The Tribune

• RoyalStar chief will worry if no February ‘24 exit

• Soothes fears on German reinsurer capacity loss

• Feels Gov’t ‘done everything possible’ for removal

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer will “only start panicking” if The Bahamas remains blacklisted by the European Union (EU) post-February 2024 as he yesterday sought to ease fears about coverage cost and capacity.

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that this nation’s failure to escape the EU’s “non-cooperative jurisdictions for tax purposes” in yesterday’s review will not prove fatal for the Bahamian property and casualty industry’s ability to retain reinsurance cover in the short-term.

While he and other insurers had previously voiced alarm if The Bahamas failed to exit the EU blacklist this month, given the potentially negative consequences for German reinsurers that provide more than one-third of this nation’s reinsurance capacity, Mr Saunders yesterday voiced confidence that the Davis administration had “done everything possible” to secure the country’s escape.

Voicing optimism that an exit will be achieved at the next review in early 2024, the RoyalStar chief told this newspaper: “I didn’t think we were going to escape it this October, but I think the Government has done everything possible so we should be off in February. If not, then I will start panicking.

“We all knew this was probably not going to happen this year, so reinsurers will put a clause in their treaties which says we’re on it come January 1, 2025, we will not be able to do business with you and will cancel your contracts as of December 31, 2024, and pay you whatever we owe you.”

Speaking from Europe, where is doing the rounds of reinsurers ahead of coverage and treaty renewals for 2024, Mr Saunders said of the EU decision on The Bahamas: “This didn’t come as as surprise. We had met with the Prime Minister, we had met with the Attorney General [Ryan Pinder KC], we had met with the financial secretary [Simon Wilson].

“I think they’ve done a remarkable job to get us off the blacklist. The timing was just slower than we anticipated. From RoyalStar’s standpoint, we knew October would be a challenge but February should be when the EU reviews everything and we should be off the blacklist by then.

“They’ve [the Government] assured us they’ve done everything they can. We’ve seen the legislation and compliance stuff that they’ve done. To me, I’m not concerned. The Government has done everything possible except the timing was an issue,” the RoyalStar chief continued.

“There’s not going to be any issue with the Germans doing business with us. Cost will be dictated by availability and capacity. I’m on my way to Hanover now” to meet with German reinsurers. Tribune Business reported earlier this year warnings from Bahamian property and casualty insurers that they could lose up to 35 percent of reinsurance capacity if this nation failed to escape the EU’s blacklist this month.

Otherwise German reinsurers 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, could 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 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.

Bahamian insurers recently reiterated previous warnings that, in present market conditions, they would struggle to replace the loss of capacity provided by German reinsurers. Besides further increasing already-high premiums, they added that the loss of reinsurance supply might also leave them unable to provide coverage for new homeowner and business clients.

Mr Saunders, though, indicated yesterday that such a scenario will not occur in the immediate term although The Bahamas will have to ensure it escapes the EU listing some time within the next 12-14 months to ensure it retains German reinsurance capacity.

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.

Mr Saunders, meanwhile, said RoyalStar’s experience aligned with a recent report by A. M. Best, the international insurance credit rating agency, which found Caribbean-wide reinsurance capacity declined by between 10-15 percent in 2023.

The renewals for next year are still being worked out, but A. M. Best said: “Domestic primary insurers in the Caribbean have experienced a difficult reinsurance renewal season this year as the reinsurance industry re-evaluates the capacity it extends to the region.

“A combination of a higher frequency of non-modelled events in the US and Europe, high interest rates and, for European reinsurance carriers, a strong dollar, has driven reinsurers to reduce the capacity extended to Caribbean primary insurers.

“A recently issued Best’s Market Segment Report pegs the estimated reduction in reinsurance capacity for the Caribbean region in 2023 at between 10 percent and 15 percent. The change in reinsurance availability has had several downstream effects on the Caribbean domestic markets, most notably large rate increases for primary policyholders,” it added.

“Increases in primary retention and the addition or expansion of self-insured sub-layers were tools carriers used to maximise the limits they could acquire for excess-of-loss towers, but with added capital at risk. Higher reinsurance limits are necessary to accommodate higher modelled catastrophe risks from existing policyholders and any potential growth in policy count.

“As a result, A M Best expects the Caribbean insurers’ profitability to be pressured over the near term. The primary carriers are highly dependent on reinsurance, as they lack the capital to retain any significant amount of additional premium. This dependence also means that financial results can be very sensitive to changes in reinsurance rates and terms.”