The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Family Guardian believes its mortgage portfolio is outperforming the Bahamian market by “about 33 per cent”, with the value of delinquent properties also recovering in the past 10 months.

Lyrone Burrows, the BISX-listed insurer’s newly-appointed president, told Tribune Business that the previous deterioration in its $60 million-plus mortgage portfolio seemed to have “abated”.

Suggesting that Family Guardian’s conservative underwriting approach had aided the improvement, Mr Burrows said prices offered to acquire its distressed properties were increasingly matching underlying real estate values.

“We are happy to see that our portfolio has performed to the tune of about 33 per cent better than the overall market, which speaks to our conservative focus in mortgage underwriting,” Mr Burrows told Tribune Business.

“We’ve seen a pick up in the value of non-performing properties in the last 10 months. The prices we are now beginning to see are in line with the valuation for those properties.

“We’re closing sales, and getting a lot more contacts on properties for sale. It’s a positive trend we’re seeing. We’re not seeing any continued deterioration in the portfolio in tems of accounts moving into 90 days past due. The delinquencies are abating, so that’s a positive sign for us.”

Family Guardian, the life and health insurance subsidiary of BISX-listed FamGuard Corporation, had an almost-$62 million strong mortgage portfolio at year-end 2013. Of this sum , some $7.227 million or 11.7 per cent was considered non-performing.

Mr Burrows was speaking after A. M. Best, the insurance industry rating agency, had reaffirmed Family Guardian’s top ratings for a second consecutive year.

The life and health underwriter’s financial strength rating of A- (Excellent), and issuer credit rating of ‘a-’, remain. And A. M. Best also affirmed the issuer credit rating for its parent, FamGuard Corporation, giving it ‘bbb-’.

Mr Burrows told Tribune Business that Family Guardian had to “re-orientate” A. M. Best’s views on its mortgage portfolio, after the agency downgraded its ratings some two years ago.

That action was driven by concerns about the heavy weighting given to mortgages in Family Guardian’s total investment portfolio, and the deterioration in the quality of such loans - an experience common among all Bahamas-based mortgage lenders at the time.

Mr Burrows acknowledged there had been “some difficulties” with mortgage lending, emphasising that the experience was “not unique” to Family Guardian.

He added that A. M. Best’s earlier assessment of the insurer’s mortgage portfolio appeared to be heavily influenced by what had happened in the US, and the sub-prime lending crisis that led to the 2008-2009 global recession.

“We always maintained that the way mortgages operate in the Bahamas is different from North America, and they judged us on the same basis that mortgages operate in North America,” the Family Guardian president told Tribune Business.

“In the Bahamas, in the event of non-performance, we have other measures of collateral other than real estate. We have redress through the courts, the attachment of other assets, life insurance in support of the mortgage.

“It required some re-orientation of A. M. Best.” Still, A. M. Best does not appear entirely convinced by the company’s explanation.

Its ratings announcement said: “ While A.M. Best remains concerned regarding the risks associated with Family Guardian’s high concentration in mortgage loans relative to its total equity, and the current level of delinquencies in its mortgage loan portfolio, A.M. Best notes that the company’s level of mortgage loans as a percentage of total investment assets, as well as a percentage of total capital, have continued to decline. The company holds mortgage loan provisions which have proven to be adequate over time; A.M Best considers this risk exposure as manageable at the current time.”

A. M. Best added that the ratings reflected Family Guardian’s “improving financial performance and adequate reserves specific to its investment in direct residential and commercial loans”.

And Mr Burrows told Tribune Business that the reaffirmed A. M. Best ratings also reflected “the progress we continue to make in our claims”.

He added that the improved pricing and claims experience in its Bahama Health portfolio, aided by its relationship with US healthcare provider, Aetna, had also boosted the assessment findings from A. M. Best.

“Most important was our pricing as it relates to Bahama Health discounts, and our partnership with Aetna, one of the largest providers in the US, which allows us to get extremely good claims discounts for persons accepting care through North American networks,” Mr Burrows explained.

He said Family Guardian had agreed with the concerns previously expressed by A. M. Best in this area, with the company responding by changing various operator agreements.

“There was deterioration in the claims costs,” Mr Burrows told Tribune Business. “We aligned with Aetna, and soon saw significant improvement in our claims costing.

“We also saw significant improvement in terms of the arrangements Aetna had with providers in the US.”

A. M. Best itself has acknowledged the progress made in Family Guardian’s health insurance portfolio. Its assessment this year said that while the company “faces inherent risks associated with its group health division, the results in this line of business have stabilised over the past several years”.

Counteracting all this, and ensuring the high ratings, A. M. Best added: “Offsetting these negative rating factors are Family Guardian’s more-than-adequate level of risk-adjusted capitalisation, overall profitable operating results fuelled by stabilisation in its group health division, and its sustainable marketing presence as one of the two leading life insurance companies in the Bahamas.

“A.M. Best further notes that the company trends are favourable with respect to profitability and capital, with consistent growth in stockholders’ equity despite shareholder dividend payments. Family Guardian’s three core business segments - home service, financial services and group division led by BahamaHealth - provide business diversification and competitive advantages in a generally limited and mature marketplace.”

A. M. Best said a rating upgrade was unlikely in the near term. It added: “Downward rating actions could result if a material deterioration were to occur in Family Guardian’s operating results, worsening delinquency rates within the mortgage portfolio are recorded, or there is deterioration in the Bahamian economic environment.”