Business

BF&M’s profits drop after hurricanes

  • Counting cost: Tortola, the largest of the British Virgin Islands, suffered damage from Hurricane Irma. It is one of the Caribbean islands where the BF&M group covers property risk. BF&M’s profits for the first three quarters of the year dropped to $5.2 million (Photograph by Roslyn Famous)

BF&M Limited has reported a $14 million drop in net income as a result of insurance claims related to hurricanes Irma and Maria.

The company’s nine-month earnings to the end of September were $5.2 million, resulting in an annualised return on shareholders’ equity of 2.6 per cent.

John Wight, chief executive officer of BF&M, referred to the impact of the hurricanes as unparalleled.

The Category 5 hurricanes struck the Caribbean during a two-week period in September, causing widespread devastation on a number of islands, including nine where the BF&M group covers property risk. Of those nine, the US and British Virgin Islands were among the worst impacted.

Mr Wright said: “Although Bermuda was fortunate in avoiding a major hurricane this year, many of our Caribbean customers suffered dramatic losses from Irma and Maria.

“This significantly impacted BF&M’s earnings in the third quarter. As an insurer, we are in the business of paying out claims after a catastrophe, and we prepare for events of this magnitude.”

He said the company was working hard to service its affected customers in the aftermath of the hurricanes.

“We plan for these types of events that you never expect will happen. It’s a one in 250-year event,” said Mr Wight, adding that it remains to be seen if this incidence of powerful back-to-back hurricanes is an anomaly.

“Our robust reinsurance programme limited the net impact of the storms on operating results at September 30 to $14.9 million. Excluding the impact from the storms, BF&M’s results were strong on favourable non-catastrophe loss experience and positive fair value gains in the investment markets.”

Mr Wright said BF&M could not operate without the support of reinsurance.

The group’s four main operating companies have had their financial strength ratings reaffirmed by AM Best, with A (excellent) grades for BF&M General Insurance Company, BF&M Insurance Company and Island Heritage Insurance Company. And there was a A- (excellent) for Insurance Corporation of Barbados, in which BF&M holds a 51.2 per cent interest.

Mr Wight said the reaffirming of the ratings was done about a month ago, and took into account the impact of the hurricanes.

“This reflects AM Best’s confidence in our ability to be there for our customers when they need us. BF&M continues to hold the strongest ratings of any domestic insurance group in Bermuda and the Caribbean.”

Mr Wight said the financial impact from the hurricanes will be felt beyond this year, but will be offset by rate increases next year.

The company’s nine-month earnings report shows equity attributable to shareholders at $264.4 million at the end of September. General fund assets totalled $1.9 billion.

Gross premiums written were $256.6 million, down by 6 per cent as a result of reduced premiums on certain commercial properties, but having “little or no impact” on the company’s bottom line.

In a statement, the company said investment income for the year reflected a $8.9 million increase in the fair value of investments for the period, while commission and other income was up year-on-year by 19 per cent to $36.2 million.

The company also reported: “Short term claims and adjustment expenses increased 57 per cent to $28.3 million due to the 2017 catastrophe losses.

“Life and health policy benefits decreased by 24 per cent to $82 million. ‘Life and health policy benefits’ includes changes in life insurance reserves which increased significantly in 2016 compared with a much smaller increase in 2017 in the same period. These reserve movements were primarily driven by differences in market interest rates over the respective periods.”

BF&M said operating expenses were in line with expectations for the year.