By Fay Simmons

Tribune Business Reporter

jsimmons@tribunemedia.net

The Insurance Commission was yesterday said to be looking at “what if” scenarios to ensure insurers have access to sufficient reinsurance capacity if The Bahamas stays on Europe’s tax blacklist.

Michelle Fields, the regulator’s superintendent of insurance, reaffirmed to the Bahamas Institute of Chartered Accountants (BICA) accountants’ week seminars that it is vital for The Bahamas to escape the 27-nation European Union’s (EU) non-cooperative listing to ensure German reinsurers are not hit by punitive sanctions.

She explained that many Bahamian property and casualty underwriters obtain reinsurance from companies in the EU, especially Germany, which will impose penalties on companies doing business with blacklisted nations from 2025 onwards. This potential threat comes at a time when The Bahamas and wider Caribbean are dealing with higher reinsurance costs and reduced capacity over the mega storm threat.

Mrs Fields said: “Many reinsurers have not only raised their rates, but they’ve also reduced the amount of capacity offered to the region. This is of concern, as the risk of under-insurance will increase and the access to insurance is likely to diminish. Many of the reinsurance companies used by our domestic insurers [are] companies out of Europe.

“And so in addition to the hard market, Germany has passed a law which puts a punitive tax on companies regarding their business with countries which have been blacklisted by the EU. This law will come into effect essentially in 2025. And it’s one of the reasons why it is critical for The Bahamas to come off the blacklist during the next evaluation in 2024. “

Mrs Fields said the Insurance Commission is now looking into the “what if’s” to ensure that Bahamian insurers can operate with less reinsurance capacity, while private insurers are looking into their reinsurance structures.

She said: “And so we are looking at the ‘what if’s’. This includes looking at a company’s capacity to retain more risk considering lower-rated reinsurers and what does that mean. And we’re looking at business continuity plans of insurers. Companies are looking at the structure of their reinsurance programmes with their brokers and looking for cost savings and capacity availability.”

Mrs Fields said insurance premiums, particularly for catastrophic coverage, have increased in recent years due in part to the rise in reinsurance costs. The Bahamian property and casualty insurance market is especially susceptible to this as it passes on up to 80 percent of its risk to reinsurers.

She said: “As insurance policyholders, I’m sure that many of you would have felt the increase in insurance premiums over the past two years, particularly as it relates to catastrophic cover.

“The general insurance market in The Bahamas cedes between 60 to 80 percent of their risks to reinsurance. This, of course, enables companies to operate with a lesser amount of capital as they share the cost of claims with the reinsurer.”

Mrs Fields added that reinsurers are moving away from underwriting certain risks, leading to a decrease in availability and an increase in cost. She said: “The market has hardened over the past few years, which means that the availability of reinsurance is decreasing and the cost is increasing.

“This has been the trend since around the mid-2000s, with COVID arguably being the final thrust. Reinsurers are looking at the opportunity cost of capital and, as interest rates improve, the risk-free return on capital encouraged insurers to assess their portfolio and move away from underwriting certain risks, or else requiring a higher return for the risk.

“I’m not going to talk about climate change, which of course we say is responsible for the increase in frequency and severity of storms, as this also impacts insurance rates.”