The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First’s top executive has warned that local insurers are likely to face increasing competition from consumers acquiring coverage online, as the underwriter’s gross and net premiums declined 3 per cent in 2016.

Patrick Ward told Tribune Business that the Bahamian property and casualty market “won’t escape disruption” from forces impacting the global insurance industry, which were likely to affect revenues locally.

“There are challenges the industry faces whether we have a catastrophic event or not,” the Bahamas First president and chief executive said.

“Competition is an issue. Price competition is potentially going to have an impact on revenues, one way or another. There are elements of disruption happening globally that the Bahamas won’t escape.

“It’s easier for consumers to buy insurance online for different elements of their risk profile than in the past, so the playing field is now extended,” Mr Ward added. “I think I would be very surprised if elements of our market were not already doing that.’

In particular, he suggested that foreign second homeowners were likely to be insuring their Bahamas-based properties and other assets with overseas underwriters who they already did business with in their home countries.

Mr Ward was speaking after Bahamas First Holdings’ saw gross premiums fall by 3 per cent year-over-year in 2016, dropping from $143.4 million the prior year to $138.7 million.

Net written premiums, representing the sum retained on its books, fell by the same magnitude from $59.2 million to $57.3 million, as Bahamas First passed more of its risks off to its global reinsurance partners.

“The net premium decline was mostly driven by intentional actions, which ultimately led to a fall in the amount of premiums we retain for our net account with respect to our book of motor and liability business,” Bahamas First said in its 2016 annual report.

“This initiative relates specifically to a joint project with a leading global reinsurer covering a 24-month period. The reduction in the top-line premium level was once again driven by declining property rates in both the Bahamas and Cayman during 2016.”

Bahamas First said the decline in property premium rates was “more acute” in the Cayman Islands, but residential and commercial properties in both markets were impacted.

“The group’s overall portfolio of property business reduced to a gross premium of $64 million from $71 million recorded in 2015, despite the small growth in exposures in Cayman and a relatively flat result in the Bahamas,” Bahamas First said.

Mr Ward told Tribune Business that the property and casualty insurer was “working very hard to develop some additional motor product enhancements” that will be rolled-out in 2017, although he declined to go into detail.

“Despite tough and competitive market conditions, we experienced an increase in our policy count for our motor business in both Cayman and the Bahamas, with good rate stability across the portfolios,” Bahamas First’s annual report said.

“Gross premiums for 2016 increased to $36 million compared to $35 million the prior year. The loss ratio improved by a few percentage points in Cayman, while the Bahamas’ claims experience suffered from the impact of Hurricane Matthew, which pushed up the loss ratio. The segment of liability business in both locations continues to perform well.”

The underwriter added that gross and net premiums for its marine insurance business remained flat year-over-year in 2016, with Hurricane Matthew putting paid to any hope that it would repeat the underwriting profits of previous years.

“We anticipate a return to profitable results in 2017 and beyond, subject of course to material claims development,” Bahamas First said.

As for its engineering insurance line, it added: “The dearth of construction projects in the Bahamas, and the intense competition for new business prospects in Cayman, has constrained our ability to grow this line of business.

“Fortunately, despite some losses related to Hurricane Matthew, we were able to produce a small underwriting profit in 2016 in the Bahamas. The Cayman account was not impacted by any loss development.”

Mr Ward added that Bahamas First “definitely have in our sights” the early redemption of the company’s remaining $3.75 million Series 1 bonds, after doing this with the same amount last year.

The early redemption of the other 50 per cent, or $3.75 million, has saved Bahamas First some $225,000 in annual interest expenses.

“The group’s total investment portfolio grew to $76.3 million from the prior year total of $67.9 million, primarily as a result of the unrealised gain in the value of our equity investment in Commonwealth Bank, and the additional cash on hand at December 2016,” Bahamas First told its shareholders.

“Total investment returns for 2016 were $2.4 million, just slightly above the prior year result. Going forward, we anticipate that the move by the Central Bank of the Bahamas to reduce the discount rate from 4.5 per cent to 4 per cent will impact both revenue and expense items that are interest rate sensitive in the Bahamas.”