The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer has begun to shake-off its “three-year hangover” from Hurricane Matthew after 2018 claims came in 22 percent below its own projections.

Tom Duff, Insurance Company of The Bahamas (ICB) general manager, told Tribune Business that bottom line profitability and returns on capital were starting to trend towards historical levels after 2018 net income rose by 152 percent year-over-year.

He said the more-than-doubling of ICB’s earnings was largely due to a 56.4 percent year-over-year reduction in insurance claims submitted by its clients, which fell from $3.457m in 2017 to $1.507m last year.

This, in turn, enabled ICB to produce a more than six-fold increase in underwriting profits, which soared from $332,054 to $2.155m in 2018.

While some of this gain was eroded by the provision the property and casualty underwriter was forced to take relating to the wider industry’s VAT dispute with the Government, Mr Duff said the claims reduction had helped to ease the “drag” on ICB’s results produced by Hurricane Matthew and, to a lesser extent, Hurricane Irma.

He explained that these storms, and the multi-million dollar claims payouts that resulted, impacted ICB and other insurers for several years beyond when they actually hit due to the way in they affected profit commissions received from their reinsurers.

Bahamian property casualty insurers buy huge amounts of reinsurance coverage because their capital bases are insufficient to insure all the risks present in this nation. In return, they are paid commissions for the profits they bring to the reinsurers that are typically based on a three-year average.

Hurricane Matthew striking The Bahamas in October 2016 cut these profit commissions for 2017, 2018 and going into 2019, Mr Duff explained, reducing a valuable income source and depressing profits for both ICB and others.

“The thing with ICB, and probably a number of our competitors in the marketplace, is that when we have a large hurricane it doesn’t just affect the year in which it happens,” Mr Duff told Tribune Business, “but creates a lag for a couple of years thereafter as it impacts treaty profit commissions with reinsurers.

“Matthew impacted commissions in 2016, 2017, 2018 and 2019. It’s a three-year hangover. That’s why the last couple of years underwriting profits have been a little bit lower - not because of the hurricane, but the lag from the profit commissions drag. If we gave a decent year in2019 we will get back to where we were earning a decent level of profit commission from reinsurers.”

While ICB has now worked Matthew out of its system, Mr Duff said the lingering effects from that storm were further exacerbated by Hurricane Irma in 2017, which hit risks it had insured in the Family Islands and Turks & Caicos.

“We were able to close off Matthew at the end of last year. That’s off our books,” the ICB chief added. “We’re almost there with Irma from 2017, which resulted in a small loss in the Family Islands.

“That will be another welcome development. Irma is another reason why there has been a continued drag on the results. Irma again slowed down the reinsurance profit commissions.”

ICB is the carrier through which J. S. Johnson, the BISX-listed agent and broker, places most of its general insurance business. While the underwriter’s 5 percent return on capital for 2018 was “a little bit lower than historically”, Mr Duff said it offered further encouragement and was “a pretty reasonable position” given the recent hurricanes.

“We’re now moving to a level of return on capital earned historically,” he added. “We’re reasonably happy with the outcome [for 2018]. The hope is 2019 remains hurricane free as well, which would be really helpful.”

ICB’s total comprehensive income for the 12 months to end-December 2018 more than doubled to $1.729m, compared to $685,550 in 2017, largely due to the near-$2m decline in claims incurred.

“That in no measure was due to the reduction on claims incurred, which ran 22 percent less than internally budgeted,” Mr Duff told Tribune Business. “That was a very welcome change.

“Motor claims costs were 13 percent down on 2017, and 7 percent less than internally budgeted. All these things helped, and hopefully we will see a continuation of that as we progress through 2019.

“It’s really all down to the weather. In hurricane-free years companies like ICB make a decent profit and return on capital. We need those years to make up for the Matthew-type years of 2016. We’re looking for a couple of years of hurricane-free activity in The Bahamas.”

Mr Duff said that while reinsurers had likely been hoping for further rate increases in 2019 to compensate for Matthew and Irma-related losses, premiums seemed to be “flat” and “levelling off” during the early part of this year compared to 2018.

“On the back of increases in premium we were able to drive through in 2018, reinsurers I think were hoping to see further increases but maybe not as drastic as the previous year,” he added.

“What we’re seeing in the first quarter is that original rates are levelling off. I would probably share the view of RoyalStar in suggesting that premium rates will be flat this year, and it’s what we’re seeing from the agent side. I think reinsurers will be reasonably happy if rates stabilise in 2019.”