AGIC spending on tech as profit tumbles
ADVANTAGE General Insurance Company Limited (AGIC) is looking to technology to further optimise its operations and shore up its net profit which fell to a five-year low, with 2021 seeing a decline of 46 per cent to $400.85 million.
AGIC’s net profit has been shrinking, with it achieving a high of $1.34 billion in 2016 with its 2020 results being three per cent above 2019 at $738.45 million. It has been ceding more of its gross premiums to reinsurers, with $807.77 million ceded in 2018 and $3.89 billion being ceded in 2021. This is against the fact that its gross premiums written increased by nine per cent to a record $6.14 billion. It’s also maintained an underwriting profit which has decreased from $777.90 million in 2018 to $259.71 million in 2021. AGIC has readjusted its investment strategy, with the company divesting three properties, including its current head office, for $657.80 million.
“AGIC is renewing its focus on its core insurance business whilst divesting and/or outsourcing its investment portfolio to parties better suited to managing these portfolios. COVID has adversely impacted the insurance industry, though not to the extent that one would have initially expected. The main cause for the reduction in underwriting profits in the industry would be due to stagnant rates over recent years, paralleled against yearly upward movement in claims handling and operating costs. This is a strategic move by AGIC aimed primarily at providing greater protection to our insurance portfolio, increase our underwriting capacity, and ultimately protect the capital base of the company,” said President and Chief Executive Officer Mark Thompson in an e-mail to the Jamaica Observer on the company’s choices over the last three years.
Sagicor Investments Jamaica Limited acquired a 60 per cent stake through its Phoenix Equity Holdings Limited from NCB Capital Markets Limited with Fund Bay Equity Holdings Limited, which is affiliated with Thompson owning 34 per cent while Resource In Motion Limited owns the remaining six per cent.
At the Sagicor Group Jamaica September 2020 annual general meeting, Thompson had outlined the company’s plan to relaunch its mobile application within four to five months and the redesign of its website to allow for claims to be reported, renewals to be done, and policies to be paid. Thompson is confirming now that the app is in its final stages and is expected to be rolled out by the end of the second quarter. AGIC’s expenses aren’t disaggregated in its audited notes, except for staff costs which made up 53 per cent of its $1.75-billion operating expenses. AGIC’s total assets declined by six per cent to $12.47 billion, while its liabilities increased by seven per cent to $9.23 billion for 2021. AGIC’s asset base peaked at $15.38 billion in 2018 with shareholders equity at $6.73 billion.
The underperformance of AGIC resulted in the Sagicor Group having a $500-million impairment on its goodwill worth $1.06 billion in 2020. Chief Financial Officer Andre Ho Lung explained at a recent briefing, “We had entered into the deal for the purchase of Advantage General in late 2019 and there were expectations of earnings and growth in net assets, which established the goodwill. It’s just unfortunate that immediately after the purchase, a recession for general insurance, particularly motor insurance, occurred. When we test our goodwill for impairment and look forward, the earnings could not substantiate the goodwill we had on our books and forced us to take an impairment.”
Despite these events, Thompson is confident in the company’s prudent risk management and underwriting strategy, which has seen its annual claims balance remain stable around $2.6 billion over the last four years. He also explained that AGIC’s investment portfolio hasn’t experienced any noticeable changes as it follows the risk management strategy to earn the highest available return while maintaining regulatory compliance. AGIC’s reverse repurchase agreements and investments balance declined by 17 per cent to $6.39 billion for 2021. The company has been increasing its property and liability portfolio recently while it partially reinsured its motor portfolio as inflationary pressures locally and abroad will increase the cost of claims shortly.
The general insurance company will be moving its New Kingston branch and claims operations from its 4-6 Trafalgar Road location to 70-72 Lady Musgrave Road. The new location is set to have state-of-the-art self-service digital tools, which are expected to speed up the insurance process and make it seamless. The relocation will take place this weekend with all business continuing on May 2. The location was the former head office of Main Event Entertainment Group Limited, which moved to Ardenne Road during 2021.
“Our new office on Lady Musgrave Road will have a strong technology orientation, where our customers have access to the various forms of technology to execute transactions with the company. AGI has its new online platforms through its new website and online self-service kiosks that are incorporated in its branches. It is our hope that later we will be able to expand the services offered to include other member companies of the Sagicor Group,” stated Thompson.
Listed company Key Insurance Company Limited generated a $160.39 million net profit despite its claims balance rising in 2021. Ironrock Insurance Company Limited and General Accident Insurance Company Limited recorded higher net profits of $59.13 million and $345.08 million, respectively. This was due to higher commission income and higher gross premiums with General Accident experiencing higher claims during 2021.
“We expect that premium rates will continue to remain stagnant for both motor and property-related businesses. Whilst that is the case, the inflationary impact on asset values will likely result in increased gross premiums. On the claims side, we expect to see costs continuing to increase in the industry. To counter these measures, AGIC will continue to be prudent in its underwriting of businesses whilst continually improving the processing of legitimate claims on a timely basis,” Thompson closed.