Q1 2024 Sagicor Financial Co Ltd Earnings Call
Good afternoon, My name is joelle and I will be your conference operator today.
Operator: Good afternoon. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to Sagicor Financial Company's first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then the number 2. Mr. Giuseppe. EVP of Corporate Development and Capital Markets, you may begin your conference. Great.
At this time I would like to welcome everyone to <unk> core financial companies first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After.
After the speaker's remark there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question. Please press Star then the number two.
Speaker Change: Mr. Juris sepsis.
Speaker Change: EVP corporate development and capital markets you May begin your conference.
Speaker Change: Great. Thank you operator, and Hello, everyone and thank you for joining us today to discuss <unk> first quarter 2024 results.
Giuseppe: Great. Thank you, operator. And hello, everyone. And thank you for joining us today to discuss Sagicor's first quarter 2024 results. Our documents and financial results are available under the Investor Relations tab on our website at sagicor.com, which includes the financial statements, the MD&A, along with the press release and the link to our live webcast. This conference call is open to the financial community, investors, the media, and the public, with a reminder that the Q&A period is reserved for financial research analysts.
Speaker Change: Our documents and financial results are available under the Investor Relations tab on our website at <unk> Dot Com, which includes the financial statements MD&A, along with the press release and a link to a live webcast.
Speaker Change: This conference call is open to the financial community investors the media and the public with a reminder, that the Q&A period is reserved for the financial research analysts.
Giuseppe: I will begin by referring you to the cautionary language and disclaimers in our materials and public filings regarding the use of foregoing statements and the use of non-IFRS financial measures and ratios, which may be mentioned as part of our remarks today. I would also like to remind the audience that actual results regarding forward-looking information could differ materially, and please note that a detailed discussion of Staticor's risk factors is provided in our MD&A, which is available on CDAR Plus and on our website.
I will begin by referring you to the cautionary language and disclaimers in our materials and public filings regarding the use of forward looking statements and the use of non <unk> financial measures and ratios, which may be mentioned as part of my remarks today.
Speaker Change: I would also like to remind the audience.
Speaker Change: Actual results results regarding forward looking information could differ materially and please note that a detailed discussion of the status quo as risk factors is provided in our MD&A, which is available on SEDAR plus and on our website.
Speaker Change: Unless otherwise noted all dollar amounts referenced will be in U S dollars consistent with our reporting practice.
Giuseppe: All dollar amounts referenced will be in U.S. dollars, consistent with our reporting. Joining me today is our President and CEO, André Mousseau, our Chief Financial Officer, Kathy Jenkins, and Anthony Chandler, our Chief Controller. We'll begin with prepared remarks by Andre and Kathy, followed by a Q&A session. With that, I'll pass the call on to our President and CEO, André Musso.
Joining me today is our president and CEO Andre Musso, our Chief Financial Officer, Cathy Jenkins, and Anthony Chandler, our Chief controller.
We will begin with prepared remarks by Andre Kathy followed by Q&A session with that I will pass the call onto our president and CEO Andre Michel.
Speaker Change: Okay.
Andre Michel: Thank you. Thank you George and good afternoon, everyone and thank you for taking the time to join us today.
Andre Mousseau: Thank you. Thank you, George. And good afternoon, everyone. Thank you for taking the time to join us today.
Andre Michel: Q1, 2024 was a solid quarter for <unk> delivering net income to shareholders just slightly ahead of plan.
Andre Mousseau: Q1 2024 was a solid quarter for Sagicor, delivering net income to shareholders just slightly ahead of plan as we benefited from positive asset price movements in aggregate, in particular in our US segment, offset in part by the opposite dynamic in Canada and Jamaica. We continue to make progress on a number of strategic initiatives, including the integration of our new Canadian subsidiary and optimizing our balance sheet to take advantage of our recent investment grade ratings.
Andre Michel: We benefited from positive positive asset price movement in aggregate.
Andre Michel: In particular in our U S segment offset in part by the opposite dynamic in Canada in Jamaica, We continue to make progress on a number of strategic initiatives, including the integration of our new Canadian subsidiary and optimizing our balance sheet to take advantage of our recent investment grade ratings. This includes a new <unk>.
