CHL achieves 10.9 rise in net income

Wed, May 23rd 2012, 10:04 AM

Colina Holdings Bahamas Limited (CHL) is already off to a strong start for the new fiscal year, reporting a 10.9 percent increase in total net income to $2.6 million for the first quarter.
Vice President of Finance for Colina Catherine Williams told Guardian Business that the first quarter performance could be attributed to improvements in certain segments of operation and business returning to its normal levels.
"We believe that we have successfully overcame last year's prime interest rate reduction and that our business has returned to normalcy," Williams said. "We have achieved steady growth in premium and investment income and remain focused on our mission of protecting what matters most for our customers."
The BISX-listed company is coming off an impressive 2011 fiscal year, recording $5.9 million in total net income over the year. Despite the challenges faced during that period - the main one being the 0.75 percent reduction in the Bahamian prime interest rate - adjustments were made by CHL to ensure steady output.
"In most other economies, including many Caribbean countries, there is sufficient supply of fixed-rate bonds whose coupons are unaffected when interest rates are reduced," she said. "Unfortunately, the majority of Bahamian government bonds and other domestic investments have 'floating coupons'. That is, when the Bahamian prime rate is lowered, the interest rate on previously purchased bonds is also lowered.

As such, savers (including long-term insurers, the NIB and pensioners) are unable to rely on the interest on their floating Bahamian investments to provide for their future fixed obligations.
"The 2011 reduction in the prime interest rate had a significant but manageable impact on Colina's financial results and business plans for that year. We are extremely pleased to have been able to provide fully for this extraordinary change in the second quarter of 2011 and sustain profitability through the third and fourth quarters."
Credit rating agency A.M. Best issued a rating of "bbb-" to CHL, while its subsidiary Colina Insurance Limited received a financial strength rating of A- (Excellent). However, A.M. Best stated that the outlook would be negative going forward.
Williams believes the stance by A.M. Best is such because of the current economic conditions in the country.
"While A.M. Best has acknowledged our significant efforts to achieve the levels of profitability that were reached in 2011 given the challenging economic climate, they have decided that the ratings should remain negative until such time as the Bahamian economy shows significant improvement," she added.
The company's focus will be on improving its target delinquency rates in its mortgage portfolio. Meanwhile, it aims to ensure that new loans are carefully underwritten to reduce future exposures, maintain high levels of capitalization and increase premium revenue while achieving targeted levels of profitability. Changes in those areas will lead to an even higher quality of business and possibly an upgrade in its ratings.

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