Jun 2010 Financial News

Sagicor Jamaica performs well despite tough environment

Jun 25, 2010

SAGICOR Life Jamaica, the country's largest life insurer, managed to contend fairly well with a contracting economy and the uncertainty of 2009, putting in a performance that was a boon to its beleaguered parent Sagicor Financial Corporation.

Headquartered in New Kingston, Sagicor Life's consolidated revenues for 2009 came in at J$27.8 billion, two per cent less than the J$28.3 billion posted in the previous year. This generated a net profit attributable to shareholders of J$4.39 billion for the financial year 2009, a 12 per cent increase on 2008.

Basic earnings per share came to J$1.17, up 11 per cent over 2008 with dividends per share of J$0.57 (J$2.14 billion), compared to J$0.44 in 2008 (J$1.65 billion). Growth in shareholders' equity moved from J$15.54 billion in 2008 to J$19.86 billion in 2009, a 28 per cent increase.

Total assets of the group were J$135.46 billion compared to J$117 million last year, representing a 15 per cent increase. Total assets under management, including pension fund assets managed on behalf of clients and unit trusts, amounted to J$210.4 billion, compared to J$183.9 billion last year.

Individual Life proves a winner

The Individual Life Division proved a winner for Sagicor Life Jamaica, generating revenues of J$7.05 billion, an 18 per cent increase over 2008's J$6 billion figure. This division contributed J$1.72 billion to profits, a 60 per cent increase over 2008's figure of J$1.06 billion. This performance was all the more remarkable because it was achieved against the background of a contracting economy and shrinking disposable incomes which according to the group, produced "greater than expected surrenders, withdrawals and other benefits payments".

A salient measurement is always the number of new policies written. Last year (2009) saw Sagicor selling 50,378 new policies in both Jamaica and Cayman, 4,658 more than in 2008. The year 2009 saw Sagicor Life Jamaica setting a new industry record for new annualised premiums: the Jamaican operation generated J$1.70 billion compared to J$1.30 billion in 2008.

Benefits paid to policyholders in 2009 amounted to J$9.82 billion, an increase of 42 per cent over the J$6.91 billion registered in 2008. The company attributes this to a full year of ownership of the Blue Cross health portfolio " with its attendant claims cost compared to one month in 2008.

Escalating administrative expenses

Like many of Jamaica's leading corporations, Sagicor Life Jamaica last year saw escalating administrative expenses. Here they were up by a whopping 20 per cent coming in at J$6.37 billion. However, there were mitigating circumstances. Sagicor's administrative expenses were mainly due to costs associated with the 12 months of the enlarged health portfolio, from the Blue Cross acquisition, as only one month was included in 2008.

Many of the country's general life insurance companies have had difficulty meeting the Minimum Asset Test (MAT) ,with some proclaiming it as too high and others saying too much importance is attached to it, and furthermore they have re-insurance should a major natural disaster befall Jamaica. This is most disturbing. Sagicor Life Jamaica has no such trouble. The Jamaica Insurance Act and Regulations require life insurance companies to carry a Minimum Continuing Capital and Surplus Requirement (MCCSR) of at least 135 per cent. The MCCSR measures the ratio of available capital to required capital. Sagicor Life Jamaica showed a ratio of 147 per cent at December 31, 2009. This compares to 157 per cent last year. Why the drop? This is as a result of the 33 per cent investment stake in non-life insurance subsidiary Pan Caribbean Financial Services. One can expect the MCCSR number to increase in 2010

Major lines perform well

Sagicor Life Jamaica saw all major lines of business, health and life insurance, banking and asset management, showing revenue increases. However ,according to its Annual Report, "the large single premium annuities of 2008 were not repeated to the same extent in 2009.

At the AGM which took place at the Sagicor Auditorium located on New Kingston's Knutsford Boulevard earlier this month, Sagicor Life Jamaica's CEO Richard Byles chose not to focus on just year-on-year results but provided data on how the group has performed over the last five years. He said that back in 2005, the Group posted a net profit attributable to shareholders of J$2.4 billion. For 2009, that figure went up by J$2 billion to J$4.4 billion. Consolidated revenue stood at J$4.2 billion in 2005. For the year under review it recorded J$7.1 billion. In 2005 the Group, then still going under the name of Life of Jamaica (LoJ) posted total assets of J$70.9 billion. For the financial year 2009 that figure has almost doubled to J$135.5 billion. To investors, the all-important Earnings Per Share (EPS) was J$0.71 back in 2005. For the financial year 2009 it was J$1.17. Shareholders' Equity was registered at J$11.7 billion in 2005. By 2009 that had improved, coming in at J$19.9 billion. Dividends per share in 2005 stood at J$0.20. By 2009 it climbed to J$0.57. The group's banking subsidiary Pan Caribbean Financial Services' net profits in 2005 were J$1 billion. For the financial year 2009, it announced net profits of J$1.5 billion. Last year saw Pan Caribbean's commercial bank's net income grow by 37 per cent from J$232 million to J$318 million.

