INTERNATIONAL CREDIT rating agency A.M. Best Company has revised the outlook for Sagicor Financial Corporation and its subsidiaries to negative from stable, citing a significant exposure of the company's revenue, asset base and earnings to a weak Jamaican economy.
"This concentration risk in Jamaica is highlighted by the low growth in gross domestic product (GDP) over the past decade, high inflation rates and a depreciating Jamaican dollar - all factors that could negatively impact future operating results for the group," stated A.M. Best in a release.
US$1.1 billion in revenue
Sagicor Financial Corporation has a 59 per cent ownership stake in Sagicor Life Jamaica, one of 11 subsidiaries operating throughout the Caribbean, United States (US) and the United Kingdom (UK).
At the end of its financial year in December 2008, Sagicor Financial Corporation collected a total of US$1.1 billion in revenue, with the Jamaican operation accounting for the lion's share. Of the total revenue, Jamaica contributed approximately 41.35 per cent or US$441 million.
In addition, Jamaica captures approximately 33.33 per cent, or US$1.3 billion, of Sagicor Financial Corporation's asset base of approximately US$3.9 billion at the end of last year.
But the revised negative outlook, according to A.M Best, also reflects a continuing drag on the consolidated equity of Sagicor Financial Corporation arising from losses by its life insurance company in the US.
Total equity at the end of December 2008 amounted to US$581.6 million, down from US$586.7 million in the previous year.
Furthermore, the rating also took into account the acquisition strategy employed by Sagicor Financial Corporation and likely challenges that may occur with integration, as well as concerns for growth in the life insurance market within the Caribbean and the US.
A-excellent strength rating
At the same time, A.M. Best has affirmed the financial strength rating (FSR) of A-excellent and issuer credit ratings (ICR) of 'a' for Sagicor Life in St Michael, Barbados, and its two operating life insurance subsidiaries, Sagicor Capital Life Insurance Company Limited in The Bahamas and Sagicor Life Jamaica Limited.
The rating agency has also affirmed the ICR of 'bbb' and debt rating of 'bbb+' on US$150 million, 7.5 per cent senior unsecured notes, due in 2016 of Sagicor Financial Corporation.
A.M Best, in its ratings, also continue to acknowledge Sagicor Financial's positive consolidated earnings performance, and strong name recognition in the Caribbean Islands.
At the end of its last financial year, Sagicor Financial Corporation total revenue increased by approximately 38 per cent moving to US$1.1 billion, up from US$772.9 million.
sabrina.gordon@gleanerjm.com