Morningstar DBRS Confirms Issuer Rating of Sagicor Financial Company Ltd. at BBB (low) and the Financial Strength Ratings of Its Operating Subsidiaries at A (low) With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating of Sagicor Financial Company Ltd. (Sagicor or the Company) and the credit ratings on the Company's Senior Debt at BBB (low). In addition, Morningstar DBRS confirmed the Financial Strength Ratings of Sagicor Life Insurance Company and ivari at A (low). The trends on all credit ratings are Stable.

KEY CREDIT RATING CONSIDERATIONS
The confirmation and Stable trends reflect Sagicor's established financial services franchise in the Caribbean and targeted operations in the much larger Canadian and U.S. life insurance and annuity markets. It has an ambitious strategy to become a leading North American life insurer and focuses its growth on the U.S. annuity sector. The Company's business is spread across multiple product lines and geographies, providing diversification benefits but increasing operational complexity. It has a conservative, fixed-income-oriented portfolio with some exposure to non-investment-grade sovereign debt and bank loans in the Caribbean.

Sagicor is successfully integrating the Canadian universal life focused insurer ivari, acquired in 2023, which is now the Company's largest business. Sagicor delivered stable earnings of $128 million in 2024, resulting in a return on equity (ROE) of 10.1%. Sagicor benefitted from strong equity market conditions in 2024, although these have started to reverse in 2025. However, the Company has other levers to pull to improve ROE, including internal synergies and efficiencies, as well as favourable conditions for annuities in the U.S. Sagicor has adequate capital and liquidity buffers for its risk exposures and, while it has raised significant debt to fund its strategic objectives, Morningstar DBRS expects the Company to be able to generate sufficient capital to lessen its debt burden over time.

A three-notch credit rating differential is applied to the Issuer Rating of Sagicor relative to the Financial Strength Ratings of its operating subsidiaries. This treatment considers Sagicor's above peer-average consolidated financial leverage and overall potential constraints on remittances to the holding company, including from its supervisory structure, exposure to non-investment grade jurisdictions, and significant minority interest position in one of its subsidiaries.

CREDIT RATING DRIVERS
Morningstar DBRS would upgrade the credit ratings if Sagicor enhanced its financial flexibility by significantly reducing its financial leverage and improving its fixed-charge coverage ratio. Such actions would also have positive implications for the holding company notching applied to the Company's Issuer Rating and senior debt rating. A sustained improvement in the Company's profitability or risk profile would also result in a credit ratings upgrade. Conversely, Morningstar DBRS would downgrade the credit ratings if the Company experienced a sustained deterioration in profitability combined with a significant decline in solvency ratios at the group or operating entity level.

CREDIT RATING RATIONALE
Franchise Strength Building Block Assessment: Good
Sagicor is a diversified financial services provider with a long history and a dominant position in the Caribbean market, as well as a relatively new presence in Canada and the U.S. It has established distribution relationships across various life, health, and property and casualty insurance products as well as banking, retirement, and wealth management services in the Caribbean. It targets specific distribution channels in Canada and the U.S. with narrower product offerings focused on universal life insurance and fixed annuities, respectively. Sagicor has integrated ivari, which is now the Company's largest segment by profitability and assets. Operating in various jurisdictions and having ambitious plans for North American expansion, Sagicor continues to have heightened execution and strategic risks.

Earnings Ability Building Block Assessment: Good
The Company has delivered stable profitability through 2024 with net income of $128 million and a 10.1% ROE, which remains below that of some of its larger peers. With a larger focus on long-term individual insurance policies, Sagicor must set up a significant contractual service margin (CSM) that reduces earnings recorded at the sale of a policy. Sagicor's earnings are not overly sensitive to equity market performance in the short term, but the Company's future fee income on its large universal life insurance portfolio will be influenced by market returns, which are showing signs of weakness recently. Still, Sagicor has other levers to improve ROE, including internal synergies, operational efficiencies in the Caribbean businesses, and growing scale in the U.S. market.

Risk Profile Building Block Assessment: Good/Moderate
Sagicor's diverse product offering across multiple markets and jurisdictions mitigates insurance risk. In Canada, Sagicor offers universal life insurance policies with largely pass-through investment performance, although it still has a legacy block of guaranteed policies. Sagicor's U.S. segment mainly sells five-year fixed annuity contracts, which the Company matches with corresponding duration assets, limiting interest rate risk. Sagicor has credit risk exposure to non-investment-grade sovereigns in the Caribbean and other non-investment-grade loans, adding up to 17% of its debt securities portfolio, which is required and reasonable considering the location of its business. While the Company doesn't have large equity investments in its portfolio, Sagicor is sensitive to equity market through the future fee income on its universal life products. Sagicor has invested important resources into improving its risk management and reporting functions in recent years, helping alleviate the operational and integration risk concerns brought by the transformational changes at the Company.

Liquidity Building Block Assessment: Strong/Good
The Company's investment portfolio primarily consists of high-quality, liquid fixed-income securities. However, some of its bank loans and Caribbean sovereign debt may not be available for liquidity needs in a crisis. The Company has a $175 million revolver credit facility to supplement its cash position, of which $40 million was drawn at Q4 2024. Sagicor's claim profile is diversified and stable, and the risk of claim concentration resulting in liquidity issues is well managed. Policyholder behaviour could affect the liquidity needs of the Company on universal life and annuity contracts, but redemption penalties, tax implications, and other contractual terms on these products help mitigate the liquidity risk.

Capitalization Building Block Assessment: Moderate
Sagicor has an adequate capital buffer for its risk exposures and reports a group total Life Insurance Capital Adequacy Test ratio of 139%, despite not being regulated at the group level in Canada. The Company's operating subsidiaries also have solvency ratios comfortably over local requirements in the major jurisdictions where they operate. To fund the acquisition of ivari, Sagicor issued $320 million in debt in Q4 2023, which resulted in total indebtedness of $954 million as at YE2024 and a leverage ratio of 42.1% as calculated by Morningstar DBRS (27.3% per the Company's calculation, which includes the CSM in total capitalization). Morningstar DBRS expects the fixed-charge coverage ratio to remain moderate at approximately five times, which is lower than that of some of the Company's peers but provides enough flexibility to make interest payments. Sagicor has demonstrated its ability to access capital markets in recent years by raising substantial debt and equity capital.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Environmental Factors
Environmental factors do not affect the credit ratings or trends assigned to Sagicor but are relevant to the credit analysis. While Sagicor does not directly sell any products that contribute to material carbon emissions or that will be materially affected by carbon pricing, it is exposed to climate risk through its banking and property and casualty segments in the Caribbean where severe weather risk is high. These business segments are not substantial components of Sagicor's operations but could be subject to losses because of worsening severe weather in the future. The Company uses reinsurance to mitigate this exposure.

There were no Social/Governance factors that had a relevant or significant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations (September 10, 2024), https://dbrs.morningstar.com/research/439195. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at dbrs.morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to our Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of our website.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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