• ICB chiefs warn result may be ‘financially crippling’

• Increased development to pressure market capacity

• Homeowners and businesses faced with record rates

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian homeowners and businesses have been warned that cutting, or dropping, property catastrophe coverage will be “a false economy” in the face of 26-year record-high insurance costs.

Tom Duff, who is retiring as Insurance Company of The Bahamas (ICB) general manager after 26 years in the post, warned clients in the company’s just-released 2022 annual report that while they may save premium dollars they run a huge risk of becoming “financially crippled” if their property assets are devastated by a Hurricane Dorian-style storm.

Acknowledging that the affordability of insurance is becoming an increasing concern, with reinsurance costs at their highest-ever level during ICB’s existence, Mr Duff wrote: “The cost of catastrophe reinsurance has risen quite dramatically for 2023 and, as a result, customers will be faced with an unwelcome increase in their renewal premiums.

“Although some may be tempted to cancel or reduce cover, doing so may prove to be a false economy as uninsured losses from a major storm can be financially crippling...... The recent phenomenon of the ‘super storm’ is unfortunately a reality that the region can no longer deny. Scientists are predicting that, because of global warming, the region will likely experience an increase in the frequency of these destructive storms.

“This probability represents a major threat to the well-being of The Bahamas and the population at large. It is therefore vitally important that homeowners and businesses take every measure they can to mitigate their risk of incurring serious financial loss from a major hurricane. I encourage all of our policyholders to consider the vulnerabilities of their individual properties and take steps to make them more secure against the risk of hurricane and any other perils.”

Mr Duff’s assessment was backed by Bruce Fernie, ICB’s chairman, who conceded that the major global reinsurers that The Bahamas heavily relies on to underwrite risks in this nation have either drastically increased their prices, cut capacity or withdrawn from the Caribbean altogether after suffering multi-billion dollar losses from previous hurricanes while anticipating further losses from more powerful, and frequent, storms in the future.

“Against this backdrop, ICB approached its most recent reinsurance treaty renewal season anticipating that reinsurers’ terms would likely harden somewhat for 2023,” Mr Fernie wrote. “Unfortunately, the reinsurance market hardened to an extent not seen in the company’s 26-year history. Catastrophe reinsurance capacity reduced substantially over 2022 with many reinsurers electing to reduce their exposure to catastrophe risk.

“Some reinsurers completely withdrew from writing catastrophe exposed business. Despite this, ICB was successful in renewing all our property reinsurance treaties, although at a significantly increased cost. Exacerbating the situation is that there is a growing demand for catastrophe insurance cover throughout The Bahamas with many new building projects underway and many more at the planning stage.

“Given the shortage of windstorm capacity available to the market in 2023, I would appeal to all our customers who insure their properties against hurricane loss not to delay renewing their policies when they fall due... The Bahamian insurance industry will certainly be challenged in the year ahead as we trade through this period of extraordinary level of increase in the cost of property catastrophe reinsurance. Homeowners and businesses will be faced with property rates that are as high as they have ever been.”

Bahamian property and casualty insurers have no choice but to purchase significant amounts of reinsurance on an annual basis because their relatively thin capital bases mean they cannot underwrite all risks in this nation. As a result, premium prices paid by local homeowners and businesses are dictated by the reinsurance market. Those with mortgages, though, are mandated by the loan contract to insure or their lenders take out coverage on their behalf.

ICB, which is the carrier through which BISX-listed J S Johnson places much of its property and casualty insurance, was able to beat profit targets and expectations for 2022 largely due to the absence of any major hurricanes striking The Bahamas for the fourth consecutive year.

“[ICB] was able to produce a trading profit of $4.175m for the 2022 year. This represents an improvement of 10.13 percent over 2021 and a return on equity of 10.5 percent. This better-than-expected result was in large part due to the absence of any major hurricane losses during the year. Profit was also enhanced by ordinary claims costs being substantially lighter than normal across all the main classes,” Mr Fernie wrote.

“ICB’s strong performance in 2022 must be viewed within the context of a growing risk of catastrophic weather losses to The Bahamas and the wider region. The Inter-American Development Bank (IDB) in recently unveiling a $160m loan to finance this nation’s disaster risk management governance was quoted in its policy paper as saying that ‘more frequent and intense storms have cost The Bahamas, its economy and people some $6.7bn in the two decades leading up to 2022’. The document also reinforces The Bahamas extreme vulnerability to hurricanes and the fact that this vulnerability is likely to be further exacerbated by climate change.”

Mr Duff added: “Our gross written premiums (net of fronting arrangements) grew by 7.16 percent to just under $60m. This was significantly better than expected and all our main classes contributed to this growth. Our underwriting profit was almost identical to 2021 at around $3.5m.

“At claims level, net incurred claims costs (after reinsurance) increased by 16.93 percent over the prior yea. However, 2021 claims losses were unusually low due, in part, to reduced activity as the country slowly emerged from the COVID pandemic. Finally, the company’s bottom line was boosted by the recording of $816,952 in unrealised gains.

“Based on the above, ICB was able to produce a better-than-expected total net trading profit of $4.175m for the 12 months of 2022, an increase of 10 percent over 2021. It is important that ICB is able to produce healthy levels of profit during hurricane-free years so that we are able to build up our balance sheet in readiness for the next major event loss. It is also vital that we are able to return profit to our reinsurers following major event losses like Hurricane Dorian. That particular hurricane cost our reinsurers some $220m.”