The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First’s top executive has blamed more than 50 percent of the group’s $4.3m comprehensive loss for the 2023 first half on a major change to insurance industry accounting standards.

Patrick Ward, the BISX-listed property and casualty insurer’s group president and chief executive, told shareholders that “substantial changes” to the treatment and recognition of insurance contracts under International Financial Reporting Standard (IFRS) 17 has had a major impact on the company’s second quarter and results for the six months to end-June.

Using the previous accounting standard, he explained that Bahamas First would have suffered a near $2.1m deterioration year-over-year for the 2023 first-half, falling from a $918,06 profit last year to a $1.168m loss this time around. However, under IFRS 17, a small $29,161 loss during the six months to end-June 2022 has expanded to a $4.29m comprehensive loss - equal to 12 cents per share - this time around.

“For the six months ended June 30, 2023, we are reporting a total comprehensive loss of $4.3m in the consolidated statement of comprehensive income in comparison to a $29,000 loss in the prior year. The increased loss is attributed to the impact of discounting and risk adjustments,” Mr Ward wrote.

“Total comprehensive loss/income using the former standard shows a deterioration of $2.1m for current year to-date versus prior period. The material changes pertain to the investment result and operating expenses, as well as increased reinsurance costs. However, the deterioration increases dramatically to $4.3m under IFRS 17, indicating that $2.2m is attributed to the changes in measurement under the new standard.”

Despite the $4.3m loss, Bahamas First paid out a collective $1.5m to shareholders via a four cents per share dividend. “Our capital base remains strong, and this fact was emphasised in July 2023 with A M Best’s affirmation of our A- (Excellent) rating with a stable outlook,” Mr Ward reassured, while asserting that progress has been made in addressing woes that resulted in regulators threatening to bar its Cayman affiliate from writing new life and health insurance business.

“Year-to-date [through] the 2023 second quarter, other expenses were $7.2m or $0.6m higher than the prior period. The increased expenses were driven by increased salaries, professional fees and travel, the majority of which related to the remediation efforts that are underway within the health segment of our business in Cayman,” Mr Ward revealed. 

“We have seen improvements in some of the key problem areas connected with claims processing, and we now have better insight on what is required to bring resolution to the system issues. The remediation work will continue in discrete phases, with an initial focus on bringing stability to the operating environment.”

The BISX-listed property and casualty underwriter previously disclosed that its Board had appointed a committee of its non-executive directors to investigate the matter “and the governance related thereto”.

Bahamas First confirmed to this newspaper in early May 2023 that its Cayman First subsidiary was non-compliant with that territory’s health insurance regulations due to a claims processing “backlog” that had resulted from the implementation of a new system in the 2022 third quarter, but the investigation’s launch suggests the issues have lasted longer - and are more deep-rooted - than previously thought.

“As a result of problems with the implementation of the new processing system, Cayman First failed to comply with regulatory reporting deadlines with respect to claims processing, payment and client invoicing,” Bahamas First told shareholders. “These problems, which have proved both difficult and, as a result, slow to resolve, are ongoing.

“They have led to the Cayman Health Insurance Commission (CHIC) indicating to Cayman First on March 30, 2023, that what occurred breached the conditions of its Approved Insurer Certificate for health insurance business issued by the CHIC, that it was considering enforcement action and may be minded to make regulatory orders which would prevent new health insurance for Cayman residents being underwritten by [Cayman First].”

Bahamas First and its affiliate responded by providing the Cayman regulator with a plan to resolve the issues, and hired an international consultant and added extra staff to address the matter. 

Meanwhile, addressing other aspects of the company’s results, Mr Ward said: “For the year-to-date, gross written premium increased by 11.8 percent against the same period in the prior year, as we experienced growth in premiums across the property and casualty major lines of business.

“This growth was generated by the combination of rate increases and organic expansion. However, under the new accounting standard, insurance revenue decreased by 0.3 percent from the prior year, primarily as a result of new seasonal adjustments, which resulted in a larger deferral in revenue recognition to later in the year.”

As for expenses, he added: “During the 2023 second quarter, under the new standard, we are reporting insurance service expenses of $44.8m, an 11.1 percent increase over the prior year’s total of $40.3m. While still elevated, we have seen stabilising of loss ratios on the health line of business and the Cayman motor business.

“Under the new accounting standard, service expenses are reported gross of reinsurance recoveries and growth in the business will result in higher amounts of insurance service expense if loss ratios are stable. In addition, there has been a significant adverse discounting impact as reported under the new methodology of determining claim liabilities.”

Mr Ward described the 2023 first half as “uneventful” when it came to investment and other income, which totalled $0.8m for the period. This contrasted with the 2022 first half when Bahamas First “reported combined investment and other income, and other comprehensive income, of $1.2m, driven by net realised and unrealised gains on the Commonwealth Bank equity holdings of $1.7m and an unrealised loss on the bond portfolio of $1.3m”.