Apr 2011 Financial News

After sales, write-offs Guardian looks to acquisitions again

Apr 20, 2011

WITH a solid profit performance for the 2010 period backing them up, principals of Guardian Holdings Limited (GHL) are eyeing insurance acquisitions within the Caribbean and Latin America over the medium to long term.

"Our strategy will be to continue to grow organically while searching for acquisitions which will be accretive to earnings," Arthur Lok Jack, chairman, and Jeffrey Mack, CEO, said in a joint statement to shareholders. "On the acquisition front our preference will be on insurance targets whose main businesses are based in the Caribbean. Mid to long term we believe an acquisition in the fast-growing insurance markets of Latin America make a lot of sense for your company as we continue to fulfil our vision to become the regional wealth management and protection champion."

The view to acquisitions came in the wake of a write-off of Zenith Insurance brokers which was acquired by CGM Gallagher Insurance Brokers Jamaica in April last year. The Zenith portfolio was estimated to be around US$10 million at the time. A second sale was concluded in August for Guardian Asset Management Jamaica (GAMJA) to Proven Asset Management Jamaica, which Lok Jack said was in keeping with the Group's strategic initiative to focus on core business and improve shareholder value. In that respect, the insurance portfolios previously managed by GAMJA was retained in Guardian Life Limited (GLL) and West Indies Alliance. Despite the write-offs, GHL's asset base grew by 10 per cent for the year to close at $14 billion.

Consequently, GHL saw a dramatic turnaround in the profit position of TT$425 million for 2010, versus the TT$824-million loss reported in 2009 based on insurance underwritings and investment management representing the main business lines of the Group. Indeed, revenue from insurance operations of TT$4.3 billion, was 77 per cent of Guardian Holdings' TT$5.5 billion total revenue last year. Net premiums for life insurance increased by TT$222 million or 16 per cent, while net business premiums earned improved TT$539 million or 27 per cent. Earnings per share improved to TT$1.92, up from the TT$1.81 earned in 2009.

Chairman and CEO both conceded that 2010 was "one of the best years in our company's history" and certainly the finest over the past six years. "We achieved our best performance since 2004 despite the fact that 2010 continued to see the region's economies struggle," they said. Among the challenges that impacted the insurance industry and financial markets in general into 2010 was the slow recovery of the global economy especially in countries to which regional economies are closely linked such as the United Kingdom and the United States and the effect of the Jamaica Debt Exchange (JDX).

"The low interest rate environment created by the aggressive monetary policy of the developed countries and low credit demand posed an additional challenge for our company," said Mack. This declining interest rate environment impacted the interest earnings of the Group's new bond purchases. Locally, under the JDX. Guardian Life exchanged J$17.8 billion in lower-yielding, longer-dated instruments. As a result, investment income for GLL fell 20 per cent to J$3.8 billion. In addition, the revaluation of the Jamaican dollar against benchmark currencies resulted in a 154 per cent drop in foreign exchange gains.

However, GHL continues to retain a significant share of the market for Life Health and Pensions (LHP), Caribbean Property and Casualty (CPC), International Property and Casualty (IPC) -- all three of which represent insurance underwritings -- Asset Management and Strategic Alternative Investments segments, being first or second in terms of market share in the markets in which it operates.

As a testament to its strength and security rating, GHL successfully issued a TT$1-billion bond in February this year, the largest-ever issue of its kind by a corporate company in the Caribbean. According to Lok Jack, the proceeds were used to pay off existing debt of TT$850 million and the balance set aside to support GHL's "strategic growth plans".

Insurance Underwriting activities performed well with the exception of the International Property and Casualty segment. Lloyds of London, Jubilee was the Group's sole poor performer with losses of TT$77 million. Otherwise, LHP improved its operating profit from $232 million in 2009, to $307 million in 2010. CPC produced operating profit of TT$149 million despite losses of TT$33 million following the passage of Hurricane Tomas.

Guardian Asset Management (GAM) the Jamaican-based funds and assets management entity emerged one of the top performers of the Group in 2010 as both revenues and profitability increased. Revenues increased by $15 million to $50 million. Total assets under management grew 5.1 per cent to TT$8.2 billion versus TT$7.8 billion in 2009, while after tax profit was TT$18.1 million for 2010, versus $11.2 million in 2009.

"The noteworthy growth in assets under management attests to GAM's ability to deliver consistent value to customers amidst increased competition and the challenging investment climate locally as well as internationally," noted Mack.

Following the growth in new sales of individual and employee benefits business in Trinidad and Jamaica, total premium income related to life, health and pensions amounted to $2.15 billion, 15 per cent more than in 2009. Net profit for both operations totalled $313 million, a 54 per cent improvement over 2009. The Jamaica-based GLL settled $914 million in new annual premium income, the largest of the Group of which Trinidad based Guardian Life of the Caribbean settled $189 million and Curacao's Fatum Life settled ANG44.84 million.

GHL has also embarked on two developmental projects under its Strategic Alternative Investment segment. The Pointe Simon Waterfront project, a mixed use development in downtown Fort de France, Martinique, comprises a 20-storey office tower and eight-storey luxury waterfront condominiums. Work should be completed by end 2011.

The second alternative investment underataken by GHL, the Eastern Caribbean Gas Pipeline (ECGP) is targeted for completion and delivery during 2013. The ECGP will see natural gas being delivered from Trinidad and Tobago to Barbados. GHL said it had identified a strategic investment partner, who will come on board during the first half of 2011.


Source:
BY ALICIA ROACHE
roachea@jamaicaobserver.com
Jamaica Observer
Wednesday April 20, 2011

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