The seven per cent growth in gross premium written by eight of the 11 general insurance companies operating in Jamaica during 2006 is testament to a crowded market, for which a remedy proposed by many would be consolidation of the firms.

Across the eight companies, gross premium written increased from $14.8 billion in 2005 to $15.8 billion in 2006, but half of the firms saw declines in premiums during the year, ranging from 0.2 – 25 per cent.

West Indies Alliance Company (WIA) had the biggest decline in gross premiums, dropping by $499 million or 25.4 per cent to $1.47 billion, giving up its fourth place position to Insurance Company of the West Indies (ICWI), which only skipped WIA due to a smaller decline in premiums – a drop of $14 million or 0.9 per cent.

Globe Insurance Company’s gross premiums declined by $42 million or 2.1 per cent to $1.98 billion, while United General Insurance Company (UGI), which was bought out last year by billionaire Michael Lee Chin and renamed Advantage General, saw its premium decline marginally, or by 0.2 per cent to $3.12 billion.

This left Jamaica International Insurance Company (JIIC), which acquired the Jamaican portfolio of the now defunct Dyoll Insurance Company in 2005, when the bankrupt firm could not meet its liabilities after the devastation left in the Cayman Islands and Jamaica by Hurricane Ivan in September 2004, with the top spot, earning $3.27 billion, a 40 per cent increase.

Leslie Chung, managing director British Caribbean Insurance Company (BCIC), which saw its gross premium written increase by 5.5 per cent of $74 million to $1.41 billion, believes the “results across the industry have improved significantly”.

“Return on equity (ROE) ranged from four per cent in 2005, to 14 per cent in 2006,” said Chung.

On the whole, six of the eight firms reviewed by the Business Observer saw an improvement in net profit, including UGI, which improved its loss position from $587 million in 2005 to a $19 million net loss last year, although the firm still “did not meet the requirements of minimum capital investments”, according to a note in its financial statements.

But as with 2004 and 2005, firms failed to make profit from their core operations. Only one firm, Globe, managed to make underwriting profit.

Key Insurance financial controller Neville Parkinson, told the Business Observer that “underwriting losses are not uncommon in the industry where firms invest premiums to earn investment income”.

“But now more than ever, we have to look at premium rates and managing claims,” added Parkinson. “In recent times investment income has been declining – as a result of lower government treasury rates and repo rates.”

Key improved its loss position from $32 million net in 2005 to an $8 million loss in 2006, reflecting in part a 45 per cent increase in gross premium written. But the growth in premiums ironically meant a worsening of underwriting profit from a loss of $4 million in 2005 to an underwriting loss of $29 million last year.

According to JIIC’s finance director, Paul Mitchell, “when premiums grow, the unearned portion would grow”.

“The more business grows, the more profit goes into next year,” explained Mitchell. JIIC’s underwriting profit of $14 million in 2005 turned into a loss of $14 million in 2006, placed against a 40 per cent increase in gross premiums to $3.3 billion.

Some of the premiums written last year for JIIC represented “special risk”, which involved the local insurer fronting or facilitating multinational firm passing insurance through it to its parent overseas.

This year, Mitchell expects pre-tax to be flat at $226 million earned from gross premiums of $2.6 billion. In 2006, net profit fell from $189 million the year before to $160 million for the subsidiary of GraceKennedy.

JIIC managing director Andrew Levy attributed the decline largely to the acquisition of Dyoll portfolio in 2005, which incidentally helped increase premiums in 2006 significantly.

“There were unbudgeted items in expenses associated with the purchase of Dyoll portfolio,” said Levy. “We were advised to write off the goodwill over a number of years, which we started in 2006.” The accounting exercise will cost the firm $40 million a year over the next 15 years.

Dyoll crashed when it was unable to meet liabilities created by claims on damage done by Hurricane Ivan in the Cayman Islands. That experience was part of the reason why ICWI, which also underwrites insurance in the Cayman Islands, separated Cayman operations from its other business segments.

Taking out the $59-million ICWI made in net profit from its Cayman business in 2005 would show a 110 per cent increase in net profit this year when the firm made $54 million from its operations outside of Cayman.

“It was risk management decision taking out the contagion effect,” said Howard Hall, vice president of finance at ICWI.

“The regulators prefer that scenario and it was consistent with what we have in mind. Individually, the firms are solid, in terms of reinsurance, but it is something that will be done with other territories, which include Bahamas.”

ICWI also plans to start business in the French Caribbean country, St Maarten, this year.

Overall, the biggest challenge to the industry, according to Levy, who was recently appointed president of the Insurance Association of Jamaica, “is motor claims”.

“We are putting in place a fraud team to determine how best to deal with the issue and to work with the police and the tax collectorate to remedy the problem,” said Levy.

His firm’s motor insurance portfolio loss ratio was well above budget in 2006 – 72 per cent compared to the planned 64-65 per cent, although still substantially less than the overall industry placed above 80 per cent.

For BCIC’s Chung, the prospects created by a recovering construction sector leave him in apositive mood.

“Now that the crisis is over, all those blueprints that were sitting on shelves can be converted into concrete and steel coming out of the ground,” said Chung. This means some amount of resurgence in property insurance business.