By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian businesses and households paid an extra $56.3m for property and casualty insurance coverage in 2023 due to the “challenges” faced by local underwriters on reinsurance pricing.

The Insurance Commission of The Bahamas (ICB), in its just-released 2023 annual report, revealed that total premiums paid for property, auto, marine and other liability coverage jumped by 12 percent year-over-year to hit a total $535.4m with the difficulty in obtaining reinsurance at affordable rates also restricting the amount of new business local carriers could take on.

Dr Keith Major said the regulator was “committed to finding sustainable solutions” given the threat increased reinsurance costs pose to the affordability of catastrophic coverage for both businesses and households, which could expose increasing numbers to more frequent and powerful hurricanes while lacking any or adequate insurance protection.

“The challenge of rising property insurance costs and declining reinsurance availability in the region is ongoing,” Mr Major wrote. “The Commission is actively engaged in efforts to address these issues.” He added that this involved working with fellow regulators in the Caribbean and worldwide “to share best practices and explore potential solutions”, and working with underwriters to find ways to mitigate the increases.

Mr Major said the Insurance Commission was also seeking to encourage innovation in products and risk management strategies “to improve affordability and resilience”. He added: “The Commission remains committed to finding sustainable solutions that ensure continued access to affordable and adequate property insurance coverage for Bahamian residents and businesses.”

The Insurance Commission, in its analysis of the sector, said: “Gross premiums in the property and casualty sector totalled $535.4 [compared to] $479.1m in 2022, an increase of $56.3m representing 12 percent over the prior year. The increase in gross premiums is largely attributed to the increase in rates in the reinsurance market, particularly on catastrophic risks impacting property insurance.

“As the economy continued to expand, and construction activity was on the rise, the volume of insurance underwritten in the general market also increased at a moderate pace. However, given the continued challenges obtaining reinsurance, the local market was constrained with regards to its capacity to underwrite new business.”

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.

Property insurance accounted for virtually all the increase in total general insurance premiums, expanding by $60.9m or 19 percent year-over-year to $389.7m. “This was the largest line of business accounting for 73 percent of total gross premiums written during 2023,” the Insurance Commission said.

“The expansion in this line was attributed to the increase in fire insurance coverage, which rose by $46.5m to $94.2m. While fire insurance coverage may be considered limited, it is more affordable to homeowners and businesses. 

“Motor, the second largest line of business, accounted for 16 percent of gross premiums and experienced growth of $9.8m (13 percent) to $84.4m during the period. The third largest line of business, liability insurance, which accounted for 6 percent of gross premiums written in the general insurance market, shrunk by $9.9m (24 percent) to $31.9m,” the regulator added.

“Marine, aviation and transport, which account for 3 percent of premiums, expanded by $1.8m (12 percent) to $17.3m. All other lines of business represent less than 3 percent of premiums written and contracted by $6.3m (34 percent) to $12.2m.”

Bahamian property and casualty underwriters last year revealed that insurance costs had hit a record 26-year high, and acknowledged that the affordability of insurance is becoming an increasing concern with reinsurance costs at their highest-ever level.

Bruce Fernie, Insurance Company of The Bahamas’ (ICB) chairman, conceded that the major global reinsurers 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 in ICB’s last annual report. “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.”