Even as it attended to its traditional businesses, Sagicor Financial Corporation's (SFC) Jamaican subsidiary increased its banking footprint and the stage was set for the company to completely exit the European market.
Shareholders were encouraged by the strong improvement in EPS, which marked a welcome change from previous years' results.
Let us see how this multi-faceted group performed for the year ended December 31, 2014.
Changes in financial position
The huge increases in both assets and liabilities were driven by the Jamaican subsidiary's acquisition of RBC Royal Bank's Jamaican operations at mid-year.
Total assets climbed by 16.7 per cent to US$6.18 billion from US$5.3 billion previously.
Financial investments rose from US$4.19 billion in 2013 to last year's US$4.66 billion, an 11.2 per cent increase. The major change was observed under available-for-sale securities, which rose to US$2.43 billion from the previous level of US$2.17 billion. Also, loans and receivables advanced to US$1.89 billion from US$1.67 billion at the end of the previous year.
Cash resources climbed almost 78 per cent to US$402.5 million from US$226.4 million as at year-end 2013. This higher figure includes US$178.8 million from the RBC Jamaica acquisition.
Reinsurance assets moved from US$336.4 million to last year's US$527.2 million. The major component represented the reinsurer's portion of non-participating individual life insurance and annuity contracts (2014: US$448 million; 2013: US$260 million).
Total liabilities advanced by 18.2 per cent to US$5.41 billion from the previous year's US$4.57 billion.
The principal component, policy liabilities, increased from US$2.89 billion to US$3.12 billion, or by 8.1 per cent. Within this component, actuarial liabilities moved to US$2.56 billion from the earlier balance of US$2.32 billion.
The value of deposit and security liabilities climbed from 2013's US$1.11 billion to last year's US$1.62 billion. This increase reflects the integration of the acquired RBC portfolio of liabilities.
The most significant change was observed with customer deposits, which soared to US$570.6 million from the 2013 base of US$217.2 million. Also showing a strong increase was securities sold for re-purchase; this component rose by 26.8 per cent to US$664.8 million from the 2013 figure of US$524.3 million.
Accounts payable and accrued liabilities came in at US$197.4 million, an increase of US$66.2 million (33.5 per cent) over the US$131.2 million as at year-end 2013.
Included in this figure is the sum of US$34.2 million, which relates to a pre-acquisition matter with the former RBC Royal Bank of Jamaica. A corresponding receivable from FINSAC, of equal value, is recorded under miscellaneous receivables.
Shareholders' equity
Total equity rose to US$773.5 million from US$725.2 million in 2013. Non-controlling interests moved to $241.5 million (2013: US$218.8 million) while participating accounts posted a balance of US$364k (2013: US$5.66k loss).
Shareholders' equity advanced to US$531.7 million from US$512.1 million. The major movement occurred with the retained earnings component, which moved up to US$244.5 million from the previous level of US$221.5 million.
Here, total comprehensive income of US$61.6 million increased the brought forward balance, while comprehensive loss from discontinued operations of US$26.4 million and dividends of US$19.8 million lowered the figure.
With outstanding shares of 303,917,020, the book value of each share closed at US$1.75 (TT$11.11) from 2013's US$1.68 (TT$10.67).
Revenues and profits
In line with a deliberate strategy, more particularly in the USA market, net premiums declined to US$625.6 million from 2013's US$657 million. Annuity premiums declined to US$309.3 million from US$445.1 million. All other types of premiums registered modest increases.
On the other hand, investment income rose by 10 per cent to US$307.2 million (2013: US$279.4 million). Here, the biggest increase was recorded under interest income, which generated US$264.4 million in 2014; this was 6.2 per cent higher than the US$248.8 million earned in
In addition, net investment gains rose to US$47.7 million from the previous year's US$36.5 million, showing a strong improvement of 30.7 per cent.
Fees and other revenue declined to US$83.3 million from the previous year's US$103.1 million. The most significant contraction was noted under commission income from insurance and reinsurance contracts. This category fell from US$40.4 million to US$28.7 million.
The acquisition of RBC Royal Bank Jamaica generated a one-time profit of US$29.1 million. This occurred because the net assets acquired of US$113.4 million exceeded the purchase consideration of US$84.4 million.
