The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer yesterday said it beat 2013 profit targets by 13 per cent, but warned that an all-sides “squeeze” was now threatening an historic net income generator that accounts for almost one-third of its top-line.

Tom Duff, Insurance Company of the Bahamas (ICB) general manager, told Tribune Business that the underwriter’s motor vehicle portfolio was coming under pressure from a combination of reduced average premiums, increased competition and “more aggressive” claims’ demands by attorneys.

Emphasising that ICB would focus on quality, even if it meant “sacrificing some new business opportunities”, Mr Duff said motor insurers had also been hit by “a fairly significant” rise in vehicle thefts over the past 18-24 months.

The ICB chief was speaking after the property and casualty insurer, through which BISX-listed J. S. Johnson places much of its business, unveiled a 2.7 per cent net income decline for 2013.

Year-over-year profits fell from $2.645 million to $2.574 million, but the latter figure was still some 12.9 per cent higher than ICB’s own internal targets for the year.

And the bottom line result was achieved despite the May 21-22 floods in southern and eastern New Providence, which saw ICB incur a net $637,451 claims loss after reinsurance recoveries. The gross claims submitted by its clients totalled $4.1 million.

“We’re very pleased with that, especially when you have an event loss early in the year,” Mr Duff told Tribune Business.

“It’s quite disconcerting when you have a major weather loss in May before hurricane season.”

But, writing in ICB’s recently-published 2013 annual report, the carrier’s general manager said its motor vehicle category performed “worse than expected” in 2013 due to an increase in established claims’ costs, the May floods and rising vehicle thefts.

Mr Duff yesterday told Tribune Business that this was a trend expected to continue into 2014, having described it as “perhaps the greatest short-term challenge for ICB”.

“The market generally is going to be quite competitive this year across all lines of business, but we’re certainly seeing more competition in the motor class, in particular,” Mr Duff told Tribune Business.

“It’s going to be something that we have to deal with, as the motor class has been one of the primary books of business that has historically done very well for us.”

Emphasising that he felt ICB was up to the task, Mr Duff said the desire of reinsurers to “balance” their catastrophe and non-castastrophe risks was putting pressure on their insurance clients to increasingly focus on motor vehicle business.

And, with the economy not performing, Mr Duff said many consumers were either holding off on new car purchases or dropping comprehensive insurance for cheaper third-party cover.

“That impacts the average premium of motor underwriters,” he explained. “You’ve got a reduced level of motor premium, and more competition for a shrinking resource.”

Motor vehicle insurance accounted for the second largest share of ICB’s total $45.8 million in gross written premium for 2013, contributing $14.5 million or 31.7 per cent.

The largest share came from property insurance at $25.9 million worth of premiums, with the balance consisting of $3 million in marine insurance premiums and $2.4 million in the ‘miscellaneous accident’ category.

“It’s a challenge for us to make that profitable,” Mr Duff told Tribune Business. “As well as the pressure on rates, there’s pressure on the claims side as well.

“Because the economy is tight, we’re seeing attorneys being more aggressive in terms of making claims requests on behalf of their clients. We have to manage that as well.

“There’s a squeeze at the top on the premium level, more aggressive action by attorneys on the claims side, and it’s quite a difficult class to manage at this time, but we’ll get there.”

Unveiling ICB’s strategy in its annual report, Mr Duff said: “Across the market, we are sensing an increasing eagerness by our competitors to obtain motor business.

“More and more, this is manifesting itself in the relaxing of underwriting standards and in the quoting of rates that we consider to be inadequate. For its part, ICB intends to continue with a disciplined underwriting approach towards motor business even if it means sacrificing some new business opportunities.”

Mr Duff told Tribune Business yesterday that the motor vehicle underwriting business was being further exacerbated by increasing vehicle theft levels.

“It has been fairly significant,” he told this newspaper. “There has been a marked increase in the number of motor thefts in the last 18-24 months.

“We’re having to look at controlling that through our underwriting, encouraging consumers to be more security conscious.”

Addressing the wider implications of rising theft rates, Mr Duff said: “It’s just a compounding effect. It’s not anything that’s going to break our account.

“It’s just another factor that puts pressure on your loss ratios. The good thing is that we’ve identified the segment of the book that is causing the loss, so it gives us the opportunity to take appropriate action.”

ICB generated a 10.7 per cent return on equity for its shareholders in 2013, despite underwriting profits dropping slightly year-over-year from $2.189 million to $2.027 million.

The underwriter’s operating expenses closed the year 2.7 per cent ahead of 2012 levels, but this was 7.7 per cent under ICB’s own internal forecasts.

Investment income dropped 1.4 per cent due to the prevailing low interest rate and bank deposit rate environment, and Mr Duff said this was unlikely to change in 2014.

Writing in the annual report, Dionisio D’Aguilar, ICB’s chairman, said: “Insurance Company of the Bahamas has built up an impressive track record of sustained profitability over the 17 years in which we have been trading.

“The trading profit earned in 2013 helped to take our capital and surplus over the $25 million threshold, a target we had set ourselves a few years ago.”