Fitch Assigns Initial ‘B’ IDR to Sagicor Financial Corporation; Outlook Positive
Fitch expects SFC to issue between
KEY RATING DRIVERS
Fitch's ratings for SFC reflects the challenging operating and economic environments of the main insurance subsidiaries domiciled in
Of SFC's total revenues, 58% come from
Capitalization ratios are strong but potentially more volatile than those of many insurers rated by Fitch. Management uses Canadian regulatory capital standards to help manage capital, and the consolidated MCCSR for SFC is strong and has remained above 250% since 2011. Fitch expects the MCCSR to remain close to this level over the medium term. However, the capital exposure to the sovereign debt of
SFC's financial leverage ratio (FLR) is high at 46% as of year-end 2014 (adjusted to exclude non-controlling interests from capital). SFC's fixed-charge coverage ratio, as calculated by Fitch, remained at 4.1x at 2014, which is modest. The near-term maturity of all of SFC's outstanding debt is in 2016, which creates significant near-term refinancing risks. SFC is planning to issue new debt to refinance 100% of the two senior unsecured notes in the near term. Reduced refinancing risk via these issuances is an important consideration in Fitch's ratings of SFC.
SFC's profitability ratios are good but with higher volatility than peers. Consolidated net income has been affected by currency retranslation losses of foreign operations and losses from Sagicor
As a result of the lack of availability of long duration assets in
Customarily, holding company senior debt is notched down by one from the IDR at a Recovery Rating of 'RR5(EXP)'. However, in the case of SFC the IDR has been pulled down due to concerns over risks tied to the company's business concentration in
T&C exposure is somewhat mitigated by substantial assets held in U.S. external accounts that is a source of debt service in the event of adverse sovereign scenarios. While Fitch does not publish a sovereign rating or a country ceiling for
Thus,
The Positive Outlook is also based on Fitch view that SFC's proposed reorganization plans as outlined in the Offering Memorandum of the expected new debt issuance as a credit positive in further reducing the exposure to T&C risk. The proposed reorganization includes the redomiciliation of SFC, a
SFC is a
RATING SENSITIVITIES
Key rating triggers that could result in an upgrade of the ratings for Sagicor Financial Corporation include:
--A higher country ceiling of
--A shift in country mix, including a significantly greater percentage of operations and invested assets in countries with higher sovereign ratings, such as the U.S. and
--Improvements in key financial metrics, including consolidated MCCSR above 250%, financial leverage below 30%, and consolidated ROE above 10%.
Key rating triggers that could result in a downgrade include:
--Perceived deterioration by Fitch in the economic environments of
--Inability to term out a majority of debt maturing in 2016;
--Deterioration in key financial metrics, including consolidated MCCSR falling below 180% (with operating leverage above 5x) and financial leverage exceeding 50% and ROE below 5% on a sustained basis.
Fitch assigns the following ratings with a Positive Outlook:
Sagicor Financial Corporation
--IDR 'B'.
Sagicor Finance (2015) Limited
--Senior unsecured notes 'B(EXP)/RR5(EXP)'.
In accordance with Fitch's policies the issuer appealed and provided additional information to Fitch that resulted in a rating action which is different than the original rating committee outcome.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub.
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367
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Source: Fitch Ratings
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