The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalStar Assurance's chairman says Caribbean expansion remains "very much on the burner" as a means to address diversification concerns voiced by an international rating agency.

Sir Franklyn Wilson told Tribune Business that the Bahamian property and casualty insurer's planned acquisition, in tandem with its Trinidad-based partner, the Guardian Group, was proceeding "very well" and now passing through the regulatory approvals process.

Declining to identify RoyalStar's target, Sir Franklyn said the underwriter was itself "conscious" of the need to diversify its risk concentration beyond Bahamian borders following reaffirmation of its Caribbean-leading ratings by AM Best.

The international insurance industry rating agency, in confirming RoyalStar's A (Excellent) financial strength rating and 'a' long-term issuer credit rating, highlighted the insurer's lack of geographical diversification as one of its few weaknesses - especially given The Bahamas' exposure to major hurricanes.

However, Sir Franklyn said RoyalStar was already making moves to address through its acquisition partnership with Guardian Group that he revealed to Tribune Business in April this year.

"That was a matter high on our own agenda, diversification, and something that is very much on the burner," Sir Franklyn told Tribune Business. "That's [the acquisition] going very well. It's just dealing with government and bureaucracy, but there's no question of our commitment to doing it, and doing it in conjunction with Guardian Group of Trinidad.

"We're on track. The point is we're doing it. Our strong relationship with Guardian Group gives us an opportunity to address diversification because we can co-insure with them. They can do something, wherever it is, and we can participate in what they are doing. We are conscious of this need to diversify, and have different strategies to address it."

Guardian Group is a part-owner of RoyalStar, and Sir Franklyn told Tribune Business earlier this year that the duo were expecting to close their acquisition by year-end 2019.

RoyalStar has built up significant assets with which to finance acquisitions, with its balance sheet holding some $48.772m in cash and other investments at year-end 2018 - a year in which profits increased by 13.51 percent.

The insurer has also moved to reducing its reliance on The Bahamas for the bulk of its underwriting portfolio. Its Bahamas gross insurance premiums fell from 80 percent of the total in 2017 to 67 percent last year, while the Cayman Islands' share of RoyalStar's total book rose from 11 percent to 16 percent year-over-year. The Turks & Caicos and British Virgin Islands (BVI) round out the territories in which RoyalStar underwrites risk.

A. M. Best, which in this week's rating confirmation also provided a 'stable' outlook, said: "The ratings reflect RoyalStar Assurance's balance sheet strength, which A. M. Best categorises as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

"RoyalStar Assurance's favourable underwriting performance, especially in non-catastrophe years, supported by steady levels of investment income, continues to contribute to RoyalStar Assurance's strong operating results. Positive earnings have enabled RoyalStar Assurance to continue to maintain risk-adjusted capitalisation assessed at the strongest level."

On the downside, A. M. Best added: "These strengths are partially offset by the geographic concentration of RoyalStar Assurance's business in The Bahamas, the company's exposure to weather-related catastrophe events and its dependence on reinsurance to mitigate losses and protect its surplus.

"RoyalStar Assurance mitigates much of its catastrophe exposure through prudent risk management planning, which includes minimising coverage written in flood and storm surge areas, along with its comprehensive reinsurance programme placed with a panel of high-quality reinsurers."

Sir Franklyn said RoyalStar Assurance's rating from A. M. Best was the insurance equivalent of a Standard & Poor's/Moody's sovereign rating from The Bahamas. Describing the company as "gratified", he said: "Just so the public understands, an A. M. Best rating at the company level is like Moody's for the country.

"When you are in a position of having a very high standard to start with; as high as any company in the entire region, and there's only a handful of us in that category, when that is affirmed with a consistency it's saying a tremendous amount. To get that affirmation is a matter of great satisfaction, and I commend all persons concerned."