Feb 2009 Financial News

CLICO downgraded, put on negative watch - Barbados, Bahamas subsidiaries also weak

Feb 11, 2009

Colonial Life Insurance Company Trinidad Limited (CLICO) has been placed on review, with the possibility of further downgrade as Trinidadian authorities assess just how bad a financial position the insurance company is in.

Insurance ratings agency, AM Best, said the financial strength and credit rating of both Trinidad and CLICO Bahamas remain on negative watch, even with the downgrades last week which knocked the company's FSR, from good to fair.

The reviews follow the takeover of CLICO and other assets of parent CL Financial Group on January 30, including CLICO Investment Bank (CIB).

The Central Bank of Trinidad and Tobago stepped in to cauterise a run on CLICO that, up to intervention, was about US$40 million.

The company's debts have been assessed, so far, at about US$1 billion.

Lliquidity support

A Barbados subsidiary has also started to show signs of weakness. Last week, the Central Bank of Barbados deposited up to BDS$10 million (US$5 million) with the CLICO Mortgage and Finance Corporation (CMFC), and gave the company access to a new government facility in the event it needs added liquidity support.

The central bank, with the endorsement of the ministry of finance, also proposed to provide inter-bank guarantees, which cover lending by other banks to CMFC, if necessary.

CLICO's Barbados interests are held under CLICO Holdings Barbados Limited, which controls assets of US$500 million including the mortgage company, a property development company; a balanced fund and general and life insurance firms.

CLICO's interests stretch right across the Caribbean, including Jamaica where CIB owns 40 per cent of Jamaica Money Market Brokers, while parent CL Financial controls 86 per cent of spirits conglomerate Lascelles deMercado and Company.

Sharp declines in methanol and real estate prices in recent months began to tell on CIB, whose liquidity had tightened, impacting the balance sheet of CL Financial.

Challenges

"As part of its investment strategy, CLICO maintains a high concentration in related party assets, including large holdings in the banking and financial services, energy and manufacturing sectors," said AM Best.

"Thus, the liquidity challenges at CIB are expected to impact CLICO."

The ratings agency said it had previously raised concerns about liquidity of CLICO's 'non-quoted affiliated assets', adding that the insurance company's rapid growth in its pension business and annuities was through expensive credit.

Key to maintaining its current ratings is whether the Trinidad authorities can quickly unravel CLICO's holdings and "quickly diversify away from its large affiliated investment holdings and related party transactions in order to provide greater liquidity," said the ratings agency.

And: "The review will also include an understanding of the level of involvement of the Trinidad government in CLICO's ongoing operations."

Further negative rating actions might be warranted following this review, the agency said.

Trinidad's parliament last week approved a bailout plan that will see the government taking over CIB and taking an equity stake in CLICO.

lavern.clarke@gleanerjm.com

Ratings
Old Rating
New Rating

Financial strength/FSR
B++ (Good)
B (Fair)

Issuer credit/ICR
'bbb'
'bb'


Source:
Wednesday February 11, 2009
Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20090211/business/business6.html