Mon | Jun 24, 2019

IronRock misses targets but optimistic after turnaround in 2018

Published:Friday | February 15, 2019 | 12:16 AM
Managing Director of IronRock Insurance Company Evan Thwaites.

For the financial year ending December 2018, IronRock Insurance – the newest entrant in a market of nine operating companies – generated a profit of $811,000.

By itself that number would be unimpressive. But within its proper context – it marks a turnaround of a large loss of nearly $48 million the year before – it’s a good outcome for the company that launched as a start-up just over three years ago.

And it’s fuelling optimism among the directors, who expect to continue making gains, even if slower and lower than first projected.

The company founded by insurance experts Evan Thwaites and Wayne Hardie, and the late William McConnell started writing business at the start of 2016.

Last year, IronRock’s gross premiums surpassed the half-billion dollar mark to hit $572 million, up from $424 million the year before; its assets grew moderately to $1.02 billion; but its capital base stayed flat at $513 million.

These numbers are preliminary and subject to reverification by the company’s auditors.

Still, the financial achievements fall somewhat short of projections outlined in IronRock’s prospectus for its initial public offering of shares and subsequent listing on the junior market of the Jamaica Stock Exchange in mid-March 2016.

But on the key metric that is used to diagnose the health of insurance businesses – the Minimum Capital Test, or MCT – IronRock’s preliminary estimate for 2018 was 515.27 per cent, which is more than twice the 250 per cent benchmark set by regulators and 200 percentage points more than the general insurer expected its performance to deliver at that point in time.

Managing Director Evan Thwaites cautions, however, that the figure is still subject to both audit and actuarial review, and could change.

Industry data from the Financial Services Commission (FSC) valued net premiums earned by general insurers at $18 billion in 2017. IronRock, with $128.4 million in net premium for that period, had 0.7 per cent of the market.

But its share rises to a ‘healthier’ one per cent, says Thwaites, when gross premium income is used as the marker.

“IronRock launched with very ambitious targets, and as a team we have all worked tirelessly to meet them. We are pleased with our performance in the first two years of operation…,” he said in an interview with the Financial Gleaner.

IronRock expected to make a loss on its first year of operation, but it also forecast that it would have been in the black the following year and make $60 million of profit in 2018, which would have wiped out its accumulated deficits.

It fell short of those goals, and even while last year closed with a small profit, the company was still in the red on its core insurance activities. However, its underwriting losses, at $44 million, were cut by more than a half relative to the previous year’s out-turn at $101 million.

IronRock wants to capture at least 3.5 per cent of the local market by its fifth year of operation in 2020. By then, it also projected it would have accumulated about $400 million of profit.

Last year, however, the company was knocked off its targets by external events that ended up influencing local insurance behaviour, as Thwaites described it.

“IronRock’s revenue growth tracked very closely with our IPO projections. However, after the region experienced a catastrophic hurricane season in 2017, rates in the Jamaican property market began to harden, and during this period IronRock refrained from employing competitive strategies that could have undermined the market correction,” he said.

“Instead, we focused on consolidating our portfolio and continuing to improve internal efficiency. As a result, IronRock’s 2018 revenue fell short of our IPO projections, but we are happy to have posted our first profit, nonetheless.”

IronRock’s prospectus projected $774 million of annual revenue for 2018, but its actual gross premiums for the year totalled $572 million – an outcome Thwaites links to market conditions.

“The primary challenge has been that rates in the market are significantly lower than we anticipated, which has affected our ability to meet the revenue projections in our prospectus,” he said.

The company had bigger expenses relative to 2017, but those were offset by gains from premiums and commissions, leading to a smaller underwriting loss last year.

Additionally, net premiums nearly doubled to $215 million, and the directors also claimed low loss ratios in the motor and liability segments.

“We are particularly pleased with the performance of our motor portfolio, which has outperformed the market by a significant margin,” said Thwaites. IronRock’s gross loss ratio for motor was under 40 per cent, while the industry average is 62 per cent, based on the latest available data for 2017, he said.

Strategy for growth

Homeowner’s liability is the company’s best performing segment, followed by accident and marine. For now, in an industry last valued by assets at $84 billion by the FSC in June 2018, IronRock account for about 1.2 per cent of the market.

Its strategy for growth in 2019 includes new investment in technology, and expanded relationships with intermediaries, brokers and agents. As to the next set of targets for the company, IronRock has a bigger hurdle to hit those markers, having lost ground last year.

The targets for this year, as outlined in the prospectus, include growing revenue to $1.2 billion, operating profit to $68 million, net profit to $142 million, assets to $1.6 billion, capital or shareholder equity to $798 million, and insurance funds to $761 million.

A mobile app is due for launch on both Android and iOS platforms within the second quarter.

“Our clients will get access to all their home and motor policies and will be able to manage their accounts, and even their claims, from the palm of their hands,” said Thwaites.

In the long run, the company’s directors say, IronRock’s technology-led strategy will make it competitive with local insurers that have higher overheads and unit costs arising from their brick-and-mortar operations.