Andre Mousseau: This includes a new investment grade rating from Morningstar DBRS that was issued subsequent to quarter end, which puts us in an improved position to refinance debt on our balance sheet at more favorable rates. I'll expand on our outlook towards the end of the call, and for now, I'll hand it over to our CFO, Kathy Jenkins, to walk through our results.
Andre Michel: Investment grade rating from Morningstar <unk> that was issued subsequent to quarter end, which puts us in an improved position to refinance debt on our balance sheet at more favorable rates.
Speaker Change: I will expand on our outlook towards the end of the call and for now I'll hand, it over to our CFO Kathy Jenkins to walk through our results Kathy.
Thank you Andre and Hello, everyone.
Kathy Jenkins: Thank you, Andre, and hello, everyone. Sagicor had a strong start to 2024. Net income to shareholders was $26 million for the first quarter, driven by excellent profitability at Sagicor Life USA due to market experience gains from asset price appreciation. Sagicor Life also had a solid quarter. Sagicor Canada's results reflected the negative impact of rising interest rates, and Sagicor Jamaica's profitability was negatively impacted by market experience loss. However, all segments recorded strong new business production, reflecting continued solid performance.
Kathy Jenkins: <unk> had a strong start to 2024 net income to shareholders was $26 million for the first quarter driven by excellent profitability at <unk> life USA due to market experienced gains from asset price appreciation.
Speaker Change: <unk> also had a solid quarter.
Kathy Jenkins: Surgical candidates results reflected the negative impact of rising interest rates and surgical or Jamaica as profitability was negatively impacted by market experienced losses.
All segments recorded strong new business production, reflecting continued solid performance.
Kathy Jenkins: Revenues of $639 million in the first quarter were driven by strong contributions across all segments with the <unk>, Canada segment again, posting a healthy proportion of the group's results.
Kathy Jenkins: Revenues of $639 million in the first quarter were driven by strong contributions across all segments, with the Sagicor Canada segment again posting a healthy proportion of the group's results. Strong growth in insurance revenue across segments was further bolstered by positive market experience. New Business CSM was led by Sagicor Life USA, resulting from solid first quarter production in that segment. Now, let me provide more details on the results of each of our business segments.
Kathy Jenkins: Strong growth in insurance revenue Cross segment, which further bolstered by positive market experience.
Kathy Jenkins: New business CSM was led by <unk> life, USA, resulting from solid first quarter production in that segment.
Kathy Jenkins: Now let me provide more details on the results of each of our business segments.
Surgical or Canada delivered $5 million of net income.
Kathy Jenkins: Sagicor Canada delivered $5 million of net income. As a reminder, Sagicor Canada has an idiosyncratic dynamic that causes its net income to be positively correlated to asset prices, that is, and negatively correlated to interest rates due to certain liabilities being held to maturity and therefore not revalued. This quarter, in a reversal from last quarter, net income to shareholders was negatively affected by the impact of rising interest rates, partially offset by favorable equity returns, and a narrowing corporate spread.
Kathy Jenkins: As a reminder, <unk>, Canada has an idiosyncratic dynamic which causes its net income to be positively correlated to asset prices that is and negatively correlated to interest rates due to certain liabilities being held to maturity and therefore not revalued.
Kathy Jenkins: This quarter and a reversal from last quarter net income to shareholders was negatively affected by the impact of rising interest rates, partially offset by favorable equity returns.
Kathy Jenkins: And narrowing corporate spreads.
Kathy Jenkins: Total net CSM grew 1% quarter over quarter, supported by new business. CSM of $10 million in Q1. Sagicor Life USA generated $238 million of new business production in the fourth quarter, which was on track with management's expectations.
Kathy Jenkins: Total net CSM grew 1% quarter over quarter supported by new business.
Kathy Jenkins: Sam.
Sam: Of $10 million in Q1.
Sam: <unk> life, USA generated $238 million of new business production in the fourth quarter, which was on track with management's expectations.
Kathy Jenkins: Net income was $37 million for the quarter, reflecting positive market value adjustments partially offset by some modest insurance experience losses related to policyholder mortality. Total net CSM grew 3% quarter over quarter to $210 million, driven by new business CSM of $14 million. Sagicor's share of Sagicor Jamaica's net income to shareholders in Q1 was $3 million, down from the same period in the previous year.
Sam: Net income was $37 million for the quarter, reflecting positive market value adjustments, partially offset by some modest insurance experience losses related to policyholder mortality.
