The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer yesterday said its latest agency acquisition target will give it “more and more control of our destiny” while achieving its desired “five basis point spread” investment return.

Sir Franklyn Wilson, RoyalStar Holdings’ chairman, disclosed to Tribune Business that commercial terms for the property and casualty underwriter’s acquisition of a Bahamas-based insurance agency have been completed with the deal only awaiting Insurance Commission approval before it closes.

Declining to identify the target, Sir Franklyn said the move - which follow swiftly behind RoyalStar’s involvement in the purchase of a Cayman-based insurance agency - would boost the underwriter’s sales and distribution channels while also bringing the company “closer to customers”.

“We are likely to make another acquisition on the agency side of things, so that the company can more and more control its own destiny,” he told this newspaper. “The Board has approved it. It’s now going to the regulator to seek approval at that level, and we hope to have that matter wrapped up once the regulatory process is completed.

“We’re not talking weeks, we’re not talking years. I would say months. We don’t take it for granted. The commercial terms are all settled, but we expect the regulators to raise questions and expect to provide them with answers.”

Insurance industry sources spoken to by Tribune Business yesterday said they were unaware of which agency RoyalStar is moving to acquire, although they suggested it was likely a company that already wrote business for the underwriter.

Speaking on condition of anonymity, one source voiced surprise at the move as - unlike its rival Bahamas First - RoyalStar has previously never sought to expand by acquiring local agents and brokers. “They’ve never gone this route before,” the source said. “In The Bahamas they’ve never been acquiring companies, particularly with respect to agencies. It’s almost certainly one of their existing agents.”

Sir Franklyn, explaining the rationale for the purchase, said yesterday: “It brings us closer to the ultimate client. The ultimate client deals with the agencies, and the agencies deal with the underwriter. So by having the agency brings us closer to the client, and bring close to the client helps us provide better service, which helps both the agent and the customer.”

Confirming that the deal will also secure a distribution channel through which RoyalStar policies can be issued to clients, Sir Franklyn pointed out that while no previous agency acquisitions had occurred in The Bahamas there were numerous connections to such businesses via the underwriter’s shareholders such as Sunshine Holdings and Star General.

Anton Saunders, RoyalStar’s managing director, also declined to detail the identity of the acquisition target, the purchase price or number of jobs impacted when contacted by this newspaper yesterday. Confirming that the deal is in progress, he said: “We have done one in Cayman, and we are close to doing one in The Bahamas.

“It is part of our policy that if there is an opportunity out there that is mutual to everyone we will look at it,” Mr Saunders explained. “That is something we pursued last year. We got an agreement in principle subject to regulatory approval.

“There are two competing forces going on. RoyalStar needs investment income also. There is no other credible investment opportunity out there where we can earn the cost of capital plus the five basis point spread that we want. If the cost of capital is 3 percent, then we want the return to be 8 percent.

“What is a credible investment opportunity out there that can sustain or generate that income? We saw there were opportunities with certain agencies out there that met our goals. Two, if there are agents out there that are credible it’s better for us to buy them and secure our distribution channels rather than them go to a competitor. It was distribution and investment income.”

Mr Saunders said the target agency, once acquired, will not write business exclusively for RoyalStar and will operate as a separate business with its own Board of Directors. “Another thing going on with agencies out there is there are a lot of regulatory pressures on them, their administrative costs are increasing, and some are looking to exit the market and others to merge and consolidate,” he added.

RoyalStar Holdings previously acquired around a one-third equity interest in the Cayman-based insurance agent previously owned by Bahamas-headquartered Fidelity Bank.