These changes saw total income for 2014 come in at US$1.045 billion from the previous level of US$1.039 billion.
Total benefits fell to US$542.2 million from US$592.8 million. However, interest expense increased to US$63.7 million from US$57.6 million.
In contrast, net policy benefits and changes in actuarial liabilities fell to US$478.5 million from US$535.2 million. With the exception of health claims, all categories of benefits increased. However, the changes in actuarial liabilities fell by US$112.3 million to US$226 million.
Total expenses rose to US$386 million from 2013's US$348.1 million. Included in this figure is US$10.5 million, which related to a one-time integration, restructuring and re-branding costs directly linked to the acquisition of RBC Royal Bank Jamaica.
These changes allowed SFC to record pre-tax income of US$117 million versus US$98.6 million for 2013. After income taxes, the 2014 figure was US$100.3 million (2013: US$79.6 million).
The loss from discontinued operation of US$26.4 million pulled down the current year's figure to US$73.9 million (2013: US$4.1 million).
After allowing for participating policyholders share of US$6.2 million and minority interests of US$40.4 million, the remaining US$27.4 million related to shareholders (2013: US$36.4 million LOSS).
The 2014 result translated into EPS of US8.4 cents (TT$0.53). This compares very favourably with the negative EPS of US12.6 cents (TT$0.80) for 2013.
Territorial results
Sagicor Life registered improvements in revenues accompanied by stable benefits, expenses and taxes. The Jamaican operation recorded higher revenues and lower benefits. Despite the one-off expenses related to the RBC Royal Bank acquisition, income to shareholders improved. For the period since its acquisition, the Sagicor Bank incurred a loss of US$5.1 million.
The American operations registered lower net revenues but delivered a 50 per cent improvement in net profit to shareholders.
Share price and dividends
SFC's share price opened 2014 at TT$7.25. From that point it ascended slowly to close on February 7, 2014 at TT$7.99. From this level it slowly descended, closing at TT$5.95 on December 31, 2014.
The release of its 2014 results at the end of March 2015 stimulated renewed interest in this stock and the price closed last Wednesday at TT$6.25. Even at that relatively better price, many recent investors continue to experience a significant "paper loss".
At the recent price of TT$6.25 and a full year's dividend of TT$0.25 (US$0.04), this share gives investors a current yield of 4 per cent. Also, this price, when related to its EPS of TT$0.53, we derive a P/E multiple of 11.8.
One short-term question on investors' mind is: will this year's price appreciation be sufficient to erase all the declines from since February 2014?
Let us see what happens as the year evolves.
Developments in early 2015 and beyond
Just before the release of its 2014 results, SFC signed an agreement with its reinsurers to remove any and all possible future losses from its discontinued European operations. This final settlement cost US$12.2 million and will negatively impact on its first quarter results.
Almost immediately, this initiative paves the way for management to concentrate on streamlining its existing businesses and become more alert to new opportunities that may currently require its attention.
On October 10, 2014 Sagicor Life (EC) Inc (SLECI) was registered in St Lucia. Very likely, the assets and liabilities of the former British American policyholders in the Eastern Caribbean, which SFC purchased in March 2013, will be transferred to this entity. At a later date, it is expected that SLECI will be listed on the East Caribbean Stock Exchange, with SFC retaining majority ownership.
Following the recent Central Bank announcements, there is renewed anticipation that the Clico traditional portfolio may be closer to being sold to an international or regional insurer, such as Sagicor. Of course, there are still some smaller companies that SFC might be considering for acquisition.
The Jamaican-based Sagicor Bank will take some time to "get its bearings" and generate meaningful profits. When that hurdle is over, SFC might want to set its sights on new banking acquisitions. Some targets that come to mind include East Caribbean Financial Holdings Ltd or even the Trinidad operations of RBC Royal Bank. Somewhat further down the road, if it is comfortable and able to assume additional debt, it might even consider targeting the much larger First Caribbean International Bank?
Even before these acquisitions may be developed, there is the pending question of changing its country of domicile to help improve its international credit rating. Several different locations, including T&T, are currently under study and a final recommendation would be put to the shareholders for their decision or ratification, very likely in 2016.
Note: In the last Sunday BG, the article on GHL inadvertently made references to Pointe Salines. The correct name of the development is Pointe Simon in Martinique. The error is regretted.