Thu | Jul 2, 2020

Key Insurance targets break-even under new owner despite massive losses

Published:Friday | April 17, 2020 | 12:18 AMSteven Jackson - Business Reporter
Don Wehby, Chairman of Key Insurance Company Limited and Group CEO of GraceKennedy Limited.
Don Wehby, Chairman of Key Insurance Company Limited and Group CEO of GraceKennedy Limited.

K EY INSURANCE Company Limited, KICL, made its biggest losses yet totalling more than three-quarters of a billion dollars last year, but its new owner believes it can reverse the company’s downward spiral within a year.

Now under the ownership and control of conglomerate GraceKennedy Limited, the new KICL board of directors is projecting the general insurer can break even by the end of this year – the caveat to that target being the uncertainties surrounding the COVID-19 pandemic.

For year ending December 2019, Key Insurance recorded net losses of $769 million, more than four times the $167.5 million of losses in 2018, when the company came under regulatory scrutiny for breaching solvency ratios. The current numbers, which are preliminary and subject to audit verification, indicate that nearly two-thirds of the losses were booked in the fourth quarter of 2019.

The annual losses, arising from insurance claims, led to a deterioration of the company’s capital and a breach of its regulatory requirements – circumstances that would lead to the takeover by GraceKennedy.

“We may have to inject capital in the business,” Don Wehby, the Group CEO for GraceKennedy and newly installed chairman of Key Insurance, said in response to Financial Gleaner queries.

“We are looking at all funding options,” he said.

GraceKennedy will determine at a later date whether capital would come in the form of a direct injection from GK, the parent, or via the market through a rights issue or additional share offer.

Main market migration

The conglomerate has already executed one item on its agenda for Key: migrating the company from the junior market to the main market of the Jamaica Stock Exchange, effective April 9. The move allows Key Insurance to raise more capital from stock market investors than it could as a junior listed company.

Key’s total assets were just 5.0 per cent above total liabilities at the close of its last financial year, a deterioration from 34 per cent a year earlier.

For now, Wehby said, KICL needs to maintain its operations while limiting claims expenses.

“The first thing on the agenda was a 90-day turnaround plan. I need a plan on how we are going to stop the bleeding,” he said.

“The second thing is the development of a two-year strategic plan.”

Under the strategic plan, Key will seek to renegotiate reinsurance arrangements and consolidate that element of the business with the other general insurance subsidiary held by GK, improve internal processes with new technology to improve efficiency, and set key performance indicators for executives and staff.

The targets will be monitored weekly.

Also under consideration is potentially expanding the Key brand into overseas markets, with one consideration being the Turks & Caicos Islands, said Wehby.

“The Key Insurance brand is strong. We have loyal customers, and the brand is well respected,” he said.

GraceKennedy initially acquired 15 per cent of Key Insurance last December and then increased its holdings to 65 per cent as at March 24, through an offer to all investors in the company.

Rounding out the top three owners are JMMB Group Limited, which holds 21 per cent, and Worldnet with 9.7 per cent.

The top owners previously were Sandra Masterton, Natalie Gobin-Gunter, and Kala Abrahams, who sold control to GK to save the company.

Key Insurance earned $1.4 billion in revenue last year, which was insufficient to cover its claims bill of $1.62 billion and indicated a further deterioration of the company’s finances.

The previous year, revenue amounted to $1.8 billion with claims at $1.12 billion.

Wehby said consolidating KICL’s reinsurance with GK General Insurance should result in savings for Key that would “almost immediately flow to the bottom line”.

In 2018, Key breached a key solvency ratio, the minimum capital test - a computation of the capital that an insurer is required to hold relative to its risks, and which requires them to maintain a ratio of no less than 250 per cent.

KICL, in its newly released fourth-quarter earnings report, said “recapitalisation of the company to meet regulatory compliance levels” would be addressed in upcoming months.

The company’s capital base was decimated last year, moving from $889 million to $176 million, due to increased insurance liabilities and larger net losses. The company’s assets of $3.371 billion narrowly exceed liabilities of $3.195 billion.

KICL’s break-even target was set before the onslaught of the COVID-19 health crisis, but GK still aims to hit it.

“Our expectations are that in 2020, we are going to see a significant improvement in the financial performance,” said Wehby. “We will stop the bleeding and manage costs. It is our expectation to break even in 2020, all things being equal, but with COVID-19 it is fairly hard to forecast now,” he said.

Effective March 24, Tammara Glaves-Hucey was appointed general manager of KICL, replacing Managing Director Sandra Masterton, who demitted office but remains a board member.