Aleem Khan

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.