Sagicor Financial Corporation 2016 Annual Report

March 31, 2017

The economic circumstances of the markets in which the Sagicor Group operated during 2016, showed little improvement over that of 2015. The US economy grew at a pace much lower than expected, while the situation in the Caribbean was very mixed. The performance of the Jamaican economy continued to show signs of improvement, while the economy of Trinidad & Tobago slipped deeper into recession. The economies of Barbados, and those of the Eastern Caribbean, enjoyed the early signs of a return to growth. However, the high debt to GDP ratios continue to constrain the growth, and expose these economies to the negative impact of external shocks. As a result, the environment, for the most part, reflected these economic realities, with businesses experiencing slow revenue growth, and having to rely heavily on strategies which emphasised conservation and operating efficiencies.

Within this context, it is my pleasure to report to you on the 2016 financial performance of the Sagicor Group, which experienced a solid performance, with net income for the year closing at US $109.3 million, compared to US $76.8 million in the prior year.

Net income attributable to shareholders was US $61.7 million, compared to US $34.7 million in the prior year, an increase of US $27.0 million. Earnings per common share was US 20.0¢, and represented an annualised return on common shareholders’ equity of 12.6%, compared to 7.0% for the prior year.

Total revenue increased by 2.7% to US $1,134.1 million, compared to the prior year amount of US $1,104.2 million, an increase of US $29.9 million. Net premium revenue closed at US $664.0 million, marginally under 2015’s net premium revenue of US $673.9 million, and was impacted by lower annuity business written in our USA segment, together with the impact of the depreciation of the Jamaica Dollar to the US dollar on translated premiums. Net investment income closed the period at US $353.4 million, up from US $322.2 million in the prior year, driven mainly by increased realised gains on our international investment portfolios, and exceeded the prior year amount by US $31.2 million, or 9.7%. Fees and other revenue amounted to US $116.8 million, compared to US $109.1 million in 2015, an improvement of US $7.7 million, or 7.1%.

Total benefits closed at US $560.4 million, and marginally exceeded the prior year amount of US $552.9 million.

Expenses (including agents’ and brokers’ commissions) closed the year at US $424.2 million, and were below the prior year amount of US $427.7 million. Expenses reflected the lower commissions and related expenses, consistent with the lower premium revenue. Premium and asset taxes were also lower when compared to the prior year, and resulted from a reduction in premium and asset taxes in the Jamaica segment.

Total comprehensive income closed the year at US $96.7 million, compared to a loss of US $0.6 million for the prior year. The main contributor to the improvement in comprehensive income was an underlying improvement in net gains on financial assets of US $142.3 million. Included in comprehensive income were net gains for the year on financial assets of US $39.2 million, resulting from mark-to-market gains on financial assets associated with our international portfolios. The Group experienced net declines of US $103.2 million for the 2015 financial year. Retranslation losses amounted to US $28.5 million, compared to US $15.7 million reported in 2015, and resulted from declines in the Jamaica dollar of US $21.0 million and the Trinidad dollar, US $7.5 million, when compared to the United States dollar.

In the statement of financial position as at December 31, 2016, assets amounted to US $6.5 billion, compared to US $6.4 billion in the prior year. Liabilities closed at US $5.7 billion, the same level as in 2015. Sagicor’s Group equity totalled US $795.4 million, an increase of US $56.2 million, or 7.6% over the 2015 financial year.

The Group’s debt was US $395.2 million. The debt to capital ratio was 33.2%, down from 39.2% for the prior year, and was impacted by the fact that the Company redeemed all its outstanding convertible redeemable preference shares amounting to US $120.0 million during the year.

The Board declared dividends of US 2.5 cents per common share, payable on May 15, 2017, which is consistent with the dividends paid on November 15, 2016, and represents a 25% improvement on the dividend paid on May 17, 2016.

On June 8, 2016, Shareholders approved the redomiciliation of Sagicor Financial Corporation to Bermuda. This was achieved on July 20, 2016, when the Company was continued under Bermuda Law as Sagicor Financial Corporation Limited. This is the first phase of a three-part process to immunise the Sagicor Group from non-investment grade domiciles, and to protect the credit rating of the Group. The second phase is the incorporation of a reinsurance company in Bermuda, while the third is the re-organisation of the corporate structure to re-organise the main operating entities as direct subsidiaries of Sagicor Financial Corporation Limited.

On December 23, 2016, S&P Global Ratings re-affirmed the credit rating of Sagicor Finance (2015) Limited at “BB-” with stable outlook. Sagicor Finance (2015) Limited is the Sagicor subsidiary through which the Sagicor international corporate bond was issued.

During 2017, the company will continue its focus on its corporate re-organisation, business conservation, and process improvement to positively impact our financial performance and overall financial condition. We recognise the challenges still facing our Caribbean Region, and we will continue to work with other private sector institutions and governments to play our part in the revitalisation of the economies, for the long-term benefit of our customers, shareholders and the communities in which we operate.

On behalf of the Board of Sagicor, I wish to thank our Shareholders and Customers for their continued support.

Stephen McNamara, CBE

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