A recent report by A.M Best indicates Barbados-domiciled re/insurers’ are to remain largely unaffected, following announcements made by Prime Minister Mia Mottley that highlighted the precariousness of the country’s economy.
Mottley stated on June 4 that the country was to suspend “all payments due on debts to our external commercial creditors” and that, following readjustment, outstanding debt stood at $7.5 billion – 171% of GDP.
Talks are ongoing with the International Monetary Fund (IMF) in hopes of securing emergency funding help with the restructuring of its current debt.
However, any deal struck would require the implementation of fiscal consolidation measures as well as increased taxes, all of which would go against Mottley’s campaign promises. This situation is further compacted by a Barbados economy that contracted 0.7 in Q1 2018, A.M. Best says
This instability prompted A.M. Best to evaluate the effect a potential sovereign default would have on the rated insurers’ balance sheets, risk-adjusted capitalisation, and operations in Barbados.
The stress tests consisted of haircuts to Barbados’ sovereign debt and securities, downgrades to the ratings of Barbados’ corporate bonds, as well as additional haircuts to equity and real estate holdings in Barbados.
To date, few of the rated insurers operating in Barbados have been materially affected by factors driving the sovereign rating downgrades. Few direct life writers are domiciled or are operating in Barbados; however, the five largest Canadian banks have life reinsurance subsidiaries there.
A.M Best analysed each of these reinsurers for potential exposures to the island’s weakening economic status and found them to have little to no exposure because of the volume of business assumed from Canada (a CRT-1 country) and little to no local investment or sovereign debt holdings.
