The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian general insurer is expecting to hit the $25 million net equity “landmark” by mid-2013, after last year’s net income performance beat budget targets by 30 per cent.

Tom Duff, Insurance Company of the Bahamas (ICB) general manager, yesterday described the underwriter’s 128 per cent net income increase for the 12 months to end-December 2012 as “quite encouraging”, given Hurricane Sandy’s passage and the depressed economy.

He told Tribune Business that losses from Sandy amounted to about one-third of those incurred in 2011 from Hurricane Irene, with ICB’s gross storm claims standing at $2.2 million. Of that, the Bahamian carrier’s share - the net claims - totalled just $374,000.

Describing this outcome as “very helpful” to ICB’s 2012 financial performance, Mr Duff said the rise in gross written premium (GWP) was driven by increases in both its auto and marine portfolios, where the top lines rose by 5 per cent and 13 per cent respectively.

And, while the anaemic economy and increased competition meant ICB was staring at another “difficult year” for 2013, Mr Duff said the underwriter would be “in even better shape” when things did turn around.

ICB’s net income for 2012 more than doubled, hitting $2.645 million compared to $1.16 million in 2011.

The increase was driven by a combination of underwriting profits, which rose 77.1 per cent to $2.189 million from $1.236 million, and a 64.2 per cent increase in operating income to $3.723 million.

“When you consider the results against the backdrop of continued challenges in the economy and the passing of Sandy, for us to make a profit of $2.6 million against that backdrop is quite encouraging and we’re very pleased,” Mr Duff told Tribune Business.

“It was a 128 per cent increase over 2011. That also represents a Return on Equity (RoE) of 12.11 per cent, which again is a decent return in challenging times.

“Our bottom line net income was 30 per cent better than budget. Given the difficult economic conditions that prevailed last year, and the fact we had a hurricane to contend with, it was very pleasing to exceed budget by 30 per cent.”

Total net claims incurred dropped year-over-year by 42 per cent to $2.021 million, compared to $3.524 million for 2011. The reduction stemmed from Sandy’s lower impact, at least in comparison to Irene, and the absence of major fire claims in 2012.

Most Bahamian property and casualty insurers took a hit from the two Bay Street fires in 2011, and Mr Duff said: “Hurricane Sandy ended up being not nearly as costly - about one-third, in gross terms, of Irene.

“That [Sandy] loss stuck for us at $2.2 million gross, which was very helpful. Our net loss was $374,000. There was also the absence of large fires generally across the market - it was a much quieter year for fire losses.”

ICB’s top-line also grew, with gross written premium (GWP) increasing by 4.5 per cent to $44.617 million compared to $42.714 million the year before.

“We had a pretty strong performance in both the motor and marine accounts,” Mr Duff said. “Motor rose by a fraction under 5 per cent, and marine increased by 13 per cent. Those two made a good contribution to the bottom line.”

The ICB general manager said auto book premiums increased because the carrier won back “one large account”, coupled with a sales and marketing thrust to maintain market share.

On the marine side, ICB focused on profitable risk and “targeting some hull business” in 2012. Mr Duff added that it had also been boosted by cargo insurance, with more goods being imported into the Bahamas. The company mainly underwrites business placed by BISX-listed J. S. Johnson.

ICB’s investment income dropped 14 per cent year-over-year, with interest income down to $873,543 from $1.012 million in 2011.

Mr Duff attributed this to both the Central Bank of the Bahamas’ May 2011 Prime rate cut, plus high banking system liquidity, which had depressed interest yields/returns on its $11.44 million in term deposits.

This, he added, had “forced” ICB and other general insurers to focus on their underwriting business.

“It’s key in this environment that most results are produced from technical underwriting,” Mr Duff told Tribune Business. “We can’t get into a situation where we’re relying on investment income to bail us out of poor technical results.”

Still, ICB’s investment income drop was offset by a positive $108,000 swing on unrealised gains/losses on its investments. It also enjoyed a $126,291 reversal of impairment losses previously suffered on the corner lot it owns opposite Bahamas First’s headquarters, and did not suffer the previous year’s $428,586 impairment on that same property.

Looking ahead, Mr Duff told Tribune Business: “There’s nothing I’m particularly concerned about.

“But we see it again being a difficult year on the economic front, although we’ve identified some signs of recovery. We don’t believe the economy is going to get back to pre-recession 2008 conditions for a couple of years yet.

“Disposable income for many Bahamians will continue to be under severe pressure, but we are still confident we will be able to grow our account - grow our income in line with the market,” Mr Duff added.

“We’re really looking to try and grow gross written premium, but there are a couple of new entrants into the market. All these things make it a difficult year for ICB, but we are confident we can continue the progress made in the last couple of years. When the economy does pick up again, we’ll be in even better shape.

“By mid-year our net equity should be at the $25 million mark, which is a nice little landmark for us.”

ICB’s net equity at 2012 year-end was $24.143 million.