The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalStar Assurance’s shareholders have altered its corporate structure to give it “more dimension” to diversify into other financial services investments, its managing director said yesterday.

Anton Saunders told Tribune Business that the creation of RoyalStar Holdings Ltd would enable the property and casualty insurer’s owners to target higher-yielding investment opportunities without impacting its own performance or strength.

RoyalStar Assurance, via the restructuring, is now a fully-fledged subsidiary of RoyalStar Holdings, which owns the Bahamian-headquartered underwriter 100 per cent.

Speaking after A. M. Best, the global insurance rating agency, had reaffirmed RoyalStar’s “top tier” rating in comparison to the Caribbean, Mr Saunders said: “Our focus right now is that we are trying to take diversify our company to take advantage of other investment opportunities.

“We’ve established a holding company to diversify some of the business away from the catastrophe [insurance] business.... We are looking at opportunities in other financial services areas.”

Mr Saunders said any excess dividends paid by RoyalStar to its holding company ‘parent’ would be employed to seek out new investment opportunities, primarily in the financial services industry.

Emphasising that the group would not expose itself to undue risks by entering uncharted territory, he told Tribune Business: “We’ll ensure we have the required skills in here for any business that we get into.

“We don’t get into any business unless we have the appropriate staff and skills in-house to ensure that business is a success.”

RoyalStar already appears to have begun this ‘diversification’ process through its $3.45 million investment in Ascendancy Bahamas’ preference shares,

This is the joint venture, also involving RoyalStar’s chairman, Sir Franklyn Wilson, which aims to alleviate the Bahamas’ bad mortgage crisis by buying distressed loans from commercial banks at deeply-discounted prices.

“We have preference shares in Ascendancy, and there are going to be some movements this year in how we proceed with the Ascendancy group,” Mr Saunders confirmed yesterday.

Tribune Business revealed last year how Sir Franklyn was in talks with a Mexican company to form a joint venture, Bahamian-domiciled partnership that would bear the latter’s name.

Meanwhile, Mr Saunders said RoyalStar’s Cayman operation also provided opportunities for greater investment returns.

He pointed to the $5 million held in trust as part of its compliance with the Cayman Monetary Authority’s (CMA) regulatory strictures, explaining that this sum was available for investment under certain terms and conditions.

“We have the Cayman operation, and have $5 million in a Cayman trust that we have to diversify and get a bit more yield from,” Mr Saunders said. “We can look at that and invest it with the approval of the regulator in certain things.

“The core insurance operation is going to remain the same, but the holding company gives us more dimension to do these things.

“Any excess dividends will go to the holding company, and the holding company will have discretion as to how it wants to diversify the group.”

Thus RoyalStar’s corporate structure will now look similar to that of its major rival, Bahamas First, which has Bahamas First Holdings as the parent, and Bahamas First General Insurance Company as the subsidiary.

Sir Franklyn, writing in RoyalStar’s annual report, said the move would leave the company “well-positioned to maintain consistent underwriting results, and the flexibility to take advantage of profitable business opportunities in the future”.

Mr Saunders, meanwhile, said RoyalStar Assurance remained among the Caribbean’s ‘top three’ in terms of having the highest possible financial strength and credit ratings affirmed by A.M. Best.

The international insurance rating agency affirmed its financial strength rating of A (Excellent) and the issuer credit rating of ‘a’, which Mr Saunders said placed it alongside Bermuda Fire & Marine (BFM) and Caribbean Alliance.

Describing RoyalStar as “one of the best-rated in the Caribbean”, he added that the rating action sent a positive message to consumers and the wider insurance market about RoyalStar’s “resiliency” and the strength of its conservative risk underwriting philosophy.

“The ratings reflect RoyalStar’s solid risk-adjusted capitalisation, above-average operating performance and its established presence in the Caribbean market,” A.M. Best said.

“RoyalStar continues to record overall profitability, which is derived from the company’s strong underwriting performance and steady levels of investment income.

“Consistent earnings have enabled RoyalStar to continue to maintain solid risk-adjusted capitalisation. Under the direction of an experienced and knowledgeable management team with local market expertise, RoyalStar provides personal and commercial lines coverage throughout the Bahamas, the Cayman Islands, and Turks and Caicos Islands.”

On the downside, A.M. Best added: “Partially offsetting these positive rating factors are its geographic concentration in the Bahamas, the company’s exposure to weather-related catastrophe events and its dependence on reinsurance to mitigate losses and protect its surplus.

“Additionally, Caribbean insurance markets have become increasingly competitive as soft market conditions persist. RoyalStar mitigates much of its catastrophe exposure through prudent risk management planning, which includes minimising coverage written in flood and storm surge areas, along with a comprehensive reinsurance programme placed with a panel of high-quality reinsurers.”