Accounting shift and market losses drag Sagicor Group Q1 profits

AN accounting shift to a new reporting standard for insurance companies and unrealised losses on investment securities were the main factors for the reduction in Sagicor Group Jamaica Limited’s (SJ) first-quarter profits.

Sagicor Group’s net profit attributable to shareholders decreased by 54 per cent from $2.18 billion to $1 billion during its first quarter (January to March). This was largely attributed to a one-time adjustment of its actuarial models, due to the impact of IFRS 17, for insurance contracts which resulted in a higher loss on onerous contracts totalling US$5.5 million and an increase in staff compensation.

IFRS 17 is the new accounting standard for insurance reporting since January 1, 2023, which has radically changed the way insurance revenue is recognised. This new standard has resulted in some insurance companies changing their business models.

“Part of the reduction in insurance service result for the quarter was around refinements to the IFRS 17 model. That model is a complex, huge computer programme that takes the old results from our actuarial system and translates it into IFRS 17 results which are extremely complex new standards. We are continuously refining the inputs to that model and in Q1, we made some further refinements, and it resulted in a one-off negative impact on onerosity, which is an expense that hits the profit and loss,” said Sagicor Group President and Chief Executive Officer (CEO) Christopher Zacca in the first-quarter briefing on Wednesday.

Sagicor Group’s first-quarter insurance revenue was up 14 per cent to $12.51 billion (US$80.59 million) largely due to the growth in short-term insurance, which largely comprises health and life insurance portfolios.

Despite the impact of the accounting changes on Sagicor’s profits, Zacca was positive about the outlook for Sagicor Group’s various financial subsidiaries.

Its 50 per cent joint venture Grupo Sagicor G.S., G.A. based in Costa Rica, completed the 100 per cent acquisition of Sagicor Panama S.A. for US$4 million in January. Sagicor and its joint venture partner each received a $229.04 million (US$1.72 million) dividend which was invested back into the Costa Rican joint venture to fund the acquisition.

“In terms of Sagicor Costa Rica, it is a force in life insurance in Costa Rica and it is the second or third most profitable life insurance company in Costa Rica. All of the directions and signals around that company are very positive. Hence, our confidence in having a Latin American expansion strategy,” Zacca added.

Sagicor Bank Jamaica saw a 15 per cent rise in its total revenue to $5.27 billion while growing net profit by seven per cent to $531.02 million. The growth in transactions and card payment portfolio along with higher loan disbursements was the key factor driving the growth of its Q1 performance. Sagicor Bank opened a branch by Brunswick Avenue, Spanish Town and is set to open a next branch by JDF Up Park Camp in short order.

“SME’S play a major role in the growth of Jamaica and that’s a part of the overall Sagicor vision. We pay a lot of attention to our SME’S, the growth in that area. We’re not just doing a mortgage for the heck of it. We’re doing mortgages that are looking on environmental solutions,” responded Chorvelle Johnson Cunningham, Sagicor Bank CEO.

Sagicor Group’s investment banking segment, which largely comprises Sagicor Investments Jamaica Limited, reported a 106 per cent rise in net investment income to $812.93 million and a moderate rise in fees and other revenue of $448.51 million. The investment banking segment generated a net profit of $116.66 million compared to the net loss of $70.36 million in the prior period.

Sagicor Group share price closed Thursday at $40.51. At that level it is down 15 per cent in 2024 with a market capitalisation of $158.22 billion. Sagicor Select Funds Limited and Sagicor Group Jamaica will each hold their annual general meetings (AGM) at the AC Hotel in Kingston on May 22 at 9:30 am and 3:00 pm, respectively. Sagicor Real Estate X Fund Limited’s AGM will be held on May 21 at 9:30 am Jamaican time.

“We are optimistic about our performance for the rest of the year. It is still a tough economic climate, and the market conditions are not particularly favourable to some aspects of financial services across all of the players in the market. We’ve remained focused on our longterm strategy and its execution which is around delivering value to our customers and shareholders and we will never resile from adapting, innovating and leveraging our strengths to overcome challenges and seize opportunities,” Zacca closed.