Colina Holdings Bahamas Limited (CHBL) said the decrease in the Bahamian prime rate would significantly affect future investment earnings on floating rate instruments.
A floating rate instrument refers to a loan, mortgage or bond that does not have a fixed rate of interest.
The company's 2016 annual report was released yesterday and in its chairman's review, Terence Hilts pointed out that the "greatest impact" to CHBL's business came from the reduction in the prime rate.
In January, the Clearing Banks Association (CBA) made effective that the prime rate - the interest rate at which banks lend to customers - would be lowered from 4.75 percent to 4.25 percent.
The reduction has a bittersweet effect, where it could penalize investors and savers, while favoring new and existing borrowers.
In his segment of the report, Hilts stated that the move to reduce the prime rate required Colina to "increase actuarial reserves to support future policyholder benefits".
The insurance company's actuarial reserves totaled $33.4 million at the end of 2016 and were $32 million in 2015.
"In addition, the downward movement in prime will also significantly affect future investment earnings on floating rate instruments," the report states.
"However, as a company, Colina has been very cognizant of the risk exposure associated with the uncertainty of projected interest rates."
"Over the past several years, Colina has strategically increased its investments in fixed rate instruments, which partially mitigated the impact of prime rate reductions like the one in December 2016."
Meanwhile, the company exceeded its financial performance targets for 2016.
It achieved over $17 million in total net income for the year.
Colina also paid over $88.5 million in benefits in 2016 to its policyholders.

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