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CARIB | Nov 24, 2022

Fitch maintains Sagicor’s Rating Watch Positive ranking

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Senior unsecured debt ratings remain unchanged at ‘BB’ and ‘BB-‘, respectively

Durrant Pate/Contributor

Regional financial conglomerate Sagicor Financial Corporation (SFC) has had its Rating Watch Positive (RWP) ranking maintained by international ratings agency, Fitch.

At the same time, SFC, the parent company to the regional Sagicor’s subsidiaries, saw its Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured debt remain unchanged at ‘BB’ and ‘BB-‘, respectively.

Fitch placed the RWP ranking in August 2022 following the announcement of SFC’s intended acquisition of Ivari, a leading middle-market insurer in Canada, and reflects prospective improvement in the credit quality of the insurance led financial group.

Fitch Ratings’ headquarters in New York.

Fitch expects to resolve this Rating Watch upon successful completion of the transaction, anticipated to take place in the first half of 2023, subject to regulatory approvals and closing conditions. The RWP reflects that Fitch is likely to affirm or upgrade SFC’s Long-Term IDR and senior unsecured debt should the acquisition proceed under the assumptions which it considered.

Improved company profile 

Fitch reports that the RWP is supported by an improved company profile at the group operating company level, as a result of the acquisition of Ivari, which operates in a stronger operating environment. According to Fitch, “the acquisition of Ivari will lead to a material positive shift in SFC’s operating group’s competitive positioning, operating scale, and business mix, including geographic diversification towards investment grade sovereign jurisdictions”.

Fitch views the capitalisation of SFC’s insurance operations to be strong and supportive of the ratings. SFC’s strong capitalisation is supported by a consolidated Minimum Continuing Capital and Surplus Requirements (MCCSR) of 204 per cent and operating leverage of 8.9x as of September 30, 2022, which is very strong relative to life insurance peers.

Sagicor Financial Corporation.

However, capitalisation ratios have shown deterioration in 2022, due to mark to market declines from rising interest rates and increases in the actuarial liabilities in line with company growth. Fitch has assessed that capitalisation levels could face additional pressures due to heightened macroeconomic uncertainty, including continued rising interest rates and inflation in key markets, and the introduction of International Financial Reporting System (IFRS) 17.

Higher financial leverage ratios

SFC’s financial leverage has historically been high and is expected to increase modestly due to the planned addition of new debt required to fund the Ivari acquisition, putting downward pressure on the financial holding company. After the transaction closes, Fitch says it will review leverage and capitalisation levels compared with original rating expectations.

In addition, Fitch will also review the level of the new cash flow derived from Ivari, along with any other developments with respect to Ivari’s standalone credit quality. In resolving the Rating Watch, Fitch will balance the credit positives tied to improvements in the group operating company credit quality relative to the credit negatives tied to the impact of higher financial leverage, while also balancing in regulatory restrictions on the acquired cash flows.

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