Sagicor Financial Corporation 2015 Annual Report
I am pleased to report on the 2015 financial performance of the Sagicor Group. Consistent with prior years, the Group’s 2015 financial statements have been presented with continuing operations being separated from the discontinued run-off operations of Sagicor Europe. The continuing operations comprise our businesses in the Caribbean and the USA.
The Sagicor Group experienced strong performance, with net income for the year closing at US $76.8 million, compared to US $73.9 million for 2014,an increase of 3.9%.
Net income from continuing operations attributable to shareholders was US $56.3 million, compared to the prior year result of US $53.7 million. Earnings per common share from continuing operations was US 18.2¢, and represented an annualised return on common shareholders’ equity of 11.7%.
Total revenue increased to US $1,104.2 million, compared to the prior year amount of US $1,045.2 million, an increase of US $59.0 million or 5.6%. Net premium revenue closed at US $673.9 million, compared to US $625.6 million for the prior year, an increase of US $48.3 million or 7.7%. The Group experienced premium growth in all segments. Net investment income closed the period at US $322.2 million, up from US $307.2 million in the prior year, representing an improvement of 4.9%. Fees and other revenue amounted to US $109.1 million, compared to US $83.3 million in 2014, an improvement of US $25.8 million or 31.0 %. Net investment income and Fees and other revenue include the impact of the RBC Royal Bank’s operation in Jamaica, which was acquired on June 27, 2014.
Total benefits incurred from continuing operations held fairly steady at US $552.9 million, compared to US$542.2million in 2014.
Expenses (including agents’ and brokers’ commissions) increased to US $427.7 million, compared to US $385.9 million for the prior year, an increase of US $41.8 million, or 10.8%. The increase in expenses reflected expenses incurred with the inclusion of the operation and integration of the RBC Royal Bank’s Jamaica banking operation for the entire year, compared to six months in 2014. Higher asset taxes also impacted the year’s expenses.
On August 11, 2015, Sagicor refinanced its total debt with the issuance of US $320.0 million seven-year Senior Notes, repayable in 2022. The notes carry a fixed rate of interest of 8.875% payable semi-annually, and can be repurchased after four years. The notes were issued to refinance the existing Senior Notes, Convertible Redeemable Preference Shares and Short-Term Notes which mature in May 2016. Consequently, on September 10, 2015, the company redeemed the US $150.0 million 7.50% 2016 Senior Notes at a price of US $160.5 million, and has pre-funded the redemption of the Convertible Redeemable Preference Shares and the other Short-Term Notes.
As a result of the issuance of the Senior Notes in August 2015, the Group’s finance cost increased to US $37.2 million, compared to US $22.5 million for the prior year. Included in finance cost are additional costs which arose for two further reasons. Firstly, US $6.8 million were incurred related to the early redemption of the US $150.0 million Senior Notes, which were due to mature in May 2016. Secondly, financing costs of US $11.8 million arose from the pre-funding of redemptions of the Convertible Redeemable Preference Shares and the Short-Term Notes,also due to mature in mid-2016, and the above-mentioned Senior Notes.
Total comprehensive income showed a loss of US $0.6 million, compared to a profit in the prior year of US $80.6 million. Other comprehensive income showed a loss of US $77.4 million, compared to a profit of US $6.7 million in the prior year. During 2015, the Group experienced mark-to- market declines on financial assets associated with our international portfolios. These changes resulted from volatility in international bond prices, reflecting concerns over global economic growth, and uncertainty surrounding the Federal Reserve’s monetary policy. The Jamaica dollar declined against the US dollar by 4.8% for 2015, compared to 7.8% for 2014, contributing to currencyretranslation losses of US $15.7 million.
The discontinued operation represents our UK business, which was sold on December 23, 2013. The terms of the sale required the Sagicor Group to retain an interest in the 2011, 2012 and 2013 underwriting years of account, subject to a limit denominated in pounds sterling. This business experienced a loss of US $21.6 million, (US $26.4 million for 2014), resulting from adverse movements in claims reserves. The company has now fully provided for this contingent exposure and no further adverse exposure to underwriting losses will be incurred.
In the statement of financial position as at December 31, 2015, assets amounted to US $6.4 billion, compared to US $6.2 billion in the prior year. Liabilities closed at US $5.7 billion, compared to US $5.4 billion in the prior year. Sagicor’s Group equity totalled US $739.2 million, compared to US $773.5 million in the prior year, and was impacted by mark-to- market declines on financial investments.
The Group’s debt, which is included in other liabilities, was US $475.5 million. Following the issue of the senior notes on August 11, 2015, the redemption of the US $150.0 million 7.5% 2016 senior notes, and pre-funding the redemption of the Convertible Redeemable Preference Shares and other Short-term Notes, the debt to capital ratio increased from 27.9% at the end of 2014 to 39.1% for 2015. The debt to capital ratio will return to lower levels, (approximately 35%) when the Convertible Redeemable Preference shares and the other Short-term Notes, which mature in May 2016, are redeemed.
On March 21, 2016, the company early redeemed the other Short-term Notes of US $43.4 million due May 12, 2016, and issued new notes in the amount of US $75.0 million, due April 14, 2017. The new notes were issued at a rate of 5.0% per annum.
The Board has declared dividends of US 3.25 cents per preference share and US 2.0 cents per common share, payable on May 15.
The economic environment in which the Sagicor Group operates continues to show signs of improvement. The Board and Management continue to adapt our strategies as we deliver quality products to our customers and competitive returns to our shareholders. On behalf of the Board of Sagicor, I wish to thank our Shareholders and Customers for their continued support.
Stephen McNamara, CBE