The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalStar is aiming to “diversify” by building a closer relationship with its mortgage restructuring affiliate, its top executive yesterday revealing this will generate 10-15 per cent of its profits within the next three years.

Anton Saunders, the property and casualty insurer’s managing director, told Tribune Business that its investment in Gateway Financial was set “to become very important to us in the short-term”.

“We have diversified a little bit away from insurance and continue to develop the relationship with the Ascendancy group,” Mr Saunders said, referring to the Mexican entity that its main shareholder had initially sought to partner with on the ‘bad mortgage’ venture.

Sir Franklyn Wilson, the Sunshine Holdings’ group’s chairman, subsequently created Gateway Financial as a venture owned by is group, with Sunshine Finance and RoyalStar as the “two equity partners”.

Mr Saunders yesterday told Tribune Business that the Gateway Financial investment will become increasingly valuable for RoyalStar Assurance, given the competitive insurance markets in the Caribbean territories it operates in.

“It’s going to become very important to us in the short-term as we look at what can help them out, and how they can help us out,” he said.

“Over the next two-three years, we expect it will give an income stream that will be 10-15 per cent of the bottom line.”

Mr Saunders said this income stream would be generated from Gateway Financial’s core mortgage restructuring business, plus “the borrowed interest we get from them”.

RoyalStar likely views its Gateway Financial investment as a counterweight to the intense competition in the Bahamian insurance market and other Caribbean nations, which is making organic growth difficult.

The Bahamas accounted for 74 per cent of its insurance business in 2016, down from 78 per cent a year earlier, with Mr Saunders disclosing that RoyalStar did more business in Turks & Caicos last year.

“We moved some of our aggregates around to get the best margins,” he explained. “Cayman is also very important, but we took some of the aggregates there and shifted it to the Turks & Caicos. Cayman is more competitive than the Bahamas.”

Tribune Business reported earlier this week that RoyalStar had invested $5.25 million in Gateway Financial’s capitalisation in 2016.

The insurance underwriter invested $2.75 million into a Gateway Financial bond issue paying 6.75 per cent interest, and maturing in 2019. A further $2.5 million was injected into another bond tranche, this one paying 6.5 per cent and maturing in 2020.

RoyalStar’s financial statements show a $3.45 million investment, made in Ascendancy Bahamas in 2015, was no longer carried on its books at year-end 2016.

It is unclear whether this money was ‘re-purposed’ into Gateway Financial, which appears to be a ‘successor entity’ to Ascendance Bahamas in the mortgage restructuring business.

Gateway Financial has already acquired a portfolio of non-performing mortgages from Scotiabank (Bahamas) at a price believed to be around 25 cents on the dollar, and started restructuring/work out efforts with the borrowers involved.

Mr Saunders, meanwhile, said Hurricane Matthew exposed the fact that more than one-third of residential homeowners making claims were “underinsured”.

He added that many policyholders had failed to revalue their homes when making additions and improvement, “and never change the insurance coverage to reflect the current value of their home”.

“We saw, especially on the homeowners side, about 35 per cent of the people are underinsured,” Mr Saunders said. “The expectations then become a challenge for claims and adjusters.”

Underinsurance exposes homeowners to significant financial loss, and having to fund the rebuilding of their property from their own pocket, as their policy only covers a percentage of the costs.

Mr Saunders said RoyalStar was now focusing on educating clients over both underinsurance and the impact of deductibles on their policies and payouts, in a bid to manage expectations ahead of the next hurricane.

He added that Bahamian property and casualty underwriters, including RoyalStar, have now paid out “about $500 million” in collective Hurricane Matthew claims, the bulk of this figure coming from foreign reinsurers.

RoyalStar itself received about 2,000 claims, and its gross payouts were “somewhere in the region of $260 million” when its network partners were included.

The Bahamian insurer’s share of this is much smaller, with its 2016 financial statements showing net claims incurred totalled $9.71 million,

RoyalStar Assurance saw its 2016 profits decline by 72.8 per cent year-over-year due to Hurricane Matthew, dropping from $3.712 million to $1.009 million, as net claims jumped 80.8 per cent to $9.71 million.

Asked whether the company was happy just to make a profit after having to deal with the largest single catastrophic event loss in Bahamian history, Mr Saunders replied: “We are in the business of risk, and the fundamental risk that we have in this part of the Caribbean is hurricanes.

“The satisfaction is not the results, but our ability to meet the claims of clients and ensure 95 per cent of claims have been paid out.

“The remaining 5 per cent are more challenging claims. Some are going to take a while. Hopefully, in the next six months everyone will be satisfied with the procedures and payments being offered.”

Mr Saunders added that RoyalStar and others had been forced to increase property and casualty premium rates “by a small percentage” in a bid to recover Matthew-related losses, but the rise was something the market can bear.

“The reality is that these hurricanes are becoming more frequent, and reinsurance and other costs are going up, and we have to claw a little more back,” he explained.

“The real lesson from Matthew for us was that we learned the fundamentals of our company are strong. Our model and approach are strong.

“We can do a little better in the initial stages to arrange adjusters and get more boots on the ground as quickly as possible. We’ll have learned the lesson to improve our service.”

Mr Saunders added that the Bahamian insurance industry was still working with the Government to ensure both “are on the same page” when it comes to Value-Added Tax (VAT) reporting and filing requirements.

Forecasting RoyalStar’s likely 2017 performance, he added: “If the wind blows, the results will mirror 2016. If they don’t, we’ll claw back some of the losses.”