The Sagicor Group delivered strong operational performance for financial year 2018.
Each business segment grew their revenue, and each delivered positive net income, in spite of significant one-time items, in particular the restructuring of the Government of Barbados debt (GoB). We are pleased with our performance in the face of these challenges.
Total revenue increased 22% to US$1,484.3 million, compared to the prior year amount of US$1,218.6 million, an increase of US$265.7 million.
All segments experienced year on year growth.
The largest single source of revenue growth was increased premiums in the USA segment driven by a strategic direction to increase production and to cease reinsurance and retain 100% of production starting in Q2 2018. In addition, fee income grew significantly in the Jamaican segment due in part to growth in investment banking business.
Group net income was US$103.0 million, compared to US$115.9 million in the prior year. Net income attributable to shareholders was US$43.7 million, compared to US$72.4 million in the prior year, a reduction of US$28.7 million. Both Group net income and net income attributable to shareholders were affected by the GoB restructuring.
Management estimates that absent the GoB restructuring, net income attributable to shareholders would have been US$82.9 million, representing growth of 15%.
Benefits were US$765.3 million, compared to US$659.4 million for the prior year, an increase of 16%. The growth in benefits (which include actuarial provisions for future benefits) reflects and is consistent with our revenue growth.
Expenses were US$590.7 million, compared to US$436.4 million for the prior year, driven in part by US$95.5 million of credit impairment provisions, which were partially offset by positive change in actuarial liabilities related to restructured debt.
Administrative expenses grew 13% to US$303.1million, as the company incurred one-time costs related to its ongoing transaction with Alignvest Acquisition II Corporation.
Commissions and related compensation grew 19% to US$117.3 million, in line with growth in premiums.
Income taxes were US$50.7 million. This compared to US$19.3 million in the prior year when the Company had a one-time tax benefit of US$14.2 million in the USA segment arising from the Tax Cuts and Jobs Act.
The remaining increase in taxes resulted from growth in taxable lines of business.
Group comprehensive income was US$38.9 million, compared to US$180.1 million for the prior year, a decrease of US$141.2 million. Group comprehensive income in 2018 included the provision for GoB debt restructuring. Group comprehensive income in 2017 also benefited from significant gains on available for sale assets and retranslation of foreign currency assets, both of which reversed to losses in 2018.
Group assets were US$7.3 billion and Group liabilities were US$6.2 billion, resulting in Group equity of US$1.1 billion, compared to US$0.9 billion in the prior year.
Shareholders’ equity was US$600.9 million, compared to US$624.6 million for the prior year.
The Group’s debt was US$490.3 million, with a debt to capital ratio of 30.2%, compared to 30.6% for the prior year. The increase in the Group’s debt is related to the debt of the Sagicor X Fund Group, which remains unchanged, but is now consolidated onto our balance sheet.
Sagicor has fully provisioned for the exchange of GoB debt as agreed with the Government of Barbados. On September 7, 2018 the Government of Barbados (GoB) entered into a Staff-Level Agreement with the International Monetary Fund (IMF) to provide financial and technical assistance.
As part of the programme, the GoB announced on October 15, 2018 that its Exchange Offer received unanimous support from the domestic creditors including Sagicor. The Sagicor Group has made a gross provision of US$98.8 million and took a charge, net of offsetting adjustments, of US$48.8 million attributable to shareholders.
During the year the Sagicor Group adopted two new accounting standards which became effective from January 1, 2018: IFRS 15, Revenue from Contracts with Customers, which affects how income is recognised on contracts by companies, and IFRS 9, Financial Instruments. IFRS 9 changes the way that financial instruments are recognised and measured. The standard introduces new measurement categories for financial instruments and an expected, instead of an incurred, credit loss model for impairment.
In addition, our subsidiary Sagicor Group Jamaica, was deemed to have effective control of Sagicor X Fund Group from October 1, 2018 based on its shareholding and influence, and from that date has accounted for Sagicor X Fund as a subsidiary as required by IFRS 10. This change has resulted in the operations, results and balance sheet of Sagicor X Fund Group being included within the financial statements.
This has the effect of increasing assets and debt on our consolidated balance sheet, including a significant increase in non-controlling interests in subsidiaries.
The discontinued operations represent our UK business, which was sold in 2013. During 2018 there were positive developments in this exposure which resulted in net income of US$7.1 million. At close of the year the company carried a receivable of US$17.2 million in respect of this business which was settled by a cash payment to us in February 2019 to fully close off our exposure to this business.
Sagicor voluntarily adopted Canadian risk based capital and reserving standards in 1991. The capital ratio, “Minimum Continuing Capital and Surplus Requirements” (MCCSR) seeks to demonstrate to stakeholders the financial strength of the company.
Canadian regulators expected insurance companies to maintain an MCCSR ratio of 150%. And Sagicor has consistently maintained a ratio above 200%. As at the end of the year our MCCSR Ratio was 234%.
Sagicor is rated on an annual basis by Standard and Poor’s Global Ratings and Fitch Ratings. We have been rated by S&P since 2006 and Fitch since 2015. These ratings are an independent measure of our financial strength. Current ratings are as follows:
On November 27, 2018, Sagicor Group announced that it had entered into a transformative transaction with Alignvest Acquisition II Corporation (Alignvest) which heralds in yet another significant milestone in our long and storied history.
Through this transaction, Sagicor will acquire a listing on the Toronto Stock Exchange, where we will have international exposure, greater access to capital to fund growth and be exposed to proper price discovery for our shares, providing an opportunity to unlock fair value for all shareholders.
At the same time, Sagicor also announced that Sagicor and Alignvest will acquire Scotiabank’s life insurance operations in Jamaica and in Trinidad & Tobago. The completion of the transaction with Alignvest is expected in the second half of 2019, subject to shareholders’ approval and customary regulatory approvals.
Stephen McNamara Chairman Sagicor Financial Corporation
To view full 2018 Annual Financial Report click HERE
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