The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Bahamas Insurance Association's (BIA) chairman yesterday said it will be a “very big deal" for the industry and its clients if The Bahamas remains blacklisted by the European Union (EU) beyond October.

Julian Rolle told Tribune Business that property and casualty insurers, and their business and homeowner clients, will face potentially severe consequences when it comes to the availability and cost of hurricane coverage if The Bahamas fails to escape the 27-nation bloc's blacklist at its next review.

The Government has voiced optimism that The Bahamas will be removed from the EU's blacklist in October, which is vital to the Bahamian insurance industry securing continued German reinsurance support. That support is “critical” to maintaining coverage for key real estate, auto and other assets in this nation.

Should The Bahamas fail in this endeavour, insurers such as Munich Re will be prevented by German law from receiving tax relief or deductions on hurricane-related claims payouts to The Bahamas. Given that such payouts will likely be worth hundreds of millions of dollars if a Dorian-strength storm strikes a major Bahamian island, the loss of such tax relief might deter German reinsurers from continuing to support local carriers by underwriting the bulk of this nation’s risks.

Such a scenario, if it happens, would occur at the worst-possible time given that reinsurance capacity and willingness to underwrite risks in the disaster-prone Caribbean is at a near 30-year low. Insurance Company of The Bahamas (ICB), in its just released 2022 annual report, said the drop in reinsurance availability has already pushed property insurance costs for Bahamian homeowners and businesses to the highest levels it has seen in its 26-year history.

And premium prices would be sent skyrocketing even further if Bahamian insurers lose German reinsurance support through this nation failing to exit the EU’s blacklist. The progress of new commercial and residential real estate developments, which generate growth and jobs, could also be halted if they are unable to obtain the insurance coverage their lenders demand.

Mr Rolle said: “We agree the point that the blacklisting currently has an effect on the way that we will be able to do business with the reinsurers in the EU. There are some countries in which, if we remain on the blacklist, then we will not be able to do business with them, which will further constrict the amount of reinsurance we have available for The Bahamas.

"It’s a very big deal. There are major reinsurers from the EU and Germany. It’s a very big deal. There is significant exposure.” Bahamian property and casualty underwriters must acquire huge amounts of reinsurance annually because their relatively thin capital bases mean they cannot cover the multi-billion dollar assets at risk in this nation, thus making them dependent on global support.

German reinsurers such as Munich Re, Hanover Re and R & V Re have played pivotal roles in providing such backing. However, escaping the EU blacklist is becoming increasingly time sensitive, and must be accomplished by October, for this is when Bahamian property and casualty underwriters typically will begin negotiations on their reinsurance contracts - including prices and terms - for 2024.

The Davis administration has been working feverishly to address the deficiencies cited by the EU in time for the latter’s October blacklist review, while at the same time blasting the bloc for unfairly targeting The Bahamas with an initiative based on double standards.

Both Prime Minister Philip Davis KC and Ryan Pinder KC, the attorney general, have in recent weeks blasted the EU for subjecting this nation to demands it refuses to impose on its own members even though the likes of Luxembourg are viewed by many as far greater offenders when it comes to tax transparency.

And, acknowledging the insurance industry’s fears, both have warned that Brussels’ initiative threatens to make it harder for The Bahamas to rebuild in the wake of natural disasters if reinsurance support is lost. The Bahamas was re-listed by the EU in late 2022 for alleged deficiencies with its ‘economic substance’ regime - in particular the online portal via which companies fulfilled their reporting requirements under Bahamian law.

‘Economic substance’ requires specific companies to be doing real business in the jurisdiction and have a physical presence - not be operating as ‘brass plate’ or ‘letterbox’ companies. The Government has moved to correct the flaws with the economic substance reporting portal, having contracted BDO to develop a solution that will address the EU’s concerns.