The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalStar Assurance is aiming to leverage its $44 million net equity and “become one of the premier players in the Caribbean” within the next five years, its managing director saying: “We want to be the hunter, not the prey.”

Anton Saunders, RoyalStar’s managing director, told Tribune Business “there’s nothing off the table” when it came to exploring insurance industry mergers and acquisitions, or strategic partnership, opportunities within the Bahamas or wider Caribbean.

He explained that the Bahamian property and casualty insurer wanted “to be around for the long-term”, and that to “sit on our laurels” given the company’s strong financial position would invite takeover bids by industry rivals.

Emphasising that RoyalStar would remain true to its core values, and only entertain expansion opportunities that were “the right fit”, Mr Saunders indicated that downward pressure on premium rates was one reason why the underwriter was looking outside the Bahamas.

“We told everyone that we cannot look in the rear view mirror and believe business will be successful for the future,” Mr Saunders explained of the carrier’s newly-determined strategy. “The insurance and reinsurance markets are changing, and people are knocking on our doors for us to look at them.

“So we are looking at strategic partnerships, mergers and acquisitions, where it fits us, and so over the next five years we are going to strategically focus on repositioning the company where we can become one of the premier players in the Caribbean.

“We either be the hunter or the prey, and we want to be the hunter.”

RoyalStar has a solid financial platform from which to make its expansion bid. A solid $4.12 million net profit for 2013 helped drive retained earnings to $25.339 million at year-end, a figure that accounts for 57.6 per cent of its almost-$44 million net equity.

Total assets of $87.191 million are more than double $43.226 million in total liabilities, and the general insurance underwriter also held $21.38 million in liquid assets, via cash and term deposits, at year-end 2013.

Acknowledging that RoyalStar also had to keep its reinsurers happy, Mr Saunders told Tribune Business: “Investment opportunities are dwindling for those guys, and we have to feed their appetite.

“We have certain targets we want to achieve, and we can’t keep having a strong balance sheet and doing nothing with it.

“We are open to talking to anyone inside and outside the Bahamas. If it makes sense to us, we’ll see how far it goes. We will not be the company that sits on our laurels, looks in the rear view mirror, sees that we have had success in the past, and believes that success will be dependent on that in the future,” Mr Saunders told Tribune Business.

“We have to start thinking more as a premier player in the Caribbean, and say we have this balance sheet, we have this [A. M. Best] rating that’s the highest in the Caribbean, let’s put it to work for us.”

Mr Saunders’s message is that RoyalStar cannot afford to stand still, otherwise its financial performance risks attracting other predators who will seek to gobble up the carrier. While he did not identify any definitive merger and acquisition targets, he said the insurer would implement the Board’s strategy and “see where it leads us”.

“From the Board’s standpoint, they agreed that, let’s focus on the changing environment,” the RoyalStar managing director told Tribune Business. “We have this asset, this balance sheet, how do we put it to work for us to ensure RoyalStar Assurance is around for the long-term?

“Our focus is going to be looking at all opportunities in the Bahamas and the Caribbean. We have said there’s nothing off the table because we have the luxury of moving on if we don’t like it.

“We’ve had people coming to our door. Some were dismissed because they were not the right fit, whereas with others we’ve had to ask what are the opportunities that exist for all parties.”

But, noting the flipside, Mr Saunders said: “This is a two-way street. I’m sure people are sitting around their Board tables in the Caribbean saying [of RoyalStar]: ‘This is a strong balance sheet, a very attractive company. Are they for sale?’

“We have to keep moving. There’s a change in the environment now. Our core values are not going to change, as they have made us successful.”

The Bahamian insurance industry has been one of the economy’s few sectors to expand beyond this nation’s borders. RoyalStar already has a strong presence in the Cayman Islands, and is seeking to ramp up its British Virgin Islands (BVI) business to around $2 million in gross written premium (GWP) per annum.

Mr Saunders confirmed that RoyalStar had “activated” its BVI licence, and said: “We’ve started to write, not a massive amount of business, but we have identified the agent down there, Caribbean Insurance Agency, and are putting in place the sort of goals and targets we want to achieve in the next year.

“Once we get the reinsurance in place, we will start writing more business there. If we can write $2 million in gross written premium down there, we will be happy to give a little spread.”

Apart from RoyalStar, both Bahamas First and BA Financial have an underwriting presence in the Cayman Islands, the former via acquisition. Other local players, such as J. S. Johnson and Colina, have also expanded to the Turks & Caicos Islands.

RoyalStar’s year-over-year net income performance was essentially flat, ending 2013 down 6.4 per cent at $4.12 million compared to $4.401 million the year before.

This was despite the claims relating to last May’s floods in eastern and southern New Providence, which saw RoyalStar incur a net $1 million loss. Reinsurers absorbed the balance of its $2.5 million gross loss, with the carrier putting total industry claims at between $12-$15 million.

“That’s what we’re in business for,” Mr Saunders said. “We had no surprises. The May floods came, we absorbed those losses and remained right on target, right on budget, around the $4 million profit range.”

RoyalStar has always employed a conservative philosophy and business model, focusing on producing an annual underwriting profit rather than a market share/top line growth strategy. This has resulted in it refusing to take on new business if the premium does not match the underlying risk.

However, Mr Saunders told Tribune Business this strategy was under pressure from the company’s reinsurers. With excess capacity in that market, they want to make sure it is filled by their clients - Bahamian insurers - taking on ever-more risk.

“Because of all the capacity in the market, a lot of reinsurers want to make sure capacity is filled,” he explained. “The downward pressure is on quality.

“We have always told our reinsurance partners that in this market, when there is downward pressure on rates, we are not keen to grow. We will hold what we have, and anything selective that comes our way, we will look to get what we can.

“Yes, our competitors will take some business from us, but at the end of the day we will have secured what we wanted, and the results speak for themselves.”

Writing in the company’s 2013 annual report, Mr Saunders said the $4.12 million net income for 2013 comprised an underwriting profit of $3.114 million and investment income totalling $1.006 million.

Return on equity for ordinary shareholders was a healthy 10.36 per cent, compared to 11.63 per cent the year before.

“The 2013 results were in line with the prior year’s results, though they were slightly below Budget projection due to the losses incurred as a result of the May flooding,” Mr Saunders said.

Gross written premiums were up 3.5 per cent year-over-year at $67.157 million, while net written premium was down 4 per cent at $19.355 million as property and motor vehicle clients switched from comprehensive policies to lower-priced ones.

Non-insurance related expenses rose $17,600 to $5.283 million, with the latter figure including the opening costs for RoyalStar’s new JFK Drive head office.

“2014 will continue to be a challenging year for the local insurance industry,” Mr Saunders warned. “With the increased capital flowing into the reinsurance industry, there is no doubt that we are in a soft market cycle and tremendous pressure will be placed on risk selection and pricing.”