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Financial News

Mar 2013 Financial News

Sagicor Life enters Costa Rica. Insurer may look to other Central American markets for expansion

Mar 01, 2013

SAGICOR Life Jamaica's got regulatory approval in Costa Rica this month, paving the way for its foray into the Central American insurance market.

If successful, the life insurer may look to neighbouring countries to expand, according to the company's President and CEO Richard Byles, who is cautiously optimistic about the prospects of getting a foothold there.

"Our partner has operations in other countries in Central America," he told Caribbean Business Report. "Depending on how this goes, we may expand."

Sagicor Life entered a joint venture with Costa Rican retail and investment services company, Capital and Advice, two years ago, as part of its drive to seek new markets.

The life insurer will provide technical expertise and administrative services and operating systems to support the insurance operations, while its partner, which has been established there for some time, will provide marketing support to the joint venture.

Costa Rica is viewed favourably for its larger market and high economic growth — it has been growing on average by four to five per cent a year since 1994, and it is projected to grow at a similar rate over the next four years.

Perhaps, more importantly, in 2008, the Government ended a more than eighty-year-old monopoly over the country's insurance industry held by Instituto Nacional de Seguros (INS).

"Since, a lot of companies have come in," said Byles. "The market is much more competitive, but the competition means that people are more aware about insurance."

Even then, Sagicor is taking a modest approach to entering the market, and the venture will this year start with creditor life insurance offerings — used to cover the life of a borrower for an outstanding loan.

"I don't expect that it will have a big impact on the financials in 2013," said Byles. "But there are prospects."

The life insurer's president is projecting a difficult year ahead, particularly in the Jamaican market, which Sagicor characterised, in its latest financial statements, as being in a "dire economic situation that requires drastic action, including another debt exchange".

The National Debt Exchange, or NDX, is expected to significantly impact Sagicor's financial performance this year, as the company exchanged billions of dollars in old government notes for newer ones with longer maturities and lower coupon rates.

The face value of bonds exchanged by the group totalled $57.7 billion, while interest rates were lowered by a range of 0.6 to 1.8 percentage points.

What's more, net investment income is a big earner for Sagicor Life, given that it represented 28 per cent of the insurer's revenue in 2012.

"The group will realise capital losses and there will be lower interest income going forward," said the company in its audited financial statement for the year ended December 31, 2012. "Lower discount rates will also increase the group's obligations for defined benefit pensions and other retirement benefit plans."

The negative impact of the NDX is not expected to impair the solvency of companies within the group.

"We have beaten our prior-year results for 13 consecutive years, but it will be tough to beat 2012," Byles said. "We are going to try... the team is a top performer, if anyone can do it, they can."

In 2012, the group earned $6 billion in net profit, compared to $5.75 billion the year before, from $31.5 billion in revenue, which increased from $28.7 billion in 2011, or by 10 per cent, and 11.8 per cent more expenses, which grew from $22 billion in 2011 to $24.6 billion last year.

The insurer incurred $1.3 billion more insurance benefits, or $10.4 billion, but net premium revenues grew from $18.8 billion in 2011 to $19.5 billion in the year under review, while fees and other revenues grew by 43 per cent to $3.3 billion.

Net investment income grew by 14 per cent to $8.7 billion in 2012, but that was compared to a 2011 figure, which included a large impairment charge of $834 million. Before impairment charges, net investment income grew by three per cent.

Even though public sector pension reform is supposed to be high on the Government's agenda, Byles doesn't expect it will come to fruition or lead to any significant business for the insurance sector this year.

"It may start with new hires, but that is nowhere near the tens of thousands of civil servants not on a plan," he said.

The life insurer's parent, Sagicor Financial Group, which has a large presence in the Caribbean, already has a toehold in Central America through its Panama subsidiary.

Sagicor Life Jamaica's Cayman operations continued to perform well — it posted an increase in revenue from $1.6 billion in 2011 to $2.6 billion last year.

"We have a lot of assets in Cayman... it tends to have good results," said Byles. "We do sell a fair amount of insurance there, but it is small."

The Cayman subsidiary's assets totalled $22.8 billion at the end of 2012, compared to the $151.6 billion located in Jamaica.


Source:
BY CAMILO THAME Business co-ordinator thamec@jamaicaobserver.com
Jamaica Observer
Friday March 1, 2013

http://www.jamaicaobserver.com/business/Sagicor-Life-enters-Costa-Rica_13750424#ixzz2MIiy67mC