ADVANTAGE General Insurance Company, headquartered on Kingston’s Trafalgar Road, had a very good year in 2011 when its profits quadrupled.

Audited financial statements for the year ended December 31, 2011 reveal gross premiums written came to J$4.8 billion. Net insurance premium revenue of J$4.2 billion was an increase on the J$3.67 billion posted in the prior year. Underwriting profit made a quantum leap, moving from just J$50 million for the year ended December 31, 2010 to a whopping J$449 million.

Profits of J$868 million

More significantly, Advantage General posted a net profit of J$868 million, a massive improvement on the J$229 million registered in the previous year. The company, headed by Mark Thompson, did a good job of containing operating expenses for the year under review which came to J$1 billion, a nominal increase on the J$914 million posted for 2010.

The company’s assets grew to J$8.8 billion from J$8.6 billion in the previous year. As CEO of GraceKennedy Don Wehby says, “Profit is an opinion and cash is a fact, and in this regard Advantage General again came up trumps, with cash and cash equivalents moving to J$3.7 billion from J$3.1 billion for the year ended 2010.

With 100,000 motor policies, Advantage General is the undoubted leader in the motor insurance market. It reported a motor market share of increase from 32.5 per cent in 2010 to 35 per cent as at June 30, 2011, and considerably lowered its expense ratio from 32.4 per cent in 2010 to 28.9 per cent in 2011. The loss ratio dropped from 66.2 per cent to 60.4 per cent.

Gross written premium of the company’s motor portfolio increased by 17 per cent from J$3.9 billion to J$4.5 billion.

Strong underwriting performance

The company’s strong underwriting performance went some way in explaining the reduction in its combined ratios from 98.6 per cent in 2010 to 89.3 per cent in 2011. It has taken the decision to substantially exit the commercial property market which played a part in the reduction in gross premium written in 2011.

With Advantage General putting in a commendable performance and placing the company on a solid platform, it was able to pay out J$961 million in dividends.

It was also able to improve its regulatory performance with a Minimum Capital Test (MCT) score of 248 per cent, which is nominally 48 per cent more than is required by the Financial Services Commission (FSC). The FSC dropped the previous Minimum Asset Test as of March 29, 2011, to focus on the MCT as a measure of solvency for local general insurers.

MCT is a risk-based capital adequacy test which assesses the riskiness of a company’s assets and policy liabilities in relation to available capital. Each company is expected to meet the required ratio of 200 per cent for the year ended December 31, 2011. For 2012, this measure will be increased to 25.

Advantage General’s CEO Mark Thompson took the decision last year to focus on personal lines insurance and improving underwriting profitability which provided a buffer against the harsh global economic downturn and the impact of the Jamaica Debt Exchange (JDX) which sucked out some J$80 billion from the Jamaican economy.

“Our consistent focus on improving the efficiency of our operations provided us with the necessary tools to offset declining yields from our investment portfolios,” said Thompson.

Speaking with Caribbean Business Report from Advantage General’s Trafalgar Road headquarters, he further added: “We did well with profits of J$868 million. There are a couple of anomalies in there, like the favourable adjustment for about J$532 million in capital gains. Again there was an accrual for a tax case we have in court right now for about J$231 million which had a net impact of J$300 million.

“The measure of a company in this business is underwriting profit and what one looks for here is the combined ratio. We have been able to move it from 98 per cent down to 89 per cent.

“You tend to look to see the amount of premium you are able to retain after writing the growth premium overall. The issue we have had in the general insurance industry is that over the years, we have been subsidising a lot of that with investment income. Now with the JDX and even today, yields have come down from between 20 to 16 per cent to an average of six per cent on local paper. As a result there has been a greater focus on underwriting profit. Advantage General has focused on underwriting profit from 2009 and what you will see now is a push to improve on that area,” explained Advantage General’s CEO.

Will not be increasing premiums

He made it clear that the company will now try to make certain that it does not increase premiums any further. He went on to say that what was accomplished over the last two years was critical in ensuring that the company was able to write business in a profitable manner particularly from the underwriting point of view and not rely on subsidising that business through investment income.

“Going into 2012 and 2013 the focus will be around business development, service delivery, greater efficiencies and the ability to extract costs out of operations which in turn allows us to keep premiums in check. As far as underwriting profit is concerned, we expect to replicate our current position, but of course nothing is guaranteed.”

Turning his attention to the motor market, he attributed the bump in this business line to rate changes and the ability to move market share from 24 per cent in 2007 to 35 per cent in 2011. Here the focus has been the relationship with intermediaries and the service quality to both intermediaries and direct clients.

“That continued focus has allowed the company to improve its reputation from the days of the previous owners to where it is at today. The company has always been known for its strong positioning in the motor segment. Around the year 2000, that market share was eroded largely because of poor service. However, over the last three to four years the company has concentrated on service delivery and claims management and this has helped us do well with this line of business which represents 95 per cent of our total business,” said Thompson.

Impressive expense ratio

In 2010 Advantage General substantially exited the commercial property market business largely because the current rates that prevail in the market did not allow Advantage General to make an appropriate economic return on the risk capital.

“If one was to look at our expense ratio which is a segment of the combined ratio, we are one of the lowest cost service providers in the market. In fact our expense ratio is probably about 14 to 15 per cent nominally better than the rest of the market. The average expense ratio for the market is about 40 per cent while we are at approximately just under 29 per cent. At this point in time I don’t think the market demands new products. In fact, it demands better service elements. Case management will continue to be the focus as well as leveraging technology, particularly with mobile and online solutions. Looking to the future there may be opportunities for us in the region and we may reconsider re-entering the property business,” explained Advantage General’s CEO.

Listing on the JSE

Advantage General is planning an IPO and is seeking to list on the main exchange of the Jamaica Stock Exchange (JSE). The intention is to raise between J$500 and J$600 million. Thompson would not be drawn on details concerning price and the prospectus, largely because the regulatory agencies are still in their review process. However, he did say that much of the preparation has been done and all the necessary submissions have been made to the regulatory bodies. It appears that both Pan Caribbean and NCB Capital Markets are the brokers of choice here. According to the CEO, ideally the company would like to put the offer out to the market sometime at the end of April.