The Tribune

A Bahamian insurer yesterday said it would have beaten 2017 profit projections by 57 per cent had Hurricane Irma not inflicted a $2 million net loss on its Turks & Caicos portfolio.

Tom Duff, Insurance Company of the Bahamas (ICB) general manager, told Tribune Business that the Category Five storm’s impact further south had made such forecasts “academic”, and conceded: “That’s the business we’re in.”

Hurricane-related claims payouts dampened ICB’s “bottom line” for a second consecutive year, dropping profits from the typical $2.5-$3.5 million experienced in a storm-free period to just $685,550.

That still represented a near 33-fold increase on the $20,885 in total comprehensive income earned in 2016, a year dominated by Hurricane Matthew claims, with ICB’s reduced profitability also acting as a drag on the earnings of its largest shareholder, BISX-listed JS Johnson.

ICB’s results are incorporated into the publicly-traded insurance broker’s figures, and Mr Duff told Tribune Business: “The fact of the matter is that ICB was affected again by one storm.

“Though the Bahamas was thankfully spared in 2017, our portfolio in Turks & Caicos was affected. We ended up with another sizeable loss. In net terms, Hurricane Irma cost us around $2 million.”

That figure represents ICB’s share of the losses/claims payouts, the bulk of which will have been absorbed by its deeper-pocketed reinsurance partners. Mr Duff said Irma’s gross claims were equivalent to one-sixth of those received from Hurricane Matthew.

“The impact on our net account was not quite as substantial, but pretty close,” he added. “Had it not been for Hurricane Irma, then ICB would have produced a net profit 57 per cent better than budget.

“That’s all academic now, but we have a strong book that’s performing well and would have produced a handsome profit. But that’s the business we’re in.”

Despite Irma’s impact, Mr Duff identified “a couple of positives” for ICB in the 5 per cent year-over-year increase in gross written premiums (excluding ‘fronting’ premiums). The underwriter’s non-hurricane related claims also came in 19 per cent below projections, indicating it was selecting and pricing risks well.

“It’s all down to hurricane activity for companies like ICB,” Mr Duff added of the financial performance. “If it’s a hurricane free year, typically we do very well. In a year when we get smashed, profits get substantially affected.

“It’s unfortunate that we’ve had two years of back-to-back hurricane losses. We’re looking forward to 2018, and hopefully we get a quite year.”

Mr Duff said the premium rate increases anticipated for 2017 had not quite materialised, but he warned Bahamian households and businesses that these are starting to “filter through” in 2018 as reinsurers seek to cover losses incurred from Hurricane Matthew and last year’s hurricane season.

Reiterating previous warnings to consumers, the ICB chief said premium increases “will certainly happen” given the pressure being imposed upon Bahamian property and casualty underwriters by the global reinsurance market.

“I think all of us in the market anticipated rates increasing a little bit more on the backs of Hurricane Matthew the previous year,” Mr Duff told Tribune Business. “I think in 2018 that we will see those rate increases filter through.

“There does tend to be a lag before the increase catches up with the premium. It took 2017 for the Matthew losses to become formulated and a clearer picture emerge in insurers’ minds. We have reacted, and with the latest set of reinsurance renewals there’s been further pressure exerted by reinsurers.

“So, in 2018 you will see local insurers’ gross written premiums rising in a delayed response to Hurricane Matthew and associated losses. The reinsurers were looking for significant rate increases to cover previous losses; that will certainly happen.”

Mr Duff declined to estimate the extent of the premium rises that Bahamian consumers will face, saying it depended heavily on the relationship each underwriter has with their particular reinsurer.

“We’re all under pressure to restore rates to more satisfactory levels,” he said. “Having said that, customers have had several good years in terms of the risk premium. They could see rates have come down, although some of that was negated by the introduction of VAT.

“All local insurers are under pressure from the reinsurance market to have the average premium increased by various amounts. It depends on each contractual relationship. There’s no question rates will rise. It will be down to individual companies to understand their book of business, look at their exposures, the risk each exposure brings, and rate accordingly.”

Bahamian insurers have no choice but to purchase huge quantities of reinsurance annually, as their multi-million dollar capital bases pale into comparison to the multi-billion dollar risks they underwrite. This effectively makes them a ‘price taker’ from reinsurers, which cover the bulk of these risks and their value, and therefore dictate the premium rates charged to Bahamian consumers.

Mr Duff, meanwhile, said there was also “greater pressure” being imposed on insurance companies’ cost bases as a result of new regulatory requirements, such as actuarial testing of loss reserves and the hiring of compliance/internal audit functions.

The ICB chief, though, said that barring any hurricane activity the company was looking forward to an improved 2018, amid hopes that an improving economy will boost employment and consumer disposable income.

“We’ve been operating in an economic environment which was quite depressed and, for the first time in a long while now, we’re beginning to see some optimism that the economy is beginning to grow,” Mr Duff told Tribune Business.

“Not just because of Baha Mar, but there’s various other projects that are starting to have a trickle down effect, which will improve disposable income for customers and potential customers.

“We’re looking for people’s disposable income to improve because when it does, people buy more motor cars, buy additional furniture for the home, and that all helps to generate premium growth. I’m more optimistic than I have been for several years.”

Mr Duff explained that higher disposable incomes, combined with improved job security, should drive an increase in new vehicle purchases and comprehensive insurance policies. With premiums linked to vehicle value this, in turn, will raise insurers’ top-line incomes.

“What we can certainly seen is our motor book has not changed to much in terms of vehicles insured, but we can see the average premium has dropped in terms of less comprehensive policies,” he said.

“People are either holding vehicles longer or switching to used cars. It’s a reflection of a depressed economy. We should start selling more comprehensive coverage over the next few years, as people get more job security, more disposable income.

“There will be a move back to higher value vehicles. It will be slow, but we will see that happening over the next several years. It will help ICB because we have a fairly sizeable motor book.”