Review by Kevin Baldeosingh
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Barbados crisis keeps Sagicor downgraded
Sagicor’s lost investment grade rating has been reaffirmed because of the negative outlook Standard & Poor’s (S&P) has on the economic crisis in Barbados. Sagicor was downgraded from BBB- (lower medium investment grade) to BB+ (non-investment grade/speculative) in the S&P Credit Rating of February 13, 2013. In the February 21, 2014 Credit Rating, S&P reaffirmed the non-investment grade rating, explaining that it was because of the economic crisis in Barbados. “The negative outlook on Sagicor reflects the outlook on Barbados. According to our ratings above the sovereign criteria, the rating on a life insurer is limited to two notches above its sovereign,” S&P said. Later in the report, S&P added: “If we lower the ratings on Barbados, we would take the same action on Sagicor.”
Giving its rationale, S&P said: “Barbados-based insurance company Sagicor Life Inc (Sagicor) has a solid market position and strong brand recognition in the Caribbean. Sagicor is one of the dominant insurance groups in the Caribbean, with leading positions in the Barbados and Jamaican insurance markets. Despite this leading position, in our view, the Caribbean countries are small and market penetration prospects are limited. The company will refocus on the life business, following the sale of its Sagicor at Lloyd’s segment, which will add stability to its operating performance.” S&P said that, in general, Sagicor faces “moderate” country and industry risk, as it balances high risk from operations in several Caribbean countries with low risk in the US market. S&P assessed Sagicor’s capital and earnings as “moderately strong, mainly due to the company’s capital levels, which are slightly above our ‘BBB’ benchmark. The company maintains investments and cash in operating currencies, which sufficiently match liabilities denominated in these currencies.”
Sagicor’s investment portfolio is composed of securities from several countries and issuers. Sagicor has “adequate” financial flexibility, in S&P’s view, “thanks to diversified operating cash flows from multiple countries, and even more importantly, its reduction in its property and casualty (P&C) reserves.” On the company’s corporate culture, S&P said: “Our assessment of Sagicor’s enterprise risk management (ERM) reflects our view that management culture, risk controls and strategic and emerging risk management are consistent with our ratings on the company. The company has a track record of diligent strategic planning, strong execution, and value-based financial policies.” On what could cause the company to be downgraded even lower, S&P said: “If we lower the ratings on Barbados, we would take the same action on Sagicor. We could also lower the ratings on Sagicor if it does not retain the capital from the Sagicor at Lloyd’s sale. Also, if we downgrade Jamaica, this would significantly weaken our capital model calculations on the company and, therefore, our financial risk profile assessment, leading to a potential downgrade.”
Looking at the upside scenario, S&P said: “Due to the outlook on Barbados and the company’s stand-alone credit profile, an upgrade is unlikely in the next 18 months.” S&P’s prior rating of Sagicor was November 8, 2010, when it was downgraded to BBB- from BBB which it was assigned on July 24, 2009.