Dorian Forces Insurer Into First-Ever Reserve Release


Tribune Business Editor


A Bahamian insurer yesterday revealed it made the first-ever "catastrophe reserves" release in its 25-year history due to Hurricane Dorian's $200m-plus claims.

Timothy Ingraham, Summit Insurance's president, told Tribune Business that the property and casualty underwriter's directors approved releasing the $600,000 after the category five storm produced annual claims "close to four times'" higher than its previous record.

"We had a catastrophe reserve fund which was designed specifically for events similar to what we experienced last year with Dorian," he confirmed. "The Board made the decision to release a portion of the reserve, and that was the first time we did that in the company's 25-year history.

"The next biggest claim to Dorian was $60m in losses from Hurricane Frances in 2004, and then we had Hurricane Jeanne in 2004, which was another $14m. The Bahamas has been impacted by 13 named storms in the last 20 years, so local insurance companies have certainly been tested quite frequently by storms."

Mr Ingraham said Summit, the carrier through which Insurance Management places much of its property and casualty business, had incurred claims "close to four times as much" as what it received in 2004.

He confirmed that Dorian had produced more than $200m in gross claims, although declined to reveal the precise figure, most of which will have been paid out by Summit's international reinsurance partners.

The catastrophe reserve release was disclosed in Summit's recently-unveiled 2019 financial statements, which said: "During the year, $600,000 of the general reserve was released to the consolidated statement of income due to the impact of Hurricane Dorian to mitigate the financial impact of catastrophe losses."

The category five storm's catastrophic impact on Abaco and Grand Bahama resulted in a negative $2.66m bottom line swing year-over-year, which catapulted Summit Insurance from a $1.382m profit in 2018 to a $1.279m loss for the 12 months to end-December 2019.

The main driver behind the loss was a 75.9 percent rise in net claims incurred, which rose from $2.993m in 2018 to $5.265m last year. This produced a $336,201 underwriting loss, compared to a $2.987m gain the year before, and could not be offset by a near-doubling of Summit's "other income" to $1.667m.

Summit's financials also contained the now-standard warning that the COVID-19 pandemic, and resulting health and economic crises, have "the potential to adversely affect our business" although it was impossible to precisely forecast what they will be.

"I think it will be a while before we see the full impact of it," Mr Ingraham told Tribune Business. "Obviously the immediate impact was that a lot of people couldn't get out to renew their insurance, so we saw a decline in insurance being renewed.

"There are a lot of people who have been kept on an extended furlough or lost their jobs, sadly, so what impact that will has will be seen in the coming months. I haven't seen June's numbers, and June might very well be showing that. I think it's going to be somewhere around the fourth quarter before we know exactly what it is."

Mr Ingraham said there were numerous factors that may impact premium income and renewal decisions/timing. He cited the example of a tour operator reliant on the cruise ship industry, which may not need liability coverage and auto insurance for six months until that sector returns.

Similarly, a hotel's liability coverage may be based on its income and number of guests, and its continued closure or reduced occupancies would automatically result in the amount of insurance - and associated premium payment - being reduced.

The Bahamian insurance industry has already been urging the government to adjust its COVID-19 premium deferral order, and set a date for when the emergency powers - now due to expire at the end of July - will end on the basis that it is "too restrictive to trade".

Besides the uncertainty created by not knowing when these powers will end, the extra 60 days granted to clients to either pay or agree a plan to take care of the arrears now runs through the end of September and hurricane season peak.

Other insurers have warned this will create cash flow issues for property and casualty insurers, and potentially impact the payment commitments made to reinsurers who ultimately underwrite the multi-billion risks present in The Bahamas.

The Emergency Powers (COVID-19) (Special Provisions) (Amendment) Order 2020, dated April 16, expanded the government's insurance consumer protection initiative to include property and casualty insurers.

The order stipulates that for the entire COVID-19 national emergency period dating back to March 17, plus a 60-day period from when it ends, persons who have been terminated from their jobs or are unable to make due premium payments online can defer these outlays.

This applies to "general" (property and casualty) insurers as well as their life and health counterparts. Once the lockdown ends, clients must either pay the full amount of premium due or agree a payment plan with their underwriters during that 60-day period.

Persons still working or with the means to pay, and who can do so remotely, are not covered and must continue to pay. The order also seeks to deal with what should happen if a claim is made during this period by persons who have not paid their due premium. It requires all insurers to honour the claim but deduct "the outstanding premiums and deductible" from what is paid out.

Mr Ingraham yesterday said the emergency orders could have created an issue where clients enjoyed "free" insurance coverage from one underwriter for several months only to switch to a rival, but this had been addressed by requiring them to request the temporary premium waiver from their agent or broker.


tribanon 9 months, 1 week ago

These insurers always make it sound like they're enduring so much pain because of their willingness to honour and pay all claims, claims that they are contractually obliged to pay in exchange for the exorbitant premiums they charge. But we all know many legitimate claims do not get honoured and the more unscrupulous insurers simply hope the insured does not have the financial means to sue them to get the claim amount they're entitled to receive under the terms of the policy.


Sign in to comment