By VERNON CLEMENT JONES, Guardian Business Editor, vernon@nasguard.com

A.M. Best has downgraded the financial strength rating of CLICO Bahamas to B (Fair) from B+ (Good) with the insurer receiving a similar hit to its issuer credit score — a double comedown on top of last year's and a reflection on the company's heavy level of investing in the volatile U.S. real estate market.

"The downgrades reflect the significant exposure CLICO Bahamas has to affiliated loans as a percentage of assets and capital," writes AM Best in its report, issued Thursday. It also cites concerns around the volatility of earnings in its international operations and its somewhat modest market share in The Bahamas, when compared to its competitors.

"CLICO Bahamas' loan to a real estate subsidiary, which represents a concentration risk and high exposure to the depressed Florida real estate market, has been revalued to reflect the current market conditions," continues the analysis, suggesting the decision by CLICO's Trinidadian parent company to convert earnings here into U.S. land holdings has ultimately proven a mistake given the devastating effect on real estate wreaked by Florida's recession.

"A.M. Best feels that given most of its reserves are fixed annuities, this real estate exposure represents a mismatch to CLICO Bahamas' liabilities," reads Thursday's report, alluding to the definite nature of the insurer's repayment obligations contrasted against the very iffy nature of returns from real estate holdings in the U.S.

In addition, certain of its non-Bahamas regions have produced operating losses.

Just last month, the company released 2007 results pointing to the high percent of assets invested back into the company's own holdings.

"Without qualifying our opinion," writes Deloitte and Touche in an audited report dated April 30, 2008, "we draw your attention to the fact that the company's advances to its wholly owned subsidiary, CLICO Enterprises Limited, of $57,010,248, represents approximately 59 percent of the company's total assets."

At the end of December 30, 2007, the Bahamian company had total assets for $97.35m, about $135k less than it claimed the previous fiscal year. While representing a slight drop-off, it does show that the Bahamian life and health insurer has made some attempt to lower the whooping amount it still continues to pump back into the CLICO family of companies, a total of $57 million for the last fiscal year, down from $11 million the period before it. In short, it means that CLICO Bahamas only had about 59 percent instead of a more troubling 72 percent of its assets wrapped up in loans and other internal investments.

Guardian Business analysis suggested that smaller amount would likely still garner the concern to some analysts, especially AM Best.

"About 72 percent of CLICO Bahamas' assets are inter-company investments within the rest of the parent holding company, not necessarily outside of the country (The Bahamas)," Stephen Irwin, a vice-president for the rating company's health and life insurance division said at the time of last year's B+ (Good) scoring.

That rating was already lower than A- (excellent) competitors ColinaImperial and Family Guardian each hold. The former is an affiliate of The Nassau Guardian

The scope of CLICO's reinvestment may not be the only thing keeping it from joining them in that superior category, however.

It's worth noting that CLICO Bahamas has greatly improved some aspects of its operation. High on that list is the nearly $80 million in future policy benefit reserves, up more than $20 million from 2006.

It's development that brings it more in line with competitors.

It isn't all doom and gloom being offered by AM Best analysts. They do note that CLICO Bahamas' ratings benefit from its ownership by parent CL Financial, as well as its overall insurance premium growth and profitability. The latter is more than at least one of its local competitors can boast.