The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Three Bahamian insurance companies yesterday received ‘A grade’ ratings from the industry’s leading international rating agency.

A.M. Best placed financial strength ratings of A- (Excellent), and issuer credit ratings of ‘a-’, on each of Summit Insurance Company, Family Guardian Insurance Company and Colina Insurance Company. All three were assigned a stable outlook.

Summit Insurance Company, the only property and casualty underwriter of the three, retained the leading rating despite the fact that Hurricane Matthew-related claims will likely slash its 2016 profits - possibly pushing it into a loss.

“Significant recent damage and losses from Hurricane Matthew will tarnish overall results for 2016,” A. M. Best said of the company.

“However, Summit’s catastrophe reinsurance programme adequately protects surplus from such events, and the balance sheet is expected to remain strong.”

It added: “The ratings reflect Summit’s supportive balance sheet strength, historically favourable operating results and leading market presence in the Bahamas.

“These rating strengths are partially offset by the company’s geographic and underwriting risk concentration, and the challenges that weakened economic conditions and strong competitive market pressure have created for Summit’s overall operating performance and growth opportunities.”

Summit, the carrier through which Insurance Management places most of its property and casualty business, was formed in response to a lack of market capacity following Hurricane Andrew in 1992.

“The company enjoys excellent brand recognition throughout its territory. Operating performance has historically been profitable due to prudent underwriting, conservative risk management and adequate reinsurance protection backed by quality reinsurance partners,” A. M. Best said.

“Risk-adjusted capitalisation is also sufficiently strong to support underwriting, investment and business risks, as well as strategic objectives.”

On the down side, the insurance rating agency added: “Market conditions in the Bahamas are highly competitive and pricing, particularly on property business, is soft. Organic growth potential is extremely limited.”

As for the two life and health insurers, A. M. Best’s assessments were remarkably similar, even to the point of placing ‘bbb-’ ratings on their two BISX-listed parent companies, Colina Holdings and Family Guardian.

Not surprisingly, given that the two compete in the same market and are rivals, A. M. Best expressed similar concerns with each of their mortgage portfolios as a percentage of investments and capital.

It said: “The rating affirmations for Colina reflect its leading position in the life/health market in the Bahamas, its adequate risk-adjusted capitalisation, positive operating results and conservative reserving practices.

“Partially offsetting these strengths are delinquencies in the company’s mortgage loan portfolio and a narrow geographic profile in the Bahamas’ mature life and health market.”

Expanding on this assessment, A.M. Best added: “Colina enjoys a leading market share in the region in its selected segments, and its risk-adjusted capitalisation remains adequate relative to its investment and insurance risks.

“A. M. Best expects a continuation of a normalised level of aggregate profitability based on 2015 performance measures.”

Yet it added: “Still, general economic headwinds, albeit lessening, within the Bahamas’ economy and high mortgage loan delinquencies continue to pose rating issues for the company in the near to intermediate term.

“A.M. Best remains concerned over the concentration of real estate investments, mortgage loan exposure and continuing delinquencies of mortgages relative to total stockholders’ equity, but notes that over the past several years the company has decreased its exposure to such asset classes in the aggregate and as a percentage of total invested assets.”

As for Family Guardian, A. M. Best said: “The rating actions for Family Guardian reflect its long-standing life insurance marketing presence in the Bahamas, profitable and improved operating performance and solid level of risk-adjusted capitalisation.

“Partially offsetting these strengths are the company’s high exposure to mortgage loans in its investment portfolio and its relatively high delinquency level, which correlates with current conditions in the Bahamian economy.”

Providing further detail, the insurance rating agency added: “A.M. Best further notes that company trends with respect to profitability and capital are generally favourable, with consistent growth in stockholders’ equity despite shareholder dividend payments.

“Family Guardian’s core life and health business segments provide business diversification and competitive advantages in a generally limited and mature marketplace.

“Still, Family Guardian faces inherent risks associated with the overall weak economic environment in the Bahamas, which can present risks to longer-term financial results and growth opportunities. A. M. Best recognises that despite the limited growth opportunities in its local market, Family Guardian has been able to grow premium income in core business lines,” it added.

“A. M. Best remains concerned regarding the risks associated with Family Guardian’s high concentration in mortgage loans, but notes that the company’s level of mortgage loans as a percentage of total investment assets, as well as a percentage of total capital, has 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.”