Sagicor sees tough year ahead - Reports 'strong' first quarter, but expects other periods to be challenging

Published: Wednesday June 4, 2008

Financial conglomerate Sagicor Group continues to grow by acquisition, snapping up the Caribbean insurance portfolio of Industrial Alliance Insurance and Financial Services Inc, which writes policies in Curaçao and Aruba.

The deal, finalised in the March quarter, gives Sagicor 11,000 new life insurance policyholders, additional assets of US$53.6 million, and a new partnership with Guillen Agency to service policyholders in Curaçao and market the Barbados conglomerates products in that country.

Guillen formerly wrote business for Industrial Alliance.

But it was the previous acquisition of Barbados Farms Limited (BFL) and Sagicor at Lloyd's that pumped up Sagicor's income in the first quarter, a period of strong earnings for the group that boosted net profits by 24 per cent to US$20 million.

Revenue gains

Sagicor booked revenue gains of US$5.1 million from BFL, a publicly listed company in the business of property development and agriculture that it acquired for US$39.7 million, paid for with cash and 10.3 million of newly issued Sagicor shares to BFL shareholders under a 35 per cent cash and 65 per cent shares deal.

The conglomerate's total revenues rose 36 per cent to US$225 million (March 2007: US$166.15 million) in the quarter on the back of a US$42 million increase in net premium revenue that Sagicor at Lloyd's contributed US$29.9 million to, and a near US$12 million gain in investment and other income.

'Cautious optimism'

Still, while Chairman Terrence Williams pegged the numbers as "a solid start to 2008", his outlook on the full year was one of "cautious optimism".

It would, he said in a statement to shareholders, "be a challenging year for the financial services industry" - a likely reference to the expected contagion from fallout in the United States' financial markets.

Indeed, while Sagicor's profits are up, two of its profitability ratios are slightly diminished relative to the 2007 quarter.

Operating profit, or what Sagicor calls 'income from ordinary activities', was up by US$5 million, but operating margin slipped from 11.4 per cent to 10.8 per cent, squeezed by high benefit payouts and expenses that climbed 37 per cent.

Net profit margin fell

Its net profit margin also fell from 9.6 per cent to 8.9 per cent in the quarter.

Williams' statement has shed new light on earlier comments by Sagicor Life Jamaica (SLJ) President Richard Byles, who, notwithstanding record profit of $2.96 billion in 2007 and a more than two billion growth in revenues to $17.96 billion, told Jamaican shareholders a month ago that his focus this year would be "revenue, revenues, revenues."

Since then, the company has invoked a provision embedded in its policies that allows it to adjust premiums midstream. Letters seen by Wednesday Business show increases of $13 to just under $17 per month, to take effect July 1, atop premiums already agreed for the year, with the company citing higher inflation and the attendant cost of doing business as its reason.

Greater leverage

Jamaica contributes more than half of Sagicor Group's pre-tax profit. By rebranding LOJ with the Sagicor name, the group immediately has greater leverage through the perception of size in international markets.

Sagicor is now a US$3.8 billion company, measured by assets, with total equity of US$601 million, boosted by the US$17.8 million (J$1.26 billion) preference share issue last year by Pan Caribbean Financial Services, another Jamaican company in which it has a 65 per cent stake, but Sagicor also said the issue served to increase its debt to equity ratio which rose slightly to 28.9 per cent.

Outside of policy liabilities of US$1.99 billion, the Barbadian company has debts of US$1.2 billion.


Source: Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20080604/business/business1.html