By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian insurer yesterday said a “challenging” 2023 turned out worse than expected as profits plunged by almost 72 percent as a result of reinsurance cost hikes outpacing local premium increases.

Timothy Ingraham, chief executive of Summit Insurance Company, through which Insurance Management Company places much of its property and casualty business, told Tribune Business that premium rates for Bahamian businesses and homeowners are “likely to remain high for the near future” given that global reinsurance market pressures show no signs of easing.

“We had anticipated a challenging year in 2023, though not quite as bad as it turned out,” he said. “The  reinsurance market for the 2023 treaty renewal turned out to be much tougher than most expected, with pricing levels being steeper and the reinsurance capacity crisis being worse than anticipated. We expect 2024 will be a better year, subject, as always, to the storm activity in our area.

“The international reinsurance market continues to suffer from a lack of capacity. Unfortunately, this is likely to mean that prices will remain high for the near future. Predictions of an active storm season for the region will not help with attracting new capital in the near term.”

Summit saw its total comprehensive income for the 12 months to end-December 2023 drop from $1.702m the year before to $482,493 due largely to the jump in reinsurance costs.  “In 2023 Summit, like other regional insurers, saw its reinsurance costs increase dramatically over its 2022 costs,” Mr Ingraham added 

These included “lack of capacity in the international reinsurance market as some reinsurers withdrew from the market and others reduced the amount of capacity they offered”, while “the acute lack of capacity meant that prices for the available capacity increased dramatically, as the laws of supply and demand usually dictate”.

Mr Ingraham said: “Under normal circumstances, new capital will flow into the reinsurance market and provide the needed capacity. However, elevated interest rates in developed markets meant that investors could achieve a reasonable return on their capital without putting it at risk in the reinsurance market. Therefore this traditional relief valve did not operate as it did historically.

“The sharp increase in reinsurance costs outpaced the increase in the original rate charged to customers. This lead to a compression of the company’s margins. Added to this was a transfer of $3.5m to the unearned premium reserve fund as a result of the increase in premiums.

“The company has taken some measures to relieve the pressure from the margins and a sharp focus on improving margins in other classes will assist moving forward. We are also hopeful that, absent any catastrophe losses, we will begin to see a reduction in our reinsurance expenditure.”

Summit, like other Bahamian and global insurers, also had to grapple with a change in accounting standards. “IFRS 17 has proven to be a very challenging standard to implement for the insurance industry, and Summit was no exception,” Mr Ingraham said. 

“We incurred significant increased costs and work time to adopt the standard. It has changed significantly the way financials are presented as well as the way some assets and liabilities are measured. The change did not greatly impact the overall result however.”