Best’s News & Research Service - February 02, 2009 02:11 PM (EST)
A.M. Best Downgrades Ratings of Colonial Life Insurance Company (Trinidad) Limited; Places Ratings Under Review
OLDWICK, N.J. //BestWire// - A.M. Best Co. has downgraded the financial strength rating (FSR) to B (Fair) from B++ (Good) and the issuer credit rating (ICR) to “bb” from “bbb” of Colonial Life Insurance Company (Trinidad) Limited (CLICO) (Trinidad and Tobago). Concurrently, the ratings have been placed under review with negative implications. In addition, the FSR of B (Fair) and ICR of “bb” of CLICO (Bahamas) Limited (CLICO Bahamas) (Nassau, Bahamas) also have been placed under review with negative implications. CLICO and CLICO Bahamas are insurance member companies of CL Financial Limited (CL Financial), a diversified holding company based in Trinidad and Tobago.
The ratings downgrades follow the actions announced by the Central Bank of Trinidad & Tobago in reaction to a significant increase in liquidity pressures at several CL Financial subsidiaries, including CLICO and CLICO Investment Bank (CIB). CIB has been facing tightened liquidity through elevated withdrawals, as concern regarding the sharp decline in methanol and real estate prices were seen as negatively impacting the balance sheet of CL Financial. As part of its investment strategy, CLICO maintains a high concentration in related party assets, including large holdings in the banking and financial services, energy and manufacturing sectors. Thus, the liquidity challenges at CIB are expected to impact CLICO. A.M. Best had previously expressed concerns with the liquidity of CLICO’s non-quoted affiliated assets. CLICO has experienced rapid growth in its annuity and pension lines of business through high crediting rates.
CL Financial has agreed to divest assets to improve CLICO’s Statutory Fund, while the Trinidad government has committed to provide additional funding that may be needed for any deficit. This funding will be provided in exchange for collateral and an equity interest in CLICO. In addition, a strategy has been implemented by the government to meet withdrawals of third party depositors of CIB and CLICO policyholders.
The ratings will remain under review as A.M. Best reviews CLICO’s ability to quickly diversify away from its large affiliated investment holdings and related party transactions in order to provide greater liquidity. The review will also include an understanding of the level of involvement of the Trinidad government in CLICO’s ongoing operations. Further negative rating actions may be warranted following this review.
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The principal methodologies used in determining these ratings, including any additional methodologies and factors which may have been considered, can be found at http://www.ambest.com/ratings/methodology.