Sam: Total net CSM grew 3% quarter over quarter to $210 million, driven by new business CSM a $14 million.
Sam: <unk> share of surgical Jamaica, net income to shareholders in Q1 with $3 million down.
Sam: Down from the same period in the previous year.
Kathy Jenkins: This segment had solid underlying performance, which was largely offset by unrealized fair value losses. Its life insurance subsidiary had strong performance in both long and short term products, largely as a result of increased premiums. This was reflected in the year-over-year increase in insurance revenue. However, total net CSM decreased 2% quarter over quarter as new business CSM was about $1 million lower than the same quarter in the previous year. Sagicor Life, our operating segment in the Southern Caribbean, posted net income to shareholders in the quarter of $10 million.
Sam: This segment had solid underlying performance, which was largely offset by unrealized fair value losses.
Sam: Its life insurance subsidiary.
Sam: We had strong performance in both long and short term products largely as a result of increased premiums.
Sam: This was reflected in the year over year increase in insurance revenue.
Sam: Total net CSM decreased 2% quarter over quarter as new business CSM was about $1 million.
Sam: Sure than the same quarter in the previous year.
Sam: <unk> life are operating segment and the southern Caribbean posted net income to shareholders in the quarter of $10 million.
Kathy Jenkins: This performance reflected continued growth across all lines of business, with strong revenue growth in the short-term business driven by repricing initiatives, on renewals, and Adjustments to Product Offerings. Total net CSM increased 1% quarter over quarter to $232 million. Going back to the consolidated picture, Sagicor's capital position remains stable during Q1 with a slight increase in shareholders' equity plus net CSM to shareholders and total net CSM. Net CSM to shareholders increased 103%, quarter over quarter, to $1,135,000,000 with the addition of Avaris NetCSM to shareholders, as mentioned earlier. Our debt to capital ratio was essentially stable quarter over quarter, ending at 26.7%. And our life insurance businesses remain well capitalized, with our consolidated MCCSR ratio at 303% and total LICAT ratio of 136%.
Sam: This performance reflected continued growth across all lines of business with strong revenue growth in the short term business driven by repricing initiatives.
Sam: On renewals and adjustments on product offerings.
Sam: Total net CSM increased 1% quarter over quarter to $232 million.
Sam: Going back to the consolidated picture.
<unk> capital position remained stable during Q1 with a slight increase to shareholders equity plus net CSM to shareholders and total net CSM net.
Sam: Net CSM to shareholders increased to 103% quarter over quarter to one.
Sam: $1 billion $135 million with the addition of <unk> net CSM to shareholders as I mentioned earlier.
Sam: Our debt to capital ratio was essentially stable quarter over quarter, ending at 26, 7% and our life insurance businesses remain well capitalized with our consolidated <unk> ratio at 303% and total like cat ratio of 136%.
Sam: As mentioned in prior quarterly earnings calls, we are committed to providing a supplemental information package in 2024, which will provide greater visibility into our financial performance. Each quarter. This will include the drivers of earnings analysis, and we will adopt a core earnings measure as a key performance indicator on a segment by segment basis.
Kathy Jenkins: As mentioned in prior quarterly earnings calls, we are committed to providing a supplemental information package in 2024 which will provide greater visibility into our financial performance each quarter. This will include drivers of earnings analysis, and we will adopt a core earnings measure as a key performance indicator on a segment-by-segment basis. At this time, our Segmented Quarterly Core Earnings Analysis is still in draft form and will be disclosed publicly when we are satisfied with its analysis.
At this time our segment.
Speaker Change: You mentioned quarterly core earnings analysis is still in draft form and will be disclosed publicly when we are satisfied with its analysis.
Speaker Change: For the first quarter, we estimate core earnings were in the range of $15 million to $20 million.
Kathy Jenkins: For the first quarter, we estimate core earnings were in the range of $15 to $20 million. This number reflects the impact of reversing market gains, where positive gains more than offset negatives in Canada and Jamaica, some changes in actuarial model inputs, and certain non-core expenses. I would mention that CORE is being burdened by 5 to 7 million of negative mortality experience in the U.S. that we do not expect to persist.
This number reflects the impact of reversing market gains were positive gains more than offset negatives in Canada in Jamaica some.
Speaker Change: Some changes in actuarial model inputs and certain noncore expenses.
