The Tribune

• RoyalStar profits surge 158% on ‘one-off’ Gateway boost

• Predicts 15% net income rise for 2022 with gain ‘stripped’

• Star General purchase likely to cost $4m with profits ‘hit’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer yesterday said it is targeting a 15 percent profit increase for 2022 once the $8m “one-off windfall” it enjoyed last year from its investment in a delinquent mortgage buyer is stripped out.

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that much of the property and casualty underwriter’s 158 percent year-over-year net income increase for 2021 was driven by the revaluation of Gateway Financial’s mortgage portfolio due to a change in accounting treatment.

While Royal Star’s parent company saw profits jump from $6.048m in 2020 to $15.605m for the year to end-December 2021, representing a more than $9.5m increase, he warned that this was a one-off gain that Gateway - in which the insurer holds a 45 percent ownership stake - will not repeat.

Stripping out this windfall, Mr Saunders predicted that RoyalStar Holdings will in 2022 match last year’s 15 percent profit increase - a figure that measures 2021’s year-over-year bottom line improvement without the benefit of the Gateway revaluation. The insurer still enjoyed a $1.5m bottom line improvement in 2021 with this removed.

RoyalStar’s 2021 financial statements reveal that profits at Gateway Financial, in which Sir Franklyn Wilson’s Sunshine Finance also holds an equity interest, increased almost 17-fold year-over-year - rising from just $1.168m in 2020 to some $19.562m one year later. The company, which specialises in acquiring delinquent mortgages and then works with the borrowers to restructure the loans, also saw assets more than triple to $24.887.

The insurer, with its 45 percent stake, saw its share of Gateway’s profits rise from $525,386 in COVID-ravaged 2020 to $8.802m in 2021. The more than $8m increase thus drove the majority of Royal Star’s bottom line increase, but not all.

“Without the windfall we would still have been up about 15 percent over last year,” Mr Saunders told Tribune Business of RoyalStar Holdings’ profitability. “There’s two things going on. The overall results are trending in the right direction because of diversification. And, two, there was a windfall in the results due to the change in accounting treatment of Gateway’s loan portfolio.

“The change in treatment was, rather than the portfolio being treated or valued at cost, and accounting standards required that it be treated at fair value. The windfall throughout the whole organisation resulted in an $8m increase in profitability. That is a one-off there, but based on the current trends, the organisation is very, very profitable.”

RoyalStar’s 2021 financial performance confirms the insurer’s diversification strategy, centred around the creation of the parent company and its subsequent investments into other industries, has so far worked in terms of delivering greater, more consistent profitability. No longer is it solely reliant on its legacy, core property and casualty underwriting business where the annual bottom line is largely determined by whether or not The Bahamas is struck by a major hurricane.

Sir Franklyn and Sunshine Holdings are also RoyalStar’s largest shareholder, owning the largest stake in the insurer’s majority 52.86 percent owner, SunStar Ensure Ltd. Besides Gateway Financial, RoyalStar Holdings also holds equity investments in fellow group affiliates, SFL RSA Ltd and Vanguard Risk Solutions, with 45 percent and 32.26 percent equity stakes, respectively.

SFL RSA holds a 50 percent interest in a Turks & Caicos-based delinquent mortgage purchaser/restructurer, while Vanguard is the former Fidelity Insurance (Cayman) agency that RSA acquired in partnership with Trinidad’s Guardian Holdings. And RoyalStar also holds a 19 percent ownership stake in Luxury Homes (Bahamas), an entity that holds around 100 acres of land near St Andrew’s School and Solomon’s Yamacraw in eastern New Providence.

These combined investments delivered a more than $10m year-over-year increase to RoyalStar’s 2021 bottom line, their total contribution hitting $10.535m compared to just $1.104m in 2020. Without this boost, RoyalStar’s profits would have been flat year-over-year, the property and casualty underwriting business delivering a $5.37m profit for the year to end-December 2021 as opposed to $5.233m the year before.

Mr Saunders voiced optimism that RoyalStar will this year match 2022’s profit increase, minus the Gateway “windfall”, provided The Bahamas and its other major markets are not struck by a major hurricane. “Without the extraordinary windfall, and if the wind doesn’t blow, we expect profits to be 15 percent higher than in 2021,” he told this newspaper.

He forecast much of this growth would come from new Caribbean markets it has just entered, especially the US Virgin Islands and Anguilla, while revealing that RoyalStar Holdings will likely pay $4m for the acquisition of its 80 percent majority ownership interest in Bahamian insurance agent and broker, Star General.

The initial purchase price for a deal that closed on January 1, 2022, is $3.6m but this will rise by a further $400,000 if Star hits its agreed profit target for 2022 - something that Mr Saunders confirmed it is on track to achieve.

“We are now in the process of evaluating the processes in Star and then, after that, we will make a decision on the way forward,” Mr Saunders said. “We expect that, by the third quarter, Star will be fully integrated and operations will have improved. 

“They’re not going to be exclusive agents of RoyalStar. They’re going to be dealing with other people (insurance carriers), and will have their own management executives and insurance representatives. We’ll be giving them pointers, and whatever improvements we can make to them operationally.”

Asked whether Star General will meet the profit target agreed by RoyalStar and the former’s ex-owners, James (JM) Pinder, and Herbert Thompson, Mr Saunders confirmed: “They’re going to hit it. It’s very likely that they’re going to hit the profit target based on the agreement.

“When we did the negotiations, some people would have done it on your [policy] renewal rate being at 80 percent, but we decided if profits are sustained at what we agreed they’ll get additional money for the purchase.” Mr Saunders reiterated that RoyalStar acquired both Star General and Fidelity Insurance (Cayman) to prevent brokers, which acted as key distribution channels for the sale of its policies, from falling into the hands of rivals.

“In Cayman we have secured our distribution channels with Guardian and purchased the Fidelity agency,” he explained. “Just like this one, we learned it was up for sale and determined Star was too important to RoyalStar to allow it to go to a competitor. The acquisition was to help secure a distribution channel.”