0

Bahamas’ ‘rosy picture’ not making the grade

• Insurer ‘hoping and praying’ for downgrade reversal

• ‘Very concerned’ following FamGuard, Colina actions

• Says ‘clearly disconnect’ between Gov’t, Moody’s

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top insurer was yesterday “hoping and praying” The Bahamas can reverse its continual downgrades despite the Government’s “rosy picture” of its fiscal and economic standing failing to convince the rating agencies.

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business there was clearly a “disconnect” between what Moody’s and Standard & Poor’s (S&P) see and what the Government is saying after the repercussions of the latest cut to The Bahamas’ sovereign creditworthiness spilled over into the country’s financial services industry.

Speaking after A. M. Best slashed the creditworthiness of BISX-listed Colina Holdings and FamGuard Corporation, the country’s two largest life and health insurers, on the basis of Moody’s latest downgrade, he added that “I’d be lying if I say I’m not concerned” for the ratings of all other Bahamian underwriters assessed by the global insurance rating agency.

Besides RoyalStar, which presently shares the top Caribbean financial strength rating of A (excellent) and long-term issuer credit rating of ‘a’ (excellent), Bahamas First and Summit Insurance Company are also rated by A. M. Best. All their current creditworthiness assessments could be in jeopardy if, like Family Guardian and Colina, the agency decides a cut is merited as a result of Moody’s action over the sovereign rating.

“The country rating is a critical part of all of our ratings. We have not gotten any indication from A. M. Best at this point,” Mr Saunders told this newspaper. He voiced optimism that RoyalStar may be shielded from any downgrade due to its geographical diversification into other Caribbean territories, namely the Cayman Islands, US Virgin Islands, Turks & Caicos, British Virgin Islands (BVI) and Anguilla, which was partly designed to shield the company from sovereign risk.

“We have diversified our portfolio. That’s why we went into different territories other than The Bahamas to diversify away from concentrated risk in one country. We are pursuing a 55/45 split, with 55 percent of our business in The Bahamas,” Mr Saunders explained.

“The issue is our corporate office is in The Bahamas, and we are registered in The Bahamas. Our risk is still based on the country risk of The Bahamas. All I can say is we are concerned about the country’s rating, and what impact it will have on our rating. We don’t know what that is right now, but we are concerned and we should all be concerned as an industry - all our different insurers.

“I hope and pray the powers that be are doing everything necessary to get us out of the rating we have now.... I am sure the banks are concerned. They are holding a lot of government debt. They are going to be discounting that, so they’re going to take a big financial hit like the two life and health insurance companies who are heavily invested in government debt,” Mr Saunders continued.

“Thankfully for us we do not have that much government debt on our books, so the impact on us is very different, but they [Family Guardian and Colina] have no choice but to buy government debt because they’ve got too match long-term liabilities with long-term assets.

“For us, we don’t have much government debt on our books, but we are very concerned. I’d be lying if I said I’m not concerned. We are very concerned. What impact will the country’s rating have on our Best Capital Adequacy Ratio (BCAR) score and on the company? If that is affected we may have to make certain adjustments internally on how we run our business. If it’s a significant downgrade we have to look at where we are now.”

Moody’s pushed The Bahamas further into so-called ‘junk’ status by cutting its sovereign creditworthiness from ‘Ba3’ to ‘B1’ on the basis that its access to borrowing on the international capital markets is being squeezed by a combination of global interest rate rises, increased emerging market spreads and concerns about its own fiscal condition.

However, Mr Saunders said both rating agencies appeared to be unconvinced by the Government’s assertion that it has a plan and road map to tackle The Bahamas’ fiscal and economic problems and put the country back on track in the wake of COVID-19.

“We cannot be painting a rosy picture one way and the rating agencies are not seeing it,” he told Tribune Business. “There’s a disconnect. There’s got to be a disconnect somewhere. We cannot be painting a rosy picture and there’s a disconnect between what we are saying and what the rating agencies are seeing. 

“Obviously the data we are giving them is not satisfying them; that’s all I can say. The data we are giving them is not satisfying them to the extent were we are stable. We are saying one thing, and Moody’s and S&P are seeing something else. We are caught in the middle of something we cannot control. This is another thing we have to deal with.”

Timothy Ingraham, Summit Insurance Company’s president, said the property and casualty insurer was still trying to determine what had driven A. M. Best’s downgrade of Colina and Family Guardian but added that the entire Bahamian financial services industry should be concerned if it stemmed from Moody’s sovereign action and concerned about the geographic concentration of risk.

Most insurance and financial services providers operating in the domestic economy are heavily restricted to commercial activities in The Bahamas because of exchange control, which increases country and portfolio concentration risk, although some have managed to expand beyond this nation’s borders.

“We’re still looking at it. I’ve just been discussing it with the chief financial officer,” Mr Ingraham said of A.M. Best’s downgrade of Colina and Family Guardian. “We need to get a bit more insight into it at this time. Is it strictly because of the country’s downgrade? Is it exposure to government debt?

“We don’t have any comment on it until we learn the specific things that triggered it. We’d naturally be concerned if the change was made because of the downgrade to the country’s financial rating. The entire financial community would be concerned on that basis.”

David Slatter, RF Bank & Trust’s vice-president of investments, yesterday said the Moody’s downgrade had effectively dropped The Bahamas’ from ‘level 13 to ‘level 14’ in terms of the credit ratings that the agency issues. That illustrates just how far The Bahamas’ creditworthiness has fallen in the 14 years since the 2008-2009 financial crisis as a result of successive downgrades - a trend that has yet to be broken and, indeed, has been accelerated by Dorian and COVID-19.

“The way I read that was more of a commentary on the risk associated with long-term government bonds they hold in their portfolios, as they need to offset long-term liabilities with long-term assets,” Mr Slatter said of the Colina and Family Guardian downgrades. “That’s what I see the A.M. Best downgrades reflecting.” 

Comments

Maximilianotto 1 year, 8 months ago

Poor financial sector - have to buy Government Debt and now have to write down - Bahamas 2020:2032 bond trading at 59% so 41% writedown for now - that’s the meltdown.More to come. The market is always right not dumb politicians.

Sign in to comment