Negative outlook for Guardian insurance companies' ratings by A M Best

Published: Wednesday June 5, 2008

A M Best placed a 'negative outlook' on its ratings of Guardian Holdings Limited's (GHL's) insurance operations due to the entities' large holdings in equities on the local exchanges in Jamaica and Trinidad.

Last week, the credit rating organisation, which rates the financial strength of most insurers operating in the Caribbean, affirmed the financial strength rating (FSR) of A or excellent and issuer credit rating (ICR) of "a" of Guardian Life of the Caribbean Limited operating and assigned an ICR of "a-" and affirmed the FSR of A- of Guardian General Insurance Limited (GGIL) both of which are headquartered in Port of Spain, Trinidad.

The outlook for both ratings was negative.
Both Guardian Life and GGIL are major insurance operating subsidiaries of the publicly traded holding company, GHL, which is listed on Trinidad and Tobago and Jamaica exchanges.

The negative outlook, the credit rating agency said, was based on "the continuing impact of market value fluctuations in the equity holdings of Guardian Life and GHL, the resulting modest level of return on stockholders' equity at both Guardian Life and GHL on a consolidated basis, increased levels of financial leverage and high exposure to intangible assets at GHL".

In its assessment A M Best pointed out that Guardian Life's significant investments in local equities was highly concentrated in several regional stocks and the company's overall net income has been highly dependent on stock market performance.

The stock market in Trinidad and Tobago showed modest improvement in 2007 after suffering a large drop in 2006 following losses in 2005 and may continue to remain volatile going forward. The Jamaica Stock Exchange (JSE) showed modest improvement in 2007 after flat performance in 2006.

Guardian stands to benefit from the completion of the acquisition of Royal Bank of Trinidad and Tobago by Royal Bank of Canada in second quarter 2008 in that it will reduce "the negative impact of fair market value movement on Guardian Life and GHL's consolidated operating results, while enabling Guardian Life and GHL to realise sizeable capital gains and increase its stockholders' equity".

But A M Best also noted that "the increased levels of financial
leverage and high exposure to intangible assets at GHL could potentially affect further growth through merger and acquisition strategies as well as impose increasing debt servicing requirements".

Guardian still received high ratings for its insurance companies gains from its core life and health insurance operations which have shown generally consistent growth in recent years.


Source: Jamaica Observer
http://www.jamaicaobserver.com/magazines/Business/html/20080603T200000-0500_136324_OBS_NEGATIVE_OUTLOOK_FOR_GUARDIAN_INSURANCE_COMPANIES__RATINGS_BY_A_M_BEST_.asp