• RoyalStar’s five-year goal to penetrate mainland US

• Managing director asserts: ‘We can’t rest on laurels’

• But industry’s Budget tax switch still not resolved

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer yesterday said it will decide within the next five years whether “to venture into big boys’ territory” via US expansion, saying: “We cannot rest on our laurels.”

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that limited growth opportunities in The Bahamas and wider Caribbean meant it was eyeing expansion into several US states as a critical element in its medium to long-term business strategy.

Speaking after the property and casualty underwriter saw its top “financial strength” and credit rating affirmed by A. M. Best, the global insurance rating agency, he explained that RoyalStar plans to leverage its experience in the US Virgin Islands - and experience gained in operating under the American legal system - if it decides to proceed with its ambition to penetrate the US mainland.

Mr Saunders also disclosed to this newspaper that, three months after the 2022-2023 Budget was unveiled and nearly two months after it was passed by Parliament, the Government and insurance industry have yet to address the latter’s concerns and unanswered questions about the taxation switch.

The Budget saw the Government abandon the 3 percent premium tax in favour of reverting to a 2.25 percent Business Licence levy, and Mr Saunders disclosed the sector is now set to meet Michael Halkitis, minister of economic affairs, next week on August 31 in a bid to resolve issues such as the definition of “turnover” that the Government plans to employ in calculating its tax liability.

The Bahamian insurance industry has been one of the few domestic economic sectors to expand beyond this country’s borders, but such moves to-date have been confined to the wider Caribbean. RoyalStar, if it moves to execute on its strategic plans, would be the first local underwriter to seek to break into the US property and casualty market.

“It has gone better than we expected so far. So far, so good,” Mr Saunders told Tribune Business of an expansion strategy that has seen the general insurer penetrate the Cayman Islands, US Virgin Islands, Turks & Caicos, British Virgin Islands (BVI) and Anguilla. “For Anguilla and the BVI, it’s a British legal system, so our learning curve was quick.

“The US Virgin Islands was the first jurisdiction we went to with a different legal system. We are learning, and are still on a learning curve there. We learn from our mistakes, but we are better off there than we were two years ago. We did it because we wanted to diversify from The Bahamas. We wanted to have a taste of the US.

“If there’s any chance in the near future, the next five years, that we want to venture into other US territories we have the experience, we understand the pitfalls, the venture and the opportunities. We’ll determine in the next five years if we want to venture into big boys’ territory,” he continued.

“That’s our five-year goal we’ve set for ourselves. That’s our five-year strategic thinking. We will take what we learned in the US Virgin Islands and go into some states in the US. We cannot sit on our laurels. There’s not much further expansion for us in the Caribbean. There’s probably one more move we’ll make and then five years from now do our strategic plan. We’ll be thinking more that way than the Caribbean.”

Mr Saunders declined to say where RoyalStar’s “one more move” in the Caribbean will be, although he said it will likely occur within the next two years. “We’ll sort that out, finish that one and then look strategically at what we do with this company,” he added, pointing to “the knowledge and opportunity” gleaned from operating in the US Virgin Islands.

“The Bahamas is more a mature market. There are opportunities that exist out there, but for us if our agents have organic growth we’re happy with that, and if they get an opportunistic piece of business we’ll help them. This is a mature market, and the challenge has always been between us and Florida when it comes to reinsurance capacity. We cannot do anything without the support of our reinsurers.”

Bahamian property and casualty insurers, in particular, have viewed Caribbean expansion as a means of diversification and risk management. Focusing solely on The Bahamas leaves them exposed to huge annual multi-million dollar blows from hurricanes, which have increased in frequency and intensity as shown by Dorian, whereas having operations in multiple territories means all are unlikely to be hit at once or in the same year.

Mr Saunders said RoyalStar was “close” to its target 60/40 business split between The Bahamas and wider Caribbean. While The Bahamas would have the majority, he indicated the insurer may be writing just 55 percent of its overall business in this nation by 2023.

“At the end of this year we will probably be around 65/35, and by next year at 55/45,” he told Tribune Business. “We’re bringing it down. We have the diversification, but you also have to remember all the territories we are in are subject to catastrophe perils. That is the same for all Caribbean companies. All of us are in that set.

“We are on target with our 2022 budget. This is the peak of our exposure where hurricanes in the next two months will determine if the wind blows or doesn’t blow. That’s the business we are in.” Apart from storms, Mr Saunders said the only other uncertainty relates to government taxation of the sector.

The Davis administration moved to replace the 3 percent premium tax with a 2.25 percent Business Licence fee levied on “turnover” in the Budget, but insurers say the latter’s definition and how it is calculated - whether based on gross written premiums, net premiums or some other indicator - is critical to determining the impact on the industry and its consumers.

“The only unknown we have is what the Government is proposing to be taxed with the new taxation they are trying to implement,” the RoyalStar chief explained. “The Bahamas Insurance Association (BIA) has agreed to a meeting with the minister. That meeting will be held on August 31. The minister, Minister Halkitis, has obliged us with a meeting and I would not wish to pre-empt what the BIA will present.

“We’ll see how it goes. I’m sure that we can hopefully come to some credible working arrangement on this matter so that the Government gets what it wants revenue wise without disrupting the whole business model. We have our proposals that, hopefully, we believe they will listen to.”

A. M. Best has affirmed RoyalStar’s financial strength rating of A (excellent) and long-term issuer credit rating of ‘a’ (excellent), assigning a ‘stable’ outlook to both. Mr Saunders said the Bahamian underwriter is just one of five entities in the Caribbean to enjoy these ratings.

“The ratings reflect RoyalStar’s balance sheet strength, which A. M. Best assesses as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management,” the assessment said.

“RoyalStar’s balance sheet strength is derived from its strongest risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), strategically conservative investment portfolio and comprehensive reinsurance programme.

“These strengths are offset partially by RoyalStar’s exposure to weather-related catastrophe events, given its geographic concentration of business in the Caribbean, and its high reliance on reinsurance to protect its balance sheet and surplus from catastrophe events.”