JIIC knocked for underwriting losses

Sabrina Gordon, Business Reporter

Insurance rating agency A.M. Best has revised its outlook for Jamaica International Insurance Company (JIIC) to negative from stable, citing continued underwriting losses and depressed investment income.

"JIIC's investment income, which mitigated underwriting losses in the past, will be reduced going forward," said A.M. Best Monday, even while reaffirming the company's financial strength rating at 'B++' and its credit rating at 'bbb'."

The reduced investment income is due to lower interest rates caused by last year's restructuring of Jamaican bonds, the agency said.

Andrew Levy, managing director of JIIC, said his company is facing conditions general to the insurance market.

"Insurance companies earn money from insurance business and investment income, and with the JDX in 2010, the net effect is that interest rates have come down," Levy told Wednesday Business.

"Everybody is earning less income than before, and so companies' performance and profitability will be reduced. It's the same outlook for all insurance companies and is relevant to anyone operating in Jamaica," he said.

JIIC has been trying new strategies to reduce its underwriting losses, and while A.M. Best has questioned their effectiveness, given current market conditions, Levy said the company, which is owned by conglomerate GraceKennedy Limited, is seeing improvements.

"We are adapting to the new economic environment and have implemented a number of strategies from which we are seeing the results, already ahead of budget and profit targets" said Levy.

For the period January-August 2011, Levy said profit before tax stood at J$165 million, compared with the budgeted figure of J$126 million. Comparable pre-tax profits for the eight-month period ending August 2010 was J$158 million.

"We have already beaten the results of 2010 and expect to continue in the same way," he said.

Broker review

JIIC's strategies to bring down underwriting losses included, Levy said, a review of brokers with a history of high claims and applying risk-management techniques, such as adjusting premiums and reward systems, to reduce claims costs.

"In some cases, we may either adjust premium or reduce business from certain areas. We have also set up a performance-measurement system with brokers, where we reward good performance with a commission difference to them for the kind of business given to us," he said.

"On the property side, we target high-value property with better margins and we are also doing internal business-process changes to become more efficient."

JIIC made an underwriting loss in the first eight months to August 2011, but Levy would not disclose the figure, saying only that it was small and better than budgeted.

"We are well ahead of budget. Overall, when administrative expenses are taken into account, we made a small underwriting loss but still an improvement over the budgeted figure," said Levy.

Otherwise, underwriting perfor-mance in each of the business segments - that is, gross premiums less claims - amounted to, he said, J$16.8 million for casualty, J$334 for motor; and $86 million for property.

JIIC also previously reported underwriting losses of J$154 million in its last financial year ending December 2010, a near 50 per cent improvement on 2009 losses of J$304.6 million.

In reaffirming JIIC's 'good' financial strength rating this week, AM Best cited adequate capitalisation, as well as support and commitment of parent GraceKennedy, which it said gives the insurance company financial gives financial flexibility.

The company was capitalised at J$2.3 billion at December 2010.

"As an integral member within the GK Group, JIIC enjoys strong parental support and commitment, as evidenced by GK Group's past capital contributions and its stated willingness to make additional funds available should the need arise," said the rating agency.

JIIC's lack of geographic diversification, Jamaica's poor-performing economy, and the company's high dependence on and, therefore, high cost of its reinsurance programme, were cited as offsets to the positive rating.

sabrina.gordon@gleanerjm.com