Jul 2010 Financial News

Sagicor downgraded

Jul 23, 2010

Sagicor Life Jamaica Limited has been lumped with its Barbadian parent in a downgrade of the group that rating agency A.M. Best suggests is too exposed to the vicissitudes of the Jamaican economy.

Sagicor responded by reiterating faith in the Jamaican economy to heal, and doubling down on its participation in a debt-exchange programme as the right thing to have done.

"This assessment does not seem to reflect the recent improvements in the economy following the debt-exchange programme," said Richard Byles, president and CEO of SLJ.

Sagicor Jamaica has gone from excellent to good, with a commensurate move in grades from A to B++ for its financial strength, and from 'a' to 'bbb' on its issuer credit rating.

The outlook on the Jamaican operation, which earlier this year bought out its parent's stake in PanCaribbean Financial Services, has shifted, however, from negative to stable - a better outcome than SFC and its other Caribbean life businesses on which A.M. Best has a negative outlook. Still the other companies included in the ratings have retained their excellent ratings, though they have dropped a notch from A to A-.

SFC's debt rating has also been thinned from 'bbb+' to 'bbb' on its US$150-million 7.5 per cent senior note due to mature in 2016, and its issuer credit rating is down one notch to 'bbb-'.

"The ratings reflect SFC's continued significant revenue, asset and earnings exposure to the Jamaican economy, which continues to pose ongoing uncertainty for SFC and its lead operating life insurance subsidiaries," said AM Best.

"The Jamaican risk exposure is highlighted by SFC's controlling interest in Sagicor Life Jamaica Limited, which remains an integral part and a major contributor of earnings to SFC."

Sagicor Jamaica's investment portfolio is heavily skewed to bonds, which last year was 75 per cent of invested assets.

The Kingston-based operation, a J$145-billion company by assets, has acknowledged that its reserves were hit negatively by the JDX — though it has never quoted the actual loss — but said the full impact was included in its 2009 yearend accounts.

Those accounts reflect a J$2.03-billion loss on investment and fair value reserves, but on Thursday Byles told the Financial Gleaner that was a gross figure, and not entirely due to one event. Going forward, he said, Sagicor Jamaica is projecting about a four per cent drop in returns on its investments, from the current 16 per cent to around 12 per cent.

Byles also expects to report a solid second-quarter performance in two weeks — building on the first-quarter results when the company added J$2 billion to its capital base in the three-month span to close the period at J$23.4 billion.

"Despite the recently implemented debt-exchange programme by the Jamaican government to defuse the potential default risk underlying the government bonds, A.M. Best believes that the risk of Jamaican exposure will continue to linger going forward and may stress SFC's financial results and risk-adjusted capitalisation," the rating agency said, in a statement, Thursday.

It said the downgrades also reflected the challenging environment for the financial services industry in the Caribbean and globally, but is also tempered by SFC's "positive consolidated earnings performance, strong name recognition in the Caribbean regions, overall more-than-adequate risk-adjusted capitalisation and the operating subsidiaries' access to additional capital sources from SFC."

The International Monetary Fund gave Jamaica a thumbs up on its first test under the two-year borrowing programme, but said this week it was "cautiously optimistic" that economic conditions would continue to improve, according to resident representative Gene Leon.

Said Dodge Miller, chief executive officer of SFC, in a company issued statement: "There is no doubt that Jamaica faces challenges. However, we believe that the correct remedies are being pursued, and from all indicators, Jamaica is on the right track. Interest rates are trending down, the Jamaican dollar is holding firm, and multilateral agencies have endorsed the fiscal policies."


Source:
business@gleanerjm.com
Jamaica Gleaner
Friday July 23, 2010

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