The Jamaican subsidiary of Sagicor Financial Corporation saw its New Business Annualised Premium Income move from J$1 billion in 2003 to as high as J$10.4 billion in 2008 before falling back to J$5.2 billion in 2009. Sagicor Life Jamaica had the third highest net profit ranking of listed companies in 2009, coming behind banking behemoths NCB.

The impact of the JDX

At the AGM Byles pointed out that 400 members of staff were shareholders of the company and that the job satisfaction at the company had risen from 72.2 per cent in 2009 to 74.8 per cent in 2010. He further added that the Blue Cross acquisition with 459,827 card holders contributed J$2.5 billion in premium and fees. Acquired for US$28 million, Pan Caribbean was also proving to be a positive acquisition allowing the Group to leverage its strategic value. Addressing the JDX, Byles said that its impact would now mean narrower investment spreads, less investment income on surplus assets, an increase in actuarial reserves and longer fixed rate bonds.

"The JDX gives us a chance to build a stable economy which must be good for business in general and financial services in particular. We are in a new economic environment where we are seeing lower interest rates but compressed demand brought on by seeing J$82 billion sucked out of the market. Sagicor is now operating in a more harsh environment where there is likely to be slow but hopefully positive growth."

At the AGM both Paul and Stephen Facey were re-elected onto the Board of Directors with Jacqueline Coke-Lloyd elected as a new Board member. Price WaterhouseCoopers were duly reappointed as the company's auditors. Speaking exclusively with Caribbean Business Report after the AGM, Sagicor Life Jamaica's CEO Richard Byles said: "By all measures, 2009 was a successful year for us. Revenues were an improvement over the previous year and so too were profits. We won a couple of corporate governance awards as well as the Stock of the Year Award. It's a year I'm very proud of. Despite the financial crisis we ended the year in a solid position.

"Looking at 2010, in some ways it has been better, in others it poses special challenges. It is better in the sense that the economy is more stable and people have accepted the JDX and interest rates are coming down. What I am concerned about is that demand has really contracted. A lot has been taken out of the economy in terms of purchasing power. That comes to over J$80 billion when you count the lower interest that is now being paid and the additional taxes that were imposed at the end of last year. You would expect that in an economy like ours, when you suck out over J$80 billion it is going to have an impact. Already we see consumers buying less and that is a concern to us here at Sagicor.

"Nevertheless we feel that though challenging it is for the good of the country. The leadership of the country is looking at ways to meet the challenges. Barring anything unforeseen, we should have a better year this year than we did last year." Byles has astutely managed the company during turbulent times and has put together a very competent management team that has ably assisted in navigating adverse conditions. His acquisitions have been strategic and have given Sagicor Life Jamaica critical mass and brought it into the ring of one of the leading financial sector providers in the country. Acquisitions can be fraught with dangers, particularly assimilation into a singular corporate culture. Byles has accomplished this with relative ease. Today Sagicor Life Jamaica serves as the jewel in the crown and is performing better than many of the group's Caribbean subsidiaries. and performing far better than many international operations. This is all the more remarkable, bearing in mind the state Jamaica found itself in last year.

So is Sagicor Life Jamaica looking at further acquisitions in 2010?

"We are ensuring that the synergies and cost-savings are put in place. The problem is there aren't too many more acquisitions to do when you look around the economy. There are perhaps a few possibilities but we are looking far and wide. Sometimes an opportunity presents itself to you, so we are keeping our eyes peeled. This year I am hoping that we can do something special, something out of the ordinary. I am working hard at all of those possibilities and hope to bring home at least one, whatever it is."


Source:
BY AL EDWARDS
Jamaica Observer
Friday June 25, 2010

http://www.jamaicaobserver.com/business/Sagicor-Jamaica-performs-well-despite-tough-environment_7743329