Despite huge jump in premiums, general insurers saw less underwriting profit

F/X gains, investment income bolstered sector performance

Wednesday, July 16, 2014

AFTER successfully weaning themselves off high-yielding government bonds in 2011, general insurance companies struggled to keep up profit from their core business last year.

But many saw their bottom lines once again bolstered by foreign exchange gains and investment income.

Combined underwriting losses — earnings made from underwriting insurance — across eight general insurers totalled $136 million in 2013, following profits of $689 million the year before and $745 million in 2011.

What's more, only one of the eight companies reviewed by the Business Observer managed to show improvement in underwriting performance last year — Insurance Company of the West Indies (ICWI).

Over the years, insurers have relied on investment income to post net profits in spite of their underwriting losses.

Prior to 2011 underwriting losses would rack up in the billions.

But the government debt exchange in 2010 forced insurers to price premiums higher to cushion the fallout from investment income that followed a reduction in interest rates.

Indeed, combined revenue from insurance premiums, across the eight companies surveyed by the Business Observer, grew by 13 per cent to $28.2 billion in 2013 -- up from $24.9 billion in 2012.

But that wasn't enough to offset higher cost associated with the insurance business, such as claims.

The government conducted another debt swap in 2013 but foreign exchange gains, and for some, investment income, helped bolster earnings. In fact, combined net profit fell by just seven per cent, from $2.3 billion in 2012 to $2.1 billion last year.

Four general insurers, which saw core underwriting performance dip last year, still managed to improve their bottom lines.

Advantage General Insurance Company (AGI), which posted $721 million in earnings (compared to $695 million in 2012), or the highest net profit among general insurers last year, boosted its income from investments, from $470 million to 580 million, largely reflecting growth in interest income.

The insurer, which was bought by NCB Capital Markets last year, increased its investment securities from $2.3 billion at the end of 2012 to $7.7 billion at the end of 2013. Most of the expanded portfolio was invested in government of Jamaica (GOJ) treasury bills and securities.

British Caribbean Insurance Company (BCIC) posted $343 million in earnings, up from $283 million the year before. Its underwriting profit plunged from $146 million to $44 million. But a $108 million jump in foreign exchange gain and a $28 million reduction in tax payments helped push profit back up.

Its net investment income also rose from $276 million in 2012 to $300 million last year.

General Accident's underwriting profit fell from $117 million in 2012 to $59 million last year, but other income climbed from $62 million to $151 million, mostly due to foreign exchange gains.

Its net profit climbed from $291 million to $328 million.

JN General Insurance, formerly NEM, posted $297 million in net profit, up from $275 million. Its underwriting loss widened from $97 million in 2012 to $149 million last year. A 40 million increase in foreign exchange gains and a $28 million reduction in tax payments resulted in improved bottom line.

Jamaica International Insurance Company (JIIC) didn't eke out higher earnings in 2013 than the year before.

But it still managed to post $17 million in net profit after incurring a $360-million underwriting loss.

The insurer's claims expense surged from $1.3 billion in 2012 to $1.9 billion last year.

A claims review, which was substantially completed in the the third quarter of 2013, resulted in the significant increase in claims provisions, according to the insurer's parent, GraceKennedy.

Other income climbed from $411 million to $542 million, reflecting gain on sale of investment and foreign exchange gains.




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