Speaker Change: I would mention that core includes being burdened by $5 million to $7 million of negative mortality experience in U S that we do not expect to persist.
Andre Mousseau: With that, I'll hand you back to Andre.
Andre Michel: With that I'll hand, you back to Andre.
Andre Michel: Thank you very much Cathy overall, we're pleased with the performance in the first quarter, we remain focused on expanding our risk adjusted returns on equity and continue to execute on our plan of allocating resources and capital to growing our highest.
Andre Mousseau: Thank you very much, Kathy. Overall, we're pleased with the performance in the first quarter. We remain focused on expanding our risk-adjusted returns on equity and continue to execute on our plan of allocating resources and capital to growing our highest return on equity business. Strategic initiatives to find operational efficiencies, cost savings, and synergies between our segments are progressing. We have significantly expanded our footprint, and you can see that as our North American segments contributed over 75% of our segment net income to shareholders in the first quarter.
Andre Michel: Turn on equity businesses strategic.
Andre Michel: <unk> initiatives to find operational efficiencies cost savings and synergies between our segments are progressing.
Andre Michel: We have significantly expanded our footprint and you can see that as our north American segments contributed over 75% of our segment net income to shareholders in the first quarter.
Andre Mousseau: We continue to believe Sagicor Life USA is an exciting platform for growth, and we look forward to accelerating production there later in 2024 and beyond. Our Caribbean segments demonstrated ongoing strength in their respective markets, and we expect to see improved performance as we modernize those operations with technology. Collectively, these initiatives can significantly expand our return on equity, allowing us to fuel growth while at the same time continuing to return capital to our shareholders.
We continue to believe <unk> life USA is an exciting platform for growth and we look forward to accelerating production. There later in 2024 and beyond.
Andre Michel: Our Caribbean segments demonstrated ongoing strengths in their respective markets and we expect to see improved performance as we modernize those operations with technology.
Andre Michel: Collectively these initiatives can significantly expand our return on equity, allowing us to fuel growth while at the same time continuing to return capital to our shareholders to that end, we're pleased to have announced our 18th consecutive quarterly dividend to shareholders. Since we've been listed on the Toronto exchange in the second dividend.
Andre Mousseau: To that end, we're pleased to have announced our 18th consecutive quarterly dividend to shareholders since we've been listed on the Toronto exchange and the 2nd dividend at the new 6 cents per quarter, or an annualized 24 cents US per year. We continue to also return capital to our shareholders through our share buyback program and intend to continue to do so while our shares trade at a discount to book value and a significant discount to our book value plus our embedded future profit through net CSM. With that, we're ready to start the Q&A period.
Andre Michel: The new six cents per quarter or an annualized 24 U S per year. We continue to also return capital to our shareholders via our share buyback program and intend to continue to do so while our shares trade at a discount to book value and a significant discount to our book value plus our embedded future profitability.
Sam: Sure Sam.
Sam: With that we are.
Speaker Change: To start the Q&A period.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the 1 on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be answered in the order they are received. Should you wish to decline from the polling process, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. The first question comes from Manny Grumman with Scotiabank.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your touch Touchtone phone you will hear three Tom pump acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by the <unk>.
Speaker Change: If you are using a speaker phone please lift the handset before pressing pressing any keys.
Speaker Change: One moment. Please for your first question.
Speaker Change: Your first question comes from many Gruman with Scotiabank. Your line is now.
Manny Grumman: Hi, good afternoon. I just want to start off by checking to see if there's any change to your guidance for either 2024-2025.
Manny Gruman: Hi, Good afternoon, I just wanted to start off by checking to see if there's any change to your guidance for either 2020 for 2025.
Speaker Change: Okay.
Andre Mousseau: I think our intent is to revisit our guidance after the second quarter. As you look through and take a look at where we think that our normalized earnings would be, it's still consistent with our guidance. So, that would still be the most relevant metric at this point, but we will formally revisit that in August after our Q2.
Speaker Change: I think our intent is to revisit our guidance after the second quarter.
Speaker Change: As.
Speaker Change: As you look through and take a look at where we think that our.
Speaker Change: Normalized earnings would be.
Speaker Change: It's still consistent with our guidance so that would still be the most relevant metric at this point, but we will formally revisit that.
Speaker Change: In August after our Q2.
