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Key grows profit but underwriting losses worsen

General insurer Key Insurance Company Limited made top line and bottom line gains in the second quarter ending June, but its core underwriting business continued to suffer losses.

Key’s management said the company continues to navigate the headwinds impacting the global and local economy, with the objective of maintaining shareholder value.

“In the face of global inflation and rising interest rates, Key’s management remains agile in its approach to executing its strategic objectives; ensuring that the company is always well-positioned to benefit from a rapidly evolving economic environment, in Jamaica and around the world,” the company said in its newly released earnings report.

For the quarter, gross premiums climbed by 20 per cent to $604 million, but the company recorded a $29.5-million underwriting loss, compared to an underwriting loss of $20.7 million in 2021. The loss was offset, however, by investment income, which more than doubled from $13 million to to $29.3 million. This allowed the company to ink a net profit of $9.7 million for the period, a near tenfold improvement on the $1 million of earnings in the comparative June 2021 period.

“During the second quarter of 2022, Key continued repositioning its investment portfolio to obtain the best yields, while adhering to regulatory requirements,” the company reported to shareholders.

“Management is continuously assessing its investment portfolio to optimise yields, considering the increased interest rates by the Government of Jamaica,” it said. The company’s representatives did not immediately respond to requests for comment.

The economy continues to suffer from global inflation and economic tightening. One response by the Bank of Jamaica was to increase its benchmark policy rate elevenfold, from 0.5 per cent in 2021 to its current level of 5.5 per cent, to curb inflation. The rise in rates has also seen a rise in yields on fixed-income investments on the capital markets and larger returns for investors.

Key, despite these challenges, continues to chart a path to higher profit as the company generated free cash from operations of $10 million in the first half of the year, compared to burning cash of $149.4 million over the same period a year ago.

Key Insurance’s peers that also trade on the local stock market grew revenue by double-digit levels but suffered from higher expenses.

The largest among them, General Accident, for example, reported revenue of $3.67 billion for the March 2022 quarter, compared to $3.3 billion a year earlier. It also earned less underwriting profit for its latest March quarter at $21.4 million, compared to $26.3 million the previous year.

The smallest general insurer, Ironrock, earned higher revenue at $261 million in March, from $199 million a year earlier, and reported an underwriting loss of $22.7 million, compared to an underwriting loss of $11 million a year earlier.

Key holds capital of $1.05 billion, up from $930.7 million a year earlier. The company’s recovery continues after its acquisition as a failing business by large conglomerate GraceKennedy in 2020. The company now holds retained earnings of $64 million, completely erasing the deficit of $512 million that weighed on its balance sheet the previous year.

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