KEY reports first quarter net loss of $338.62 million

June 01, 2020

KEY Insurance Company Limited (KEY) for the quarter ended March 31, 2020, reported a 153% increase in net premiums written to $176.68 million from $69.86 million in 2019. The Company recorded a 27% decrease in gross premiums written from $368.71 million in 2019 to $269.28 million for the quarter ended March 31, 2020. KEY noted this was, “attributable to a deliberate strategy to align the risk profile of the insurance portfolio with our risk appetite”. Reinsurance ceded for the quarter fell 69% to close at $92.59 million (2019: $298.85 million).

KEY booked a gain in ‘change in unearned premium reserve’ of $26.18 million relative to a gain of $8.34 million last year. As such, net premiums earned increased by 159% totalling $202.87 million versus $78.20 million for the comparable quarter in 2019. Changes in insurance reserves for the period amounted to $152,000 (2019: $3.44 million).

The Company reported $12.72 million for commission income relative to $47.66 million for the comparable quarter of 2019, this represents a 73% decline year over year.  Commission expense amounted to $23.14 million (2019: $32.52 million).

Claims expense posted an increase to $276.03 million from the $54.04 million recorded for the first three months of 2019.

Amortization of underwriting assets amounted to $323.14 million (2019: nil) for the quarter ended March 31, 2020. Management stated, “KICL had entered into a Motor Quota Share Reinsurance Agreement (the MQS Agreement) in 2019. The MQS Agreement was reviewed by management and the board of directors and a strategic decision was taken to terminate effective 01 January 2020. The termination of the MQS Agreement is an integral part of the restructuring plan for the Company’s operations and the streamlining of its underwriting business to make it more profitable on a go forward basis. Upon termination of the MQS Agreement, management decided to accelerate the amortization of certain underwriting assets resulting in a one-time charge of $323M to the Statement of Comprehensive Income for the quarter ended 31 March 2020, comprising $235M relating to the terminated MQS Agreement and the amount of $88M relating to Deferred Policy Acquisition Costs.”

Administration and other expenses inched up 11% to close at $109.34 million compared to $98.12 million recorded in 2019.

There was an underwriting loss of $515.91 million for the first quarter compared to a loss of $55.38 million reported in 2019.

Investment income for the period amounted to $3.10 million, down 74% when compared to $11.77 million in 2019. Other income for the period amounted to $4.89 million relative to $5.57 million in 2019.

Net loss before taxation for the quarter closed at $507.92 million compared to a loss of $38.05 million. A taxation credit of $169.31 million was booked for the quarter (2019: nil), which resulted in a net loss for the period of $338.62 million (2019: $38.05 million).

Total comprehensive loss for the quarter amounted to $353.55 million, in contrast to a loss of $47.03 million.

Loss per share (LPS) for the quarter amounted to $0.92 relative to loss per share of $0.10 in 2019. The trailing twelve months loss per share totalled $1.54. KEY last traded at $4.75 as at June 01, 2020. The number of shares used in the calculation was 368,460,691 units.

Management highlighted, “We see significant opportunities in improving the use of technology, increasing our digital offerings, optimizing our branch network and cost containment. Over the course of the remainder of the year, the performance of KICL is expected to benefit from the restructuring of our insurance portfolio, restructuring of the reinsurance programs along with various growth opportunities identified as strategic areas of focus.”

Regarding the acquisition by Grace Kennedy Limited, KEY noted, “On 24 March 2020, GraceKennedy Limited, through its wholly owned subsidiary, GraceKennedy Financial Group Limited, acquired 65% of the share capital of the company. GraceKennedy Limited has over 39 years of experience in the insurance industry. KICL, as a subsidiary of GraceKennedy Financial Group Limited, is already benefitting from a culture of strong corporate governance and a robust risk management framework.”

KEY also stated that, “A new Board of Directors was installed on 31 March 2020 and has since 1 April 2020 been stewarding the business by supporting the development and implementation of strategic initiatives designed to increase shareholder value. Our four strategic drivers are clearly defined with measurable deliverables. They are sustained growth and innovation, consumer centricity, improved business processes for greater efficiency and a performance-driven culture, underpinned by strong change management principles. Changes have been made to the senior management team to support our strategic drivers. These changes have brought a wide cadre of expertise and talent in several functional areas. We are pleased that Tammara GlavesHucey, a seasoned insurance executive with over 15 years in the industry, has assumed the role of General Manager.”

Balance Sheet Highlights:

The Company’s total assets amounted to $4.22 billion as March 31, 2020 up from $2.78 billion in 2019. The overall growth in the asset base was attributed to a 355% increase in ‘Due from reinsurers’ which closed at $1.78 billion (2019: $390.66 million). The overall movement in the asset base was tempered by a 55% decline in ‘Investment securities’ which closed at $228 million (2019: $501.11 million).

Total stockholders’ equity as at March 31, 2020 was $307.79 million (2019: $851.48 million), resulting in a book value of $0.84 (2019: $2.31).

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