OREANDA-NEWS. Fitch Ratings has affirmed Sagicor Financial Corporation's (SFC) Long-term Issuer Default Rating (IDR) at 'B'. The Rating Outlook has been revised to Stable from Positive. A complete list of ratings is provided at the end of this release.

The revised Outlook to Stable follows Fitch's recent rating action on Jamaica's sovereign ratings, which included the affirmation of Jamaica's country ceiling at 'B' and the change in Outlook to Stable from Positive. Fitch had previously indicated that an upgrade of Jamaica's country ceiling rating, together with the completion of the below noted reorganization would trigger an upgrade in SFC's IDR to 'B+'.

SFC's ratings remain constrained by the agency's view of the economic environments and the transfer and convertibility (T&C) risks in both Jamaica and Barbados, which the agency maintains internal viewpoints to establish the rating of SFC.

KEY RATING DRIVERS

Fitch's ratings reflect the challenging operating and economic environments of the main insurance subsidiaries domiciled in Barbados and Jamaica, and very high exposure to below investment grade sovereign debt, partially offset by strong operating company capitalization, and reasonable, but volatile, profitability. The ratings also consider the company's high financial leverage and successful refinance of its 2016 debt maturities, macroeconomic challenges associated with low interest rates, high quality of the investment-grade portion of the investment portfolio, and asset liability duration mismatches in the operations of Barbados and Trinidad.

Of SFC's total revenues, 58% come from Jamaica and Barbados. In addition, the insurer holds high levels of Jamaica and Barbados' sovereign debt in its investment portfolio, which together equate to over 170% of SFC's consolidated shareholders' equity.

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 Jamaica and Barbados could result in sharp declines in capitalization ratios in adverse sovereign scenarios. Management is trying to reduce the exposure to these sovereign instruments, but Fitch believes this process will be relatively slow.

SFC's financial leverage ratio (FLR) is higher in the third quarter 2015 at 49% (adjusted to exclude non-controlling interests from capital). The increased leverage is predominantly a result of the company prefunding its upcoming 2016 debt maturities, which Fitch views as a credit positive. Excluding the maturing debt, SFC's financial leverage is slightly higher in the third quarter 2015 from year-end 2014 at 39% compared to 37% respectively. SFC's fixed-charge coverage ratio, as calculated by Fitch, declined to 3.3x in the third quarter of 2015 from 4.1x at year-end 2014 given the additional interest expense of new debt, along with a make-whole premium paid on some retired debt. Fitch expects 2016 run rate interest coverage to be between 4-5x, which is satisfactory for its current rating level.

Fitch considers SFC's operating earnings to be good but historically volatile due to currency retranslation and losses from Sagicor Europe (which the company sold in 2013). As part of the sale of Sagicor Europe, SFC was responsible for additional underwriting losses arising from the pre-2013 business up to a capped amount, which was fully accounted for in 2015. Fitch expects operating earnings for the company to improve in 2016 given the absence of residual losses from Sagicor Europe as well as stable operating performance in Jamaica and Barbados, partially offset by currency retranslation losses primarily from Jamaica.

As a result of the lack of availability of long duration assets in Barbados and Trinidad and Tobago, the company has a duration mismatch, where liabilities are much longer than assets. Concern over this duration mismatch is somewhat mitigated by the company's use of a Canadian accounting framework that requires SFC to set aside reserves to address the rollover risk associated with the duration mismatch.

Customarily, holding company senior debt is notched down by one from the IDR at a Recovery Rating of 'RR5'. 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 Barbados and Jamaica, including T&C risks.

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 Barbados, Fitch does maintain internal viewpoints that the agency considered in establishing its rating on SFC. Fitch's sovereign rating for Jamaica is 'B' (local and foreign currency IDR) and the country ceiling is 'B'. The current use of external accounts, which are largely owned by non-Barbados subsidiaries, reduces much but not all T&C exposure to Barbados (as its holding company and one of its main operating entities remains domiciled in Barbados), but T&C risks to Jamaica remain due to the potential move back of funds into the Jamaican subsidiaries and imposition of foreign exchange controls in an adverse Jamaica scenario. Thus, Jamaica's country ceiling of 'B' has been applied to SFC's ratings.

SFC is in the process of reorganizing its company structure. The reorganization of the company consists of two steps, which include the re-domiciliation of the SFC holding company to Bermuda from Barbados, and an unstacking of the corporate structure such that the non-Barbados Caribbean operating subsidiaries, including those in Jamaica, are no longer rolled up underneath the Barbados operating entity and will instead be held directly by SFC. The company expects to be completed with the re-domiciliation in the second quarter 2016 and the unstacking by year-end 2016. Fitch views the reorganization to be a credit positive for the company as the completion of the reorganization reduces the company's exposure to Barbados to solely its insurance operations in that country.

SFC is a Barbados-based financial holding company and leading provider of insurance products and financial services in the Caribbean region. It also provides insurance products in the U.S. as well as banking and investment management services in Jamaica. Primary insurance subsidiaries and the corresponding regions for SFC include Sagicor Group Jamaica Ltd. (Jamaica and Cayman Islands), Sagicor Life Inc. (Barbados and Trinidad and Tobago), and Sagicor Life USA (U.S.). Aside from these main subsidiaries and regions, the company also has insurance operations in many of the Eastern Caribbean islands.

RATING SENSITIVITIES

Key rating triggers that could result in an upgrade of the ratings for Sagicor Financial Corporation include:

--A higher country ceiling of Jamaica, without any heightened sovereign concerns in Barbados or decline in performance of the company;
--A shift in country mix, including a significantly greater percentage of operations and invested assets in countries with higher sovereign ratings, along with continued performance of the company;
--Either of the first two triggers is met and an improvement of 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 Jamaica or Barbados, including a downgrade in Sovereign rating and country ceiling of Jamaica;
--Deterioration in key financial metrics, including consolidated MCCSR falling below 180% and financial leverage exceeding 50% and ROE below 5% on a sustained basis.

Fitch affirms the following ratings with a Stable Outlook:

Sagicor Financial Corporation
--IDR 'B'.

Sagicor Finance (2015) Limited
--Senior unsecured notes 'B/RR5'.