The Tribune

Bahamas First and its subsidiaries have seen their creditworthiness and financial strength reaffirmed by the global insurance industry’s top rating agency despite recent “challenges” to operational performance.

AM Best, in a statement, said it has confirmed the financial strength rating of A- (Excellent) and a long-term issuer credit rating of ‘a-’ (Excellent) for both Bahamas First General Insurance Company and Cayman First Insurance Company. These two entities are the property and casualty operating subsidiaries for BISX-listed Bahamas First Holdings. The outlook for all credit ratings is stable.

The ratings agency said its decisions reflect Bahamas First’s balance sheet strength, which 9it described as strongest, as well as the underwriter’s “adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM)”.

“Bahamas First Holdings’ balance sheet strength assessment is supported by it maintaining the strongest level of risk-adjusted capitalisation, as measured by Best Capital Adequacy Ratio (BCAR),” AM Best added. “However, the company has a high dependence on reinsurance to manage capital exposure to catastrophic events, as is typical of Caribbean insurers.

“Bahamas First Holdings upholds appropriate protection from catastrophic events with high-quality reinsurers. Capital growth has been hampered by declining earnings and annual dividends to shareholders. Bahamas First Holdings’ invested assets are mostly held in highly liquid cash and short-term investments.

“Asset risk has moderated as the company has been working to de-risk its portfolio by shedding equity holdings. Over half of Bahamas First’s investment portfolio is domiciled in The Bahamas, which has restrictions on foreign investments. Cash flow from operations has remained favourable for the past two years.”

Turning to the insurer’s recent financial performance, AM Best said: “Bahamas First Holdings’ operating performance has been challenged in recent years from the Cayman health business and narrowing margins on its property and casualty lines. Recent volatility can also be attributed in part from the implementation of IFRS 17 accounting standards.

“A backlog resulting from the roll-out of a new health claims platform caused administrative expenses to rise, driven by the additional resources necessary to remediate the backlog. While this backlog has been resolved, health claims remain elevated due to higher utilisation and elevated claims costs.

“Additionally, health premiums have declined over the past two years as new sales were moderated while the claims backlog was resolved. Margins for the property and casualty business have been impacted by increased reinsurance expenses and increased costs for motor claims. The company projects its operating performance to improve incrementally through rate actions, premium growth and stabilisation of reinsurance costs.”

Describing Bahamas First’s “business profile” as neutral, AM Best said the insurer “holds a leading market share in The Bahamas and is a top three insurer in the Cayman Islands, benefiting from product and geographic diversification.

“Nevertheless, Bahamas First Holdings operates in a highly competitive environment and is subject to capacity constraints and increased pricing in the reinsurance market,” it added. “While capacity constraints have lessened and rates have stabilised, the company is exposed to prevailing reinsurance market conditions.

“Bahamas First Holdings’ ERM is assessed as appropriate given its formal programme with a mature framework, established risk tolerances and a good governance structure. The claims backlog created from the implementation of the new health claims platform did impact claim payment timeliness in excess of domestic regulation.

“The company took appropriate actions to clear the backlog and put in place procedures to prevent a reoccurrence. Additional audit procedures were also put in place to ensure reserve adequacy.”