• RoyalStar chief 'can't stress enough' importance of escape

• Profits likely to fall in 2023 after taking 'shocks' for clients

• 2022 bottom line down 51% due to prior year's 'windfall'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer yesterday said it has been forced to "pause'" further Caribbean expansion ambitions, adding: "We cannot stress enough the importance of getting off these blacklists."

Anton Saunders, RoyalStar Assurance's managing director, told Tribune Business that the property and casualty underwriter has put the brakes on growth plans after already limited reinsurance capacity was exacerbated by The Bahamas' latest European Union (EU) blacklisting for allegedly being non-cooperative in the fight against tax avoidance and evasion.

With EU members such as Germany, where Munich Re and other key reinsurers that underwrite Bahamas risks are based, taking an increasingly hard line on companies doing business with blacklisted nations, he explained that it was simply impossible for RoyalStar to expand and take on new business if such support is blocked.

Asked whether RoyalStar plans to continue expansion both The Bahamas and abroad via acquisition, Mr Saunders told this newspaper: "Let me put it this way. Everything is on hold based on two things. Where we expand we have to make sure we have reinsurance support. We are on the blacklist, and have reinsurers focused on us getting off the blacklist because that has implications for The Bahamas insurance industry.

"It's going to impact all businesses in the country. However, we are talking about major reinsurers supporting the region, especially from German reinsurers. It will be very difficult to replace that. I cannot stress enough the importance of The Bahamas doing everything necessary to get us off that listing.

"That's why everything is on pause pending those two things. There's no sense in me expanding something where I have no support, and the blacklisting may reduce my support even more. We must stress to the business community and the Government that getting off this blacklist is vital to all concerned."

Bahamian property and casualty underwriters must acquire huge amounts of reinsurance annually because their relatively thin capital bases mean they cannot cover the multi-billion dollar assets at risk in this nation, thus making them dependent on global support.

The global reinsurance market has been recently been pulling back from the Caribbean due to hurricane-related losses, restricting capacity and driving up costs and premium prices for Bahamian consumers. And, should The Bahamas fail to swiftly escape the EU ‘blacklisting’, reinsurers such as Munich Re, Hanover Re and R & V Re may find it difficult to cover this nation's risks due to the imposition of home country penalties for doing business with such states.

The Bahamas was listed by the EU in late 2022 for alleged deficiencies with its 'economic substance' regime, which requires specific companies to be doing real business in the jurisdiction and have a physical presence - not operating as 'brass plate' or 'letterbox' companies.

The Government has moved to correct the flaws with the economic substance reporting portal, having contracted BDO to develop a solution that will address the EU's concerns. Ryan Pinder KC, the attorney general, has recently voiced optimism that The Bahamas is on course to escape the 27-nation bloc's blacklisting when it reviews the allegedly non-cooperative countries - and the progress they have made - this October.

Mr Saunders, meanwhile, speaking after RoyalStar's total comprehensive income fell by almost 51 percent year-over-year in 2022, dropping from $15.605m to $7.668m, revealed that profitability is expected to decline further in 2023 after the insurer decided to absorb itself some of the increases in reinsurance and other expenses.

"2023 is going to be a very challenging year," he told Tribune Business. "We took some decisions in RoyalStar not to pass on all our costs to clients, and so we can expect there will be a reduction in our profitability but we will be OK. This year we've decided to take some hits to keep insurance affordability at a certain level for our clients. These shocks this year, we didn't want to pass the whole shock on to our clients."

Mr Saunders said RoyalStar's 2021 financial performance had been inflated by the "one-time windfall" it received from the "fair value" revaluation of the loan portfolio owned by Gateway Ascendancy, the distressed mortgage acquirer and restructurer, in which it has a 22.5 percent equity stake.

The underwriter's investments in Gateway Ascendancy, as well as Sandy Shore Developers (the former Luxury Homes Bahamas) and Vanguard Risk Solutions, the Cayman-based insurance agent and broker, produced a collective $10.535m bottom line boost in 2021. However, for the 12 months to end-December 2022, they generated a combined $349,543 - a more than $10m swing.

However, RoyalStar enjoyed an improved performance from its core insurance business, with the total underwriting gain up by almost $1m at $11.194 compared to $10.24m in 2021. Gross written, or top-line, premiums increased by almost 24 percent or almost $20.7m year-over-year, jumping from $86.249m in 2021 to $106.936m last year.

"All of that is as a result of our increased business in the US Virgin Islands territory," Mr Saunders explained of the gross premium jump. "Our goal is to grow our non-Bahamian portfolio to mirror a 55/45 split in premium." While The Bahamas will still be in the majority, he added: "We are almost there, and hopefully we will achieve that this year.

"Right now I think we are 59/41. We are satisfied that everything we can control in these territories we are controlling. All of the territories last year were profitable. We have some work to do in some of the territories because rates were impacted, but those will be corrected this year.

"Insurance is a diversification game. We decided long ago to expand beyond one territory into islands of our choice. Expansion comes with the good and the bad. We'll take the good and the bad together." Royal Star, apart from The Bahamas, has a presence in the Cayman Islands, British Virgin Islands, US Virgin Islands and Anguilla.