Anticipating a downgrade of its corporate rating influenced by a projected fall in investment income and underwriting profit, Jamaica International Insurance Company (JIIC) has withdrawn itself as a candidate for review by AM Best.
The 'inevitable reduction' in investment income is expected to flow from the company's full participation in the National Debt Exchange.
JIIC Managing Director Grace Burnett left open the possibility, however, of returning to AM Best in the future. Insurance companies generally look to the international rating agency for independent verification of their financial strength and bona fides as a worthwhile credit risk.
JIIC currently has a financial strength rating of 'B++', which it has held since 2004, and issuer credit rating of 'bbb'. At the announcement of the NDX in mid-February, AM Best placed JIIC's ratings under review 'with negative implications', suggesting a future downgrade was likely.
"We have decided to just look at the realities; deal with the fundamental in terms of diversification and building out in other regions. But that does not mean we won't go back," said Burnett on Tuesday.
"They have shared with us the way in which their thought process is going and we are concerned about the way in which they treat with Jamaican debt; that will put us in a difficult position and (we) face the distinct possibility of a downgrade," she said.
At the end of January, JIIC was capitalised at J$2.1 billion and held J$7.1 billion in total assets. The company did not disclose its current premium and investment income or its profit performance.
AM Best cited in its review the uncertainty pertaining to the NDX and its effect on JIIC and parent company GraceKennedy Limited.
Three years following the first debt exchange executed in early February 2010, JIIC had also faced a similar position.
The company's financials at yearend December 2010 reflected a billion-dollar reduction in its investment portfolio, from J$2.94 billion to J$1.8 billion, and a J$161 million reduction in annual interest income.
Still, JIIC closed the year with an improved capital base, which grew from J$2.11b to J$2.34 billion - the current numbers indicate a fall back to the 2009 position - and a stronger asset, which increased from J$5.99 billion to J$6.7 billion.
Also in 2010, the company reported underwriting loss of J$154 million, but that was an improvement on losses of J$305 million the previous year.
JIIC said the NDX is not expected to have a significant impact on its finances, but is projecting a short-term reduction in profitability.
The company said it consistently meets the regulatory requirements of the Financial Services Commission and is currently focused on cost containment, regional expansion and customer service to drive business and underwriting profit.