Best’s Briefing: Sovereign Downgrades in Barbados a Sign of Challenges for Insurers

OLDWICK, N.J.--(BUSINESS WIRE)-- Although stress tests show that most A.M. Best-rated insurers operating in Barbados have not been materially impacted by the factors driving the Caribbean country’s sovereign rating downgrades, A.M. Best notes that some companies may want to re-evaluate the operating environment should the general stability of the country deteriorate.

A new Best’s Briefing, “Precarious Economic Situation in Barbados; Sovereign Downgrades a Sign of Challenges for Insurers,” comes after that Barbados government’s decision to suspend debt payments to external commercial creditors, which triggered sovereign rating downgrades. Included in the announcement was an adjusted estimate of the country’s outstanding debt at USD 7.5 billion, or 171% of gross domestic product, which is materially higher than previous estimates. The country is currently in talks with the International Monetary Fund in hopes of securing emergency funding and help with restructuring its current debt.

Although A.M. Best does not apply a sovereign ceiling in its ratings process, it does assess how these external factors would affect an insurer’s future business prospects, operating performance and capitalization. A.M. Best also factors in an organization’s risk management capability to navigate through these scenarios. Few direct life writers are domiciled or operating in Barbados; however, the five largest Canadian banks have life reinsurance subsidiaries there, although they have little to no exposure because of the volume of business assumed from Canada, and little to no local investment or sovereign debt holdings.

The briefing notes that should general stability of the country deteriorate, some companies may consider re-domesticating, which could cause some operational disruption. A.M. Best will continue to monitor the stability of Barbados’ infrastructure and workforce, as well as developments on debt restructuring for any possible ratings impact.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=274635.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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A.M. Best

Alexander Sarfo, +1 908-439-2200, ext. 5779

Senior Financial Analyst

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Kevin Varvaro, +1 908-439-2200, ext. 5487

Associate Analyst

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Director, Public Relations

james.peavy@ambest.com

Source: A.M. Best