AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) of Bahamas First General Insurance Company Limited (BFG) (Nassau, Bahamas) and Cayman First Insurance Company Limited (CFI) (Cayman Islands), the property/casualty (P/C) operating subsidiaries of Bahamas First Holdings Limited (Nassau, Bahamas) (BFH). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect BFH’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

BFH’s balance sheet strength assessment is supported by it maintaining the strongest level of risk-adjusted capitalization, as measured by Best Capital Adequacy Ratio (BCAR). However, the company has a high dependence on reinsurance to manage capital exposure to catastrophic events, as is typical of Caribbean insurers. BFH upholds appropriate protection from catastrophic events with high quality reinsurers. Capital growth has been hampered by declining earnings and annual dividends to shareholders. BFH’s invested assets are mostly held in highly liquid cash and short-term investments; asset risk has moderated as the company has been working to de-risk its portfolio by shedding equity holdings. Over half of BFH’s investment portfolio is domiciled in Bahamas, which has restrictions on foreign investments. Cash flow from operations have remained favorable for the past two years.

BFH’s operating performance has been challenged in recent years from the Cayman health business and narrowing margins on its property/casualty (P/C) lines. Recent volatility can also be attributed in part from the implementation of IFRS-17 accounting standards. A backlog resulting from the roll out of a new health claims platform caused administrative expenses to rise, driven by the additional resources necessary to remediate the backlog. While this backlog has been resolved, health claims remain elevated due to higher utilization and elevated claims costs. Additionally, health premiums have declined over the past two years as new sales were moderated while the claims backlog was resolved. Margins for the P/C business have been impacted by increased reinsurance expenses and increased costs for motor claims. The company projects its operating performance to improve incrementally through rate actions, premium growth and stabilization of reinsurance costs.

BFH’s business profile is assessed as neutral. BFH holds a leading market share in the Bahamas and is a top three insurer in the Cayman Islands, benefiting from product and geographic diversification. Nevertheless, BFH operates in a highly competitive environment and is subject to capacity constraints and increased pricing in the reinsurance market. While capacity constraints have lessened and rates have stabilized, the company is exposed to prevailing reinsurance market conditions.

BFH’s ERM is assessed as appropriate given its formal program with a mature framework, established risk tolerances and a good governance structure. The claims backlog created from the implementation of the new health claims platform did impact claim payment timeliness in excess of domestic regulation. The company took appropriate actions to clear the backlog and put in place procedures to prevent a reoccurrence. Additional audit procedures were also put in place to ensure reserve adequacy.

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