AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of Bahamas First General Insurance Company Limited (BFG) (Nassau, Bahamas) and Cayman First Insurance Company Limited (CFI) (Cayman Islands), the property/casualty (P/C) operating subsidiaries of Bahamas First Holdings Limited (Nassau, Bahamas) (BFH). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect BFH’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The balance sheet strength assessment is supported by the group’s risk-adjusted capitalization being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Partially offsetting this strength is a high dependence on reinsurance to protect surplus against catastrophe events, as well as a slightly riskier asset base due to limited investment opportunities in the Bahamas and high pre-paid expenses and receivables. Surplus growth over the past five years through 2022 has been minimal as losses from Hurricane Dorian in 2019 and dividends to shareholders have offset otherwise favorable earnings. Only in 2022 did surplus exceed the year-end 2018 reported balance. The group’s underwriting leverage has declined over this same five-year period as net premiums diminished while surplus remained unchanged. Surplus at the holding company level improved by 4.9% in 2022 due to favorable earnings in insurance operations but was offset partially by dividends to shareholders.
In non-catastrophe years, the group has a history of solid earnings supported by underwriting gains and investment income, resulting in favorable profitability metrics as evidenced by its five-year average return results. The group’s operating performance in 2022 continued to be favorable, primarily driven by the property and motor lines of business in the Bahamas and Cayman Islands. Health results at CFI remain depressed as increased claims costs, deferred care from COVID-19, and costs related to remediating a claims processing system implementation. The group’s P/C results continue to be impacted by higher reinsurance and claims costs that offset the effects of higher premiums and resulted in roughly level overall profitability with 2021.
AM Best continues to view the group’s business profile as neutral. Despite operating in highly competitive and mature markets, the group maintains leading market positions and operations in the Bahamas and Cayman Islands, and benefits from product and geographic diversification, which has helped to stabilize earnings through market cycles and reduce the impact of catastrophe events. Reinsurance capacity constraints and cost increases in the region indicate that the ability to secure appropriate reinsurance cover will potentially be a major competitive differentiator in the marketplace over the short term. While rate increases, commission reductions, and capacity constraints have affected almost all carriers in the region, BFG and CFI have thus far done well to ensure appropriate cover is placed fully, at acceptable rates, with well-rated counterparties. However, BFG and other Bahamas-domiciled insurance companies remain at risk of losing a portion of further reinsurance capacity if the Bahamas cannot remove itself from the European Union and German lists of non-cooperative countries for tax purposes.
In 2022, CFI introduced a new policy and claim processing system for health claims in the Cayman Islands. This system experienced issues after implementation, which resulted in a delay in claims payments in excess of local regulations. CFI is working currently to remediate the issues highlighted by the local health regulator. Despite this process failure, AM Best considers the group’s ERMs to be appropriate. The group has an established ERM framework in place along with a risk committee that is responsible for overseeing its ERM guidelines and policies. The group also maintains a comprehensive reinsurance program designed to limit surplus decline in the event of a catastrophe event.
