at the back” taking the remainder.

Some 70 per cent of the second floor will be occupied by RoyalStar itself, with two other spaces set to be leased to tenants.

Apart from the Bahamas, RoyalStar is licensed to do business in the Cayman Islands, Turks & Caicos and the British Virgin Islands.

Explaining the rationale for its rating of RoyalStar Assurance (RSA), A.M. Best said yesterday: “The ratings reflect RSA’s consistent overall profitability, excellent capitalisation and established presence within the Caribbean market.

“RSA continues to produce positive operating results, which are a function of the company’s prudent underwriting philosophy and steady stream of investment income.

“The positive outlook reflects RSA’s resilient underwriting results, which consistently place it among the top of its Caribbean peers.”

And it added: “RSA writes all of its business in the Caribbean, which exposes it to frequent and severe weather-related events. Although this makes RSA somewhat dependent on reinsurance as part of its overall risk management strategy, its panel of high quality reinsurers mitigates much of this credit risk.”

On the downside, A. M. Best said: “These positive rating factors are partially offset by RSA’s geographic concentration, aforementioned dependency on reinsurance and exposure to weather-related catastrophes, as well as sluggish economic conditions in the Bahamas.

“Furthermore, the Bahamas and other Caribbean insurance markets have become increasingly competitive as indigenous and outside insurers seek to gain market share in the region.

“Key rating drivers that may lead to positive rating actions on RSA include its continued strong underwriting results in conjunction with surplus appreciation and improvements in the Bahamas’ macroeconomic environment.

“Negative rating triggers could include prolonged adverse operating results that are exacerbated by a series of large catastrophic events.”