By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First has assigned its non-executive directors to probe woes that resulted in regulators threatening to bar its Cayman affiliate from writing new life and health insurance business.

The BISX-listed property and casualty underwriter, in a notice to shareholders that received little public attention, disclosed that its Board had appointed a committee of its non-executive directors to investigate the matter "and the governance related thereto".

Bahamas First confirmed to this newspaper in early May 2023 that its Cayman First subsidiary was non-compliant with that territory's health insurance regulations due to a claims processing "backlog" that had resulted from the implementation of a new system in the 2022 third quarter, but the investigation's launch suggests the issues have lasted longer - and are more deep-rooted - than previously thought.

"As a result of problems with the implementation of the new processing system, Cayman First failed to comply with regulatory reporting deadlines with respect to claims processing, payment and client invoicing," Bahamas First told shareholders. "These problems, which have proved both difficult and, as a result, slow to resolve, are ongoing.

"They have led to the Cayman Health Insurance Commission (CHIC) indicating to Cayman First on March 30, 2023, that what occurred breached the conditions of its Approved Insurer Certificate for health insurance business issued by the CHIC, that it was considering enforcement action and may be minded to make regulatory orders which would prevent new health insurance for Cayman residents being underwritten by [Cayman First]."

Bahamas First and its affiliate responded by providing the Cayman regulator with a plan to resolve the issues, and hired an international consultant and added extra staff to address it with hopes of "achieving substantial resolution of the problems within the course of the next 90 days".

"It is to be stressed that Cayman First has no problem in meeting claims in full, but the problem encountered has been in processing claims," Bahamas First told investors. "The Boards of Bahamas First and Cayman First are concerned as to the time taken and the difficulties encountered by management to resolve the situation with life and health.

"The Board of Bahamas First has appointed an investigation committee comprised of non-executive Board members to investigate the matters surrounding the Cayman First issues and the governance related thereto. The Board has also resolved to use external consultants to advise them on the origin and handling of the problems both from a technical and wider perspective, and further to advise on appropriate steps to ensure that life and health's systems are robust and resilient as well as those of Bahamas First.

"Over the coming weeks, the Board will closely review the financial implications of life and health's problems. Bahamas First's 2022 consolidated financial statements show that life and health's total segment assets of over $27mi greatly exceed its total segment liabilities of less than $12m, so the life and health division carries no material financial risk to the wider group."

Patrick Ward, Bahamas First's president and chief executive, told Tribune Business via messaged reply that he was travelling and would be unable to comment on the issue before press time. However, local insurance industry sources, speaking on condition of anonymity, said the situation should also attract the attention of Bahamian regulator, the Insurance Commission of The Bahamas.

However, the Bahamas First chief, in his 2023 first quarter message to shareholders, largely repeated the contents of the earlier note. "As previously disclosed, Bahamas First's Cayman subsidiary, Cayman First Insurance (CFI), experienced delays in reporting to its regulator in Cayman as a result of the group’s implementation of a new policy and claim processing system during 2022, which affected its health and life segment," he said.

"These problems, which have proved both difficult and, as a result, slow to resolve, are still continuing. The group is monitoring the impact of the resultant service issues on customer retention. The group has employed additional resources to advise on the origin and handling of the problems, both from a technical and wider perspective, and further to advise on appropriate steps to ensure that the health and life systems are robust and resilient."

Elsewhere, Bahamas First revealed a $2.641m net loss for the 2023 first quarter via the first set of unaudited results to be produced using the new International Financial Reporting Standard (IFRS) 17. The new standard, which "requires insurers to recognise insurance contract revenue and expenses in a way that reflects the timing of transfer of insurance risk from the insurer to the policyholder", has forced companies to invest heavily in ensuring they comply.

Both Bahamas First and Family Guardian cited the IFRS 17 adjustment, and the associated complexities, for why they requested - and were granted - extensions by BISX for publication of their 2023 first quarter results. With 2022 figures adjusted for the new standard to provide a comparison, Mr Ward said the three months to end-March this year would have compared to a $1.731m loss last year.

"For the 2023 first quarter, we are reporting a total comprehensive loss of $2.6m in the consolidated statement of comprehensive income in comparison to a loss of $1.7m in the prior year. The increased loss is attributed to a larger deferral of premiums within insurance revenue and higher claims loss ratios within insurance services expenses. These movements were offset by more favourable investment returns," Mr Ward told shareholders.

"During the first quarter, gross written premium increased by 5.2 percent against prior year on the old basis of accounting, as we experienced growth in premiums across all of our major lines of business. This growth was generated by the combination of rate increases and organic expansion.

"However, under the new accounting standard, insurance revenue decreased by 2.3 percent from the prior year, primarily as a result of new seasonal adjustments, which resulted in a larger deferral in revenue recognition to later in the year."

Similarly, on insurance expenses, Mr Ward added: "During the 2023 first quarter, under the new standard, we are reporting insurance service expenses of $20.5m, a 14 percent increase over the prior year’s total of $18m. While we continue to experience higher loss ratios from the Cayman motor and health lines of business, the higher reported insurance service expense is also driven by the new methodology of determining claim liabilities, as interest rates declined during the first quarter of 2023 resulting in an adverse discounting impact.

"During the 2022 first quarter, we reported unrealised losses on the Commonwealth Bank equity holdings of $1.2m and on the bond portfolio of $0.9m, which reversed to a combined $0.2m unrealised gain during the current period." Mr Ward said the changes resulted from adoption of the new accounting standard, as there was no material change in financial position and performance between current and prior periods using the former standard.