KEY reports $769.22 million in year end net losses

April 14, 2020

KEY Insurance Company Limited (KEY), for the year ended December 31, 2019, reported a decrease of approximately 79% in net premiums written to $242.31 million from $1.18 billion in 2018. Notably, there was a 22% decrease in gross premiums written from $1.79 billion in 2018 to $1.40 billion in 2019. KEY noted, “motor and non-motor business contribution to this reduction in 2019.” Gross premiums written for the quarter fell 18% to $268.27 million from $327.06 million booked in the fourth quarter of 2018.

Reinsurance ceded for the year rose 90% to close at $1.16 billion (2018: $611.96 million). For the quarter, there was also a 148% increase in reinsurance ceded from $90.99 million a year ago to $225.58 million for the quarter ended December 2019. Management noted, “In the fourth quarter the finalisation of the 2019 motor quota share reinsurance arrangement resulted in additional reinsurance premium ceded of $236,000,000.”

Moreover, KEY booked a positive ‘change in unearned premium reserve related to current year gross’ of $156.95 million relative to a negative change of $33.29 million last year. Also, the Company reported a negative ‘change in current year ceded unearned premiums’ amounting to $125.10 million versus an improvement of $1.10 million the year before. Reinsurance ceded on prior year loss portfolio amounted to $582.80 million (2018: nil). As such, net premiums incurred totalled $308.63 million versus net premiums earned amounting to $1.15 billion for the comparable period in 2018.

The Company reported $173.49 million for commission on premiums written relative to $167.31 million reported in 2018, this represents a 4% increase year over year. Commission on reinsurance ceded totalled $139.20 million relative to $117.12 million the previous year.

Claims expense rose to $1.62 billion from the $1.12 billion recorded in 2018. Notably, KEY stated, “Gross claims expense increased by $499,146,000 or 44% for 2019 in comparison with 2018. The primary contributor is the book of business with associated high-risk factors which influenced the attendant actuarial adjustment increase of $409,000,000 for the year. Reinsurance was one component of the risk management strategy to mitigate the negative motor claims trajectory, that resulted in an increase in reinsurance recoveries by $965,676,000 in 2019. Concomitant with the reduction in gross premium written for the two business segments and increase in the actuarial adjustment emanating from the existing risk profile of the motor business, there was a net improvement of $64,000,000 in 2019 from other associated underwriting activities. Management has also taken action to expedite implementation of its Information Technology strategy to improve internal processes and customer experience.”

A gain of $1.67 billion was recorded for reinsurance recoveries in 2019 (2018: $119.17 million), while administration and other expenses inched up 8% to close at $435.48 million compared to $402.12 million recorded in 2018. Change in unexpired risk reserves for the year closed at $64.40 million versus $33.30 million in 2018.

As such, there was an underwriting loss of $793.49 million for the year compared to a loss of $317.70 million reported in 2018. Underwriting loss for the fourth quarter amounted to $452.22 million versus a loss of $175.11 million for the corresponding quarter of 2018.

Investment income for the year ended December 31, 2019 amounted to $32.90 million, compared to $51.22 million in 2018. Other income for the year amounted to $114.34 million relative to $89.21 million in 2018, “as a product of the investment strategy aligned with the risk management strategy,” noted by KEY. The Company booked $80 million for gains on revaluation of investment properties in 2019 versus $9.78 million for the year ended December 31, 2018.

Net loss before taxation for the year closed at $566.26 million compared to a loss of $167.49 million. The Company reported tax credits of $298.78 million for the year, thus, net loss amounted to $267.48 million (2018: $167.49 million). Fourth quarter net profit amounted to $31.33 million compared to a loss of $94.57 million in 2018. Total comprehensive loss for the year amounted to $228.46 million, in contrast to loss of $195.55 million.

KEY also added, “Effective March 24, 2020 the GraceKennedy Financial Group Limited acquired 65% of the shareholdings of KICL. The group is excited about the opportunities this presents to expand insurance services to a new customer and market segment in the general insurance sector and foresees many synergies to the benefit of KICL’s shareholders. The new Management has presented its strategic plan to the new Board of Directors and it provides the  foundation for KICL to become a leading local motor insurer in key market segments while driving growth in other non-motor segments by restructuring its motor portfolio and expanding its customer base and product portfolio.”

Furthermore, Management stated, “KICL as a subsidiary of the GraceKennedy Financial Group will benefit from the replication of a strong corporate governance culture and a robust risk management framework as well as leverage a wide cadre of expertise and talent in several functional areas. This is not only expected to enhance KICL’s internal control environment and accountability framework going forward, but also will enable operational efficiency in the roll out of the company’s strategic plan to support a turnaround and return to strong operating performance for the benefit of shareholders.”

Earnings per share (EPS) for the quarter amounted to $0.09 relative to a loss per share(LPS) of $0.26 in 2018. The LPS for the year totalled $0.73, relative to a LPS of $0.45 booked in the year before. KEY last traded at $6.39 as at May 19, 2020. The number of shares used in the calculation was 368,460,691 units.

Balance Sheet at a glance:

The Company’s total assets amounted to $4.51 billion as December 31, 2019 up from $2.56 billion in 2018, representing a 76% increase. The overall growth in the asset base was attributed to a 409% increase in ‘Due from reinsurer’ which closed at $2.04 billion (2018: $234.59 million), and partially tempered by decreases in ‘Investment securities’ and ‘Investment properties’ to $241.94 million (2018: $510.09 million) and $200.15 million (2018: $341.15 million).

Total Stockholders’ Equity as at December 31, 2019 was $660.34 million (2018: $888.80 million), resulting in a book value of $1.79 (2018: $2.41).

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