The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First’s top executive yesterday expressed concern that local companies’ own credit ratings might be cut if this nation loses its ‘investment grade’ status.

Patrick Ward told Tribune Business that maintaining its top ranking by A. M. Best, the international insurance rating agency, had now “taken on a higher level of importance” for Bahamas First given that the country is hovering one notch above so-called ‘junk’ status.

The Bahamas First president and chief executive explained that should the Bahamas suffer any further downgrades to its sovereign credit rating, it would likely impact external assessments of local companies’ creditworthiness and their own ratings.

“It’s out of our control to some extent, but we are concerned about it,” he told Tribune Business, “as the country’s standing, from a rating perspective, does have a bearing on Standard & Poor’s and A. M. Best’s view on a company’s ability to maintain a certain rating.”

A. M. Best’s assessment of Bahamas First hints at the precise concerns raised by Mr Ward as to how problems at the national level may impact creditworthiness assessments, and ratings, for individual Bahamas-based companies.

The insurance rating agency stated bluntly: “A.M. Best remains concerned regarding the weak economic and fiscal outlook for the Bahamas.”

Although Bahamas First’s geographical diversification, via its Cayman Islands business, helped mitigate this ‘knock-on ‘ rating effect, Mr Ward added: “We would not like to see the Bahamas lose its current investment grade rating, as the consequences of that would be significantly bad for everyone.”

Standard & Poor’s (S&P) slashed the Bahamas’ sovereign credit rating to one notch above so-called ‘junk’ status last August, in the wake of the $3.5 billion Baha Mar project’s failed opening and subsequent litigation battle.

The Bahamas is now in the 18-month period during which S&P warned there was a ‘one in three’ chance of a further downgrade, a move that would cost this nation its investment grade rating.

Given this danger, Mr Ward told Tribune Business yesterday that A. M. Best’s affirmation of Bahamas First’s top financial strength rating was even more important that normal.

“The context of a top financial strength rating, particularly in the current economic environment, has taken on a higher level of importance because of the need to demonstrate to clients we have the financial wherewithal to meet future obligations,” he said.

“Given the struggles the country itself has in maintaining an investment grade rating, our clients - particularly second home owners in the Bahamas, and there are a significant number of them - can rely on the strength and resources of the company on a standalone basis to meet its future policy obligations.”

Mr Ward said the A. M. Best affirmation for Bahamas First would help reassure both second home owners, and all the property and casualty insurer’s clients, that the Bahamas’ sovereign difficulties would have no impact on its own financial position.

“Sometimes persons that don’t have a very in-depth understanding of what’s happening with international rating agencies are likely to assume that the direction in which the country might be headed is happening to companies on an individual basis,” he added.

A.M. Best has affirmed both the A- (Excellent) financial strength rating, and issuer credit rating of ‘a-’, for both Bahamas First’s Bahamian and Cayman operating subsidiaries. The outlook for both was deemed stable.

“The ratings of Bahamas First General Insurance (BFG) reflect its supportive risk-adjusted capitalisation, continued favourable operating performance and leadership position in the Bahamian property and casualty insurance market,” A.M. Best said in giving its ratings rationale.

“These factors are supported by BFG’s local market expertise and conservative catastrophe reinsurance programme. Partially offsetting these positive rating factors are BFG’s geographic concentration of risk and its dependence on reinsurance as a result of its exposure to catastrophic wind events in the Caribbean.

“Additionally, competition within the Bahamian insurance market is strong and A.M. Best remains concerned regarding the weak economic and fiscal outlook for the Bahamas.”

Turning to the Cayman Islands, A. M. Best said: “The ratings of Cayman First Insurance (CFI) recognise its improved overall results and stronger capitalisation, as well as management’s expertise and knowledge of the Cayman market.

“Continued improvement in the performance of the company’s health segment has enhanced overall earnings. Like its affiliate, BFG, these factors are also supported by CFI’s conservative catastrophe reinsurance programme.

“Partially offsetting these positive rating factors are the geographic concentration of its operations in the Cayman Islands and its reliance on reinsurance to protect its earnings and surplus.”

Mr Ward described S. M. Best’s assessment as “a fair reflection” of what was happening both within the Bahamian economy and at Bahamas First.

He added: “I think it sends a very good signal. There are obviously a lot of concerns about the overall economic scenario, not just in the Bahamas but globally.”

But Mr Ward’s comments, and A.M. Best’s assessment, expose the further potential consequences for the Bahamas and its economy should S&P elect to initiate a further sovereign credit rating downgrade.

Michael Halkitis, minister of state for finance, previously told Tribune Business that the Government intends “to convince” S&P that its fiscal consolidation achievements to-date more than offset the Baha Mar fallout, and that a further downgrade is not warranted.

The Minister last week told Tribune Business that a proposed meeting with S&P following the mid-year Budget debate has yet to be arranged, although there had been contact between the Ministry of Finance and the rating agency.