May 14, 2021

Bahamas first’s ‘Banner Year’ as profits up 548%

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By NEIL HARTNELL From Tribune242


BAHAMAS First’s chief executive yesterday hailed 2017 as “a banner year” where profits increased almost seven-fold, adding: “Everything we needed to go in our favour did.”

Patrick Ward told Tribune Business that the “buildings blocks” laid by the property and casualty insurer in prior years had paid off by producing net underwriting income of $34 million, a 93 per cent increase over a prior year dominated by Hurricane Matthew claims payouts.

Conceding that Bahamas First and its competitors were “a little bit lucky” that Hurricanes Irma and Maria did not strike this nation’s major population centres, Mr Ward said their severity – and the ever-increasing threat from natural catastrophes – had already forced adjustments to the underwriter’s business model. These changes, he explained, have required a “deepening” of Bahamas First’s product offering and geographical diversity through operations in the Bahamas and Cayman Islands. Mr Ward said the general insurer had also altered how it buys reinsurance, and become “a bit more selective” over the risks it agreed to insure.

He emphasised that while Bahamas First was not seeking to abandon homeowners, those in flood and storm surge-prone areas were likely to experience increased premiums and stricter terms that are better aligned with risk.

And, with total comprehensive income up 548 per cent year-over-year, Mr Ward said it was critical for Bahamas First and other property and casualty underwriters to use such profits to insulate their balance sheets against future hurricanes.

Expressing optimism over the health of both the Bahamian and Cayman Islands economies, the Bahamas First chief predicted the company was on track to enjoy “a repeat performance” on net underwriting income depending on the upcoming storm season.

“Everything that we needed to go in our favour did work in our favour and, as a result, we had a banner year,” he told Tribune Business of Bahamas First’s 2017 performance.

“On the one hand I think we were a little bit lucky in the sense that the Bahamas did not get a direct hit on a high population centre, like we did in 2016. We benefited from focusing on products in prior years, ensuring we were pricing the product correctly, and we enjoyed some organic growth while maintaining underwriting discipline.”

Writing in Bahamas First’s annual report, Mr Ward said the insurer’s top-line gross written premium income had increased “for the first time in a number of years”, rising 3 per cent from $138.686 million to $143.177 million in 2017.

This brought ‘revenue’ back close to 2015 levels, with Bahamas First’s chief executive attributing the improvement to “positive rate movements and strong organic growth”. He added that it “restored us to a path of prudent growth” without sacrificing underwriting performance.

Mr Ward, in particular, played up the near-doubling in Bahamas First’s net underwriting income, which jumped from $17.599 million in 2016 to $33.909 million. While 2016 comparatives were impacted by Hurricane Matthew, the 2017 figure was still 18.9 per cent ahead of the $28.5 million recorded for 2015.

“As the year progressed it became clear that our core earnings were trending in the right direction and, in many respects, we were ‘firing on all cylinders’,” Mr Ward told shareholders.

“During 2017 we earned an underwriting profit in every line of business across the group, and this is reflected in the record level of net underwriting income total of $34 million, which is almost twice the level achieved in 2016. The most recent result is also higher than any of the prior years without a major loss event.”

Net underwriting income is a key indicator of an insurance company’s performance, as it measures how well it has done in assessing, pricing and managing the risks it covers to ensure sustainable profitability.

Underpinned by the improvement in its core business, Bahamas First’s total comprehensive income jumped almost seven-fold from $2.543 million to $17.247 million year-over-year. The 2017 figures were also 92 per cent ahead of the $8.982 million ‘bottom line’ performance produced in 2015.

“As a consequence of this stellar outcome, the group’s return on equity (ROE) increased to 25 per cent for 2017, with the rolling three-year average improving to 16 per cent,” Mr Ward wrote in the annual report.

“For the first time in our existence, the group’s total equity has eclipsed the $70 million mark, and supports a book value of $1.74 per common share compared to $1.41 in 2016. As we previously reported, dividends paid during 2017 amounted to $0.12 per share or $4.4 million, compared to the 2016 payout of $2.9 million, or $0.08 per share.”

Although the Bahamas largely escaped the wrath of Irma and Maria, Mr Ward told Tribune Business the increased severity and frequency of storms had already prompted Bahamas First to adjust key aspects of its operations.

“We’ve done a number of things,” he said. “We’ve ensured we deepen the diversity of our product offering and geographical footprint. We’ve made some changes to how we buy reinsurance to allow for the increased frequency and severity of these storms, and we’re a bit more selective with the underwriting approach in both the Bahamas and Cayman.”

Asked whether this meant Bahamas First is dropping and/or rejecting coastal-based risks, Mr Ward said that while the underwriter will never abandon clients such properties could see tougher “terms and conditions” apply.

“We try not to walk away without providing some level of protection, but if you are exposed it’s going to come at a cost,” he warned.

Mr Ward added that generating high earnings in non-hurricane years was critical to enabling Bahamas First to ‘buffer’ its balance sheet against future multi-million dollar claims payouts, such as those incurred in Hurricane Matthew’s wake.

“We’ve been laying the building blocks for a number of years,” he said. “One of the things that’s very important to our business, given the threat of big catastrophe losses, is to make sure revenue and income levers are in place to take advantage of when there are no losses.”

Expressing optimism that Bahamas First can repeat its underwriting performance in 2018, Mr Ward said the company was “very hopeful and very encouraged by early signs of improvement in the overall economic environment in the Bahamas” and continued growth in the Cayman Islands.

“We’re very optimistic about the outcome of this year,” he told Tribune Business. “Certainly, from the underwriting perspective, we think the building blocks are in place to have a repeat of the underwriting performance. We think there’s an opportunity to have another really good year; I wouldn’t necessarily say better.”

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