Turning the 'Key'
Insurance company records net profit of $5.7 millionWednesday, November 18, 2020
BY DAVID ROSE
Less than six months after gaining full control of Key Insurance Limited, GraceKennedy's (GK) strategic initiatives and turnaround plan has borne fruit with Key recording a net profit of $5.7 million for the third quarter compared to the prior nine-figure loss.
Following years of sustained losses and a breach of its regulatory requirements, Key Insurance is turning a new leaf as the GK-led subsidiary grew its premiums by 20 per cent to $402 million.
With the old motor quota share reinsurance agreement no longer in force, Key was able to realise a 413 per cent growth in its net premiums written since it ceded less to its former reinsurer. As a result, the motor segment retained 93 per cent of its premiums versus the 23 per cent retained in the prior period.
Despite the core motor arm ceding less and the non-motor segment remaining flat in premium growth, higher claims expenses lead Key to record a $2.6 million underwriting loss which was an improvement over the $112.5 million loss in the prior quarter. However, the amortisation of the underwriting assets related to the former reinsurance agreement resulted in Key's underwriting loss being 67 per cent higher for the nine months at $569.1 million.
Chief executive officer of GK and chairman of Key, Don Wehby, attributed the results to the new management's implementation of the GK model of digital transformation, consumer centricity, risk management and performance driven pillars. This was supported by a greater focus on managing claim liabilities, a new business development department unit and a strong marketing campaign for some of their new and existing product lines.
“Key is going to be so focused on offering first-class service that we believe is going to drive growth. A complaint from a customer is a gift that you can open to see how to deal with it,” was Wehby's reply to a question posed by a shareholder at the recent GK investor briefing.
When questioned about the upcoming rights issue, Wehby only indicated that it should be executed by the first quarter subject to regulatory processing.
Key is aiming to execute a possible billion-dollar renounceable rights issue which should strengthen its capital base following a deterioration of its minimum capital test ratio over the years. Key's authorised share capital was increased to 700 million shares at its recent annual general meeting with a directive which allows the directors to issue a minimum of 122,820,288 shares for a renounceable rights issue. Based on the current number of shares already in issue with respect to the number of new shares, the rights issue could possibly be three to one where shareholders would be offered one new share for every three shares they already hold. GK Capital Management has been confirmed as one of the firms working on the capital raise.
A major reason for Key's move to the main market of the Jamaica Stock Exchange in April was due to the $500-million restriction on the share capital imposed on Junior Market companies. With that limitation no longer in place, a 20–50 per cent discount of Key's peak market price could yield the company anywhere between $658.3 and $1.04 billion.
GK has already confirmed that they will be taking up their full allotment in the 65 per cent owned subsidiary. With the top 10 owning 98.25 per cent of Key's issued shares, there will be little room for small shareholders to gain new shares.
Key is currently in the process of disposing of its Knutsford Boulevard property which had a market value of $200 million based on the valuation done in October 2019. The sale will be completed once the sub-committee and board reach an agreement on the buyer. This would be the second major property sale for the company following the sale of a property in late 2019 for $304 million.
Wehby has indicated that the company has a vision expand to the Caribbean once the company gains a solid footing in Jamaica. Key remains on track to meet the financial targets for 2020 despite the challenges presented by the COVID-19 pandemic.
“I want to thank the market and shareholders for showing confidence in the board and the management of Key shown by the increase in the market capitalisation of the company. I can assure you as the chairman of this company that we will not let you down in terms of your confidence in us.”