LONDON--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to B (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating to “bb” from “bbb-” of Bankers Assurance S.A.L. (Bankers) (Lebanon). Concurrently, AM Best has maintained the under review with negative implications status on these Credit Ratings (ratings).
The ratings reflect Bankers’ balance sheet strength, which AM Best categorises as adequate, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
The rating downgrades reflect the deterioration in Bankers’ balance sheet strength due to significant weakening of the economic and financial conditions in Lebanon, and the country’s recent default.
In October 2019, demonstrations spread across Lebanon, rapidly leading to the resignation of the government. Since then, political uncertainty has increased and economic and financial conditions have deteriorated, compounded in March 2020 by the country’s default on its USD 1.2 billion Eurobond and by the global spread of the COVID-19 pandemic. This has significantly weakened the local banking sector, which is in substantial need of recapitalisation, and amplified cash flow constraints in the economy, with a devaluation of the Lebanese pound viewed as increasingly plausible.
Bankers has significant exposure to Lebanon, where it sources all of its business and holds a large majority of its assets. In particular, the company’s investment portfolio is significantly exposed to the domestic banking sector through holdings of corporate bonds and cash and bank deposits. The risk associated with these assets has increased considerably following the deterioration of Lebanon’s economic situation.
The ratings remain under review with negative implications as it is difficult to determine how the structural issues in Lebanon will evolve and the extent to which they will adversely impact Bankers’ balance sheet strength, including its liquidity position, as well as how these issues will affect the company’s ability to operate on an ongoing basis.
AM Best will closely monitor events in Lebanon, and aim to resolve the under-review status once there is more clarity as to their impact on Bankers’ credit profile.
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