BAHAMAS: EU blacklist threat to insurance costs.

As published on tribune242.com, Thursday 29 September, 2022.

The Bahamas’ imminent ‘blacklisting’ by the European Union (EU) has sparked fears that increased local insurance rates, and a drastic reduction in the availability of coverage, will be among the repercussions for this nation.

Bahamian property and casualty insurers spoken to by Tribune Business yesterday were guarded in their comments as they are still scrambling to assess the full impact of the blacklisting fall-out for their treaties with European reinsurance companies - especially those based in Germany.

German reinsurers have a “substantial” share of the reinsurance market in The Bahamas and wider Caribbean, but that nation last year enacted a law designed to deter its companies and individuals from conducting business with entities in so-called “tax havens”. Inclusion on the EU blacklist, with The Bahamas likely to be added as early as next week, is one of the criteria for identifying “tax havens”.

Three German reinsurers - Munich Re, Hanover Re and R & V Re - are among the biggest partners for Bahamian and Caribbean underwriters. Anything preventing the renewal of their reinsurance treaties with Bahamian carriers, as such agreements are typically negotiated at this time of year, or even paying out their share of hurricane, vehicle accident or other claims, would have significant consequences for local insurers, households and businesses.

Already-expensive insurance coverage, especially that which protects properties and other assets against hurricanes, would only increase further due to the cutback in reinsurance supply. In turn, this would push premium prices beyond the reach of more Bahamian businesses and households, making insurance increasingly unaffordable in a climate where the threat posed by Dorian-style storms is growing.

Bahamian property and casualty underwriters must acquire huge amounts of reinsurance annually because their relatively thin capital bases mean they cannot cover the multi-billion dollar assets at risk in this nation. The global reinsurance market has been recently been pulling back from the Caribbean due to hurricane-related losses, and the EU ‘blacklisting’ could lead to a further scaling back of coverage availability as well as demands for more onerous terms and conditions.

Patrick Ward, Bahamas First’s president and chief executive, told Tribune Business: “It’s definitely going to be a material issue as it now stands. Definitely. At this point it seems like it will at least create a problem.

“We’re actually still in conversation among the carriers that might be impacted. It’s going to be more specific to the German-based reinsurance market. Their share of the market is substantial. We’re probably going to have a statement coming out of the Bahamas Insurance Association.”

Germany passed its Act to Combat Tax Avoidance and Unfair Tax Competition in December 2021, and Bahamian insurers were yesterday trying to determine whether it would apply to German reinsurers’ dealings with them and to what extent.

Asked whether the end result could be a substantial increase in Bahamian insurance premium costs, and a reduction in capacity that might result in carriers electing not to insure clients or assets perceived as more risky, Mr Ward replied: “You don’t have to be an economist to figure that out.”

As to what he would say to consumers, the Bahamas First chief added: “I think the industry will do its best to make sure we mitigate any fall-out from this. At this point, we don’t have any certainty around the outcome.”

Timothy Ingraham, Summit Insurance Company’s managing director, echoed Mr Ward in telling this newspaper: “It’s something we’re looking at and what the implications are. We’ve seen it but haven’t quite had a chance to analyse what the full implications would be.

“We’ve started a conversation about it. One or two members [of the industry] are not available at the moment. It’s something we’re trying to gather information on and determine what the impact will be. We have to get to the bottom of it and see as much as possible what the implications are and likely to be. We’re just looking into it at this point.”

Another Bahamian insurance industry source, speaking on condition of anonymity, said of the EU’s potential blacklisting fall-out: “If we end up on these lists, sometimes reinsurers cannot deal with the territory, and that becomes a complication for reinsurers. I don’t think we’re there yet, but we have to be careful.”

The insurance impact highlights the potentially adverse consequences for The Bahamas, its economy and society, as a result of ending up on such adverse listings regardless of their arbitrary, unfair and discriminatory nature.

The implications for The Bahamas were also spelled out in a Jamaica Observer article yesterday that highlighted concerns among that nation’s insurance industry about the repercussions of the EU’s initiative, and the need for it to escape the 27-nation bloc’s so-called ‘grey list’.

This newspaper was told that the remarks by Peter Levy, British Caribbean Insurance Company’s (BCIC) managing director, detail the scenario that would also play out in The Bahamas. “There are three major reinsurance companies that are German, and they provide a significant amount of the capacity for us to write business, especially catastrophe exposed business like property insurance,” Mr Levy was quoted as saying.

“Those three companies would be in a situation where they would either not do business with us or, well, they could do business with us but couldn’t pay us. Obviously, you can’t do business with an insurance company that can’t pay you or you have to take 15 per cent of whatever they’re going to pay you and pay it over to the government.

“It could potentially have a devastating effect on the ability of property owners to get insurance. This would be significantly damaging to the economy because all these properties that are the subject of loans would be struggling to get insurance and the lenders would be exposed.”

Asked about the impact on Trinidad and Tobago’s (T&T) insurance industry, given that state is already on the EU’s blacklist, Mr Levy said: “They had withdrawals of reinsurance capacity from that market. There are companies that will not do business with Trinidad-based insurance companies.

“They haven’t had a catastrophe, and this wouldn’t necessarily show up unless you have a significant loss event. The thing about Trinidad is that they’re not as catastrophe -exposed as we are. So, it will be easier for them to attract replacement reinsurance into that market.”

Bahamian property and casualty premium costs are already under pressure due to reinsurance losses on Hurricane Dorian and other recent Caribbean storms. And Hurricane Ian’s likely multi-billion damages bill in Florida will only cause this pressure to further rise, with one insurance industry source saying yesterday: “Florida and The Bahamas tend to be rolled in together as far as reinsurers are concerned. What happens to rates and capacity in 2023?”