• RoyalStar ‘shying away’ from third-party cover

• Risk/reward ratio ‘makes no economic sense’

• Premium average $350; liability up to $30m

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer says it is “shying away” from providing third-party motor coverage because “the bang for the buck is not worth it” when returns are weighed against potential losses.

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that a risk/reward analysis shows it “makes no economic sense” to build-up a large portfolio of third-party drivers because the premium income is so low when compared to the potential multi-million dollar liability payouts if these clients cause a traffic accident resulting in death or serious industry.

Pointing out that the average annual third-party motor insurance premium is around $350, yet potential liabilities extend to $30m, he said in a recent interview: “Specific to motor, RoyalStar never had a big market share in motor. The reason being that the premiums are very low.

“The average premium for third party motor is $350, and we extending liability up to $30m for policyholders. That makes no economic sense. From a liability side, we try to shy away as much as we can because the risk/reward is not there in motor.

“We don’t have a big enough motor share in The Bahamas to drive the market... We shy away from it because of liability limits, the highest in the Caribbean, and premium. The bang for the buck in liability and premium is not worth it.”

Third-party cover has become the staple Bahamian motor insurance product largely because of its relative affordability. These policies cover the insured for against death, medical treatment and vehicle repair costs incurred by other drivers in the event of a traffic accident that the former is found responsible for causing. Comprehensive insurance, which also covers the insured’s own repair and recovery costs, involves a much higher annual premium payment.

Meanwhile, Tom Duff, general manager of rival underwriter, Insurance Company of The Bahamas (ICB), told Tribune Business that reduced claims costs across all its property and casualty business lines resulted in a “better-than-expected” 96 percent year-over-year profit increase to $3.791m for the 2021 full-year. This compared to $1.935m for 2020.

Net claims incurred fell by $634,000, or 34.5 percent, compared to 2020, finishing last year at $1.205m and accounted for almost one-third of the profit rise. “It was a better-than-expected trading result,” Mr Duff told this newspaper. “The absence of a major hurricane and claims costs being somewhat lighter across all lines of business created favourable conditions that we don’t normally see. 

“When your claims costs fall below expected levels you can only engage in conjecture as to why that should be, but it was very welcome for us and helped to contribute to this better than expected result. Across all major lines the claims costs fell below historical levels. We don’t know whether it’s a one-off and we will see a return to more normal levels in 2022. So far, so good.”

Mr Duff said it was vital that Bahamian general insurers generate profits in years when this nation escapes being struck by a major hurricane. The last storm to hit was Hurricane Dorian in 2019, and the ICB chief added: “It’s really important in years where you get a lucky break with no hurricane that you produce profits so as to strengthen your capital position against the next big blow.

“Whatever profits we make in the first six months of this year, we hope to create a little cushion against potential event losses in the second half. It will be the next three to four months that decide how well we do this year-end. We are keeping our fingers and toes crossed for the third successive year that The Bahamas might have a break and not see a significant catastrophic storm.

“The numbers are doing OK so far. Our underwriting results are going a little better than expected. There’s nothing that’s come out of the first five to six months of trading that gives us any concern.”

Mr Duff added, though, that the Bahamian economy’s overall performance will also weigh heavily on how well ICB, which is the carrier through which BISX-listed J S Johnson places much of its general insurance business, does in 2022.

“For every business and private citizen in The Bahamas, how the Government manages the economic challenges is going to be critical to all,” he said. “For insurance companies it is especially relevant because of the impact a depressed economy has on disposable income.

“Our goal is to keep reminding consumers of the vital importance of maintaining insurance coverage. That is where our focus will be, and we are working hard on that and hoping the economy starts to recover and income filters down.”

Bruce Fernie, ICB’s chairman, pointed to these challenges and the mixed outlook for the Bahamian economy in ICB’s recently-released 2021 annual report. “Clearly, some painful economic decisions will have to be made and non-essential public expenditure will likely be curtailed,” he warned.

“The COVID-19 pandemic has taken its toll on the private sector with many private businesses being forced to close with the resultant loss of jobs. Against this backdrop, disposable income for many private and corporate citizens will be squeezed in the short to medium-term.

“On a more positive note, however, overseas investment in The Bahamas appears to be on the increase and there are numerous new building projects underway. Also, a number of Bahamian realtors are reporting substantially increased demand from overseas for Bahamian land and high-end properties.”

Mr Fernie, noting that ICB’s 2021 profits represent a 10.79 percent return on shareholder equity, echoed Mr Duff in saying: “Given the volatility of trading results for general insurers due to the unpredictability of losses from major hurricanes, it is vital that insurers are able to post healthy profits in years when we are spared major weather event losses.

“With the impact of the devastating Hurricane Dorian still fresh in our minds, it was a relief that The Bahamas avoided a hurricane loss for the second consecutive year. Aside from the absence of any hurricane losses, the company’s bottom line profit was enhanced by ordinary claims costs being substantially lighter than normal.

“In terms of premium volume, it was pleasing that the company grew its gross written premium during the year by 10.72 percent (excluding premium from fronted policies). This was in line with expectations but was nevertheless a welcome outcome given the depressed economy and the COVID-19 safety protocols the industry was required to work under during the year.”