Manny Grumman: Okay, and then if I could just follow up on revisiting, is there something that is on your radar screen that could potentially materially change that guidance, or are you just really referencing just sort of a prudent reevaluation kind of of it at the half-year mark? I'm just trying to understand sort of the comment a little bit more deeply.
Speaker Change: Okay, and then if I could just follow up on in terms of revisiting is there something.
Speaker Change: That you're.
Speaker Change: That is on your radar screen that could potentially materially changed that that guidance or are you just.
Speaker Change: Really referencing just sort of a.
Speaker Change: It's just a prudent reevaluation kind of it at the half year, Mark I'm, just trying to understand sort of the.
Speaker Change: Comment a little bit more deeply.
Andre Mousseau: I think it's about revisiting in a holistic manner. With six months of data, you have a lot more meaningful data in the noise than just with three months' worth of results. So a couple of the items that Kathy mentioned, the big deviation on our draft core net income run rate right now would be a little bit of mortality noise in the U.S. business. We don't expect that to persist, but if it did, that may move it.
Speaker Change: I think it's about revisiting in a holistic manner.
Speaker Change: Six months of data you have.
Speaker Change: A lot more.
Speaker Change: Meaning.
Speaker Change: Meaningful data and the noise then.
Speaker Change: Dan.
Speaker Change: With three months worth of results so.
Speaker Change: A couple of the items that.
Kathy Jenkins: Kathy you mentioned.
Speaker Change: Yes.
Speaker Change: The big deviation on our draft.
Speaker Change: Core net net income run rate right now would be a little bit of mortality noise in the U S business, we don't expect that to persist, but if if it did that may move it.
Andre Mousseau: But otherwise, we're pretty consistent with where we thought we would be when we put those targets out there. And at the same time, we want to finish up and get our core earnings definition nailed down and exactly comparable among each of our segments so that we can disclose that publicly and tie it to that guidance as well.
Speaker Change: Otherwise otherwise, we're pretty well.
We're pretty consistent with where we thought we would be when we put those.
Speaker Change: When we put those targets out there.
Speaker Change: And at the same time, we want to finish up and get our core earnings definition nailed down exactly comparable among each of our segments. So that we can disclose that publicly.
Speaker Change: And tied to that guidance as well.
Speaker Change: Understood.
Manny Grumman: And Andrei, I wanted to ask a second question about the optimization of the balance sheet. You talk about taking advantage of new investment grade ratings. First question: Is that optimization already built into the existing guidance? And then, can you help us understand sort of what the impact of that could be in terms of how much benefit you could get from optimizing the balance sheet?
Speaker Change: <unk>.
Speaker Change: Wanted to ask.
Speaker Change: Question about.
The optimization of the balance sheet, you talked about taking advantage of.
Speaker Change: New investment grade ratings.
Speaker Change: First question is.
Speaker Change: Is that optimization already built into the existing guidance and then.
Speaker Change: Can you help us understand sort of.
Speaker Change: What the impact of that.
Speaker Change: It could be in terms of how much benefit you could get from optimizing the balance sheet.
Andre Mousseau: Right. So, the piece on optimization, to be specific, is we have the $320 million term loan where we're paying about 10% right now. And that is something that we would look to finance this year. The savings on that, depending on execution, could be well into double digits, millions. I'd say there's a conservative version of that that is built into our guidance, which would have reflected 6 to 8 million in annualized savings for the back half of the year.
Speaker Change: Right.
Speaker Change: No.
Speaker Change: The piece on the optimization to be specific is we have the $320 million term loan where were paying about 10% right now.
Speaker Change: And that is something that we would look to finance this year the savings on that depending depending on execution.
Speaker Change: Could be well into double digits millions.
I'd say there is a there is a conservative version of that that is built into <unk>.
Speaker Change: Into our guidance, which would.
Speaker Change: Would have reflected.
Speaker Change: $6 million to $8 million of annualized savings for the back half of the year. So if you look at our guidance might have about three or $4 million of.
Andre Mousseau: So, if you look at our guidance, we might have about 3 or 4 million of anticipated savings on that. We're going to go out and try and beat that. I think if you look at typical BBB spreads, you could connect the dots and say that we should be able to do better than 300%.
Speaker Change: I've anticipated savings to that.
Speaker Change: We're going to go out and.
Speaker Change: And try and try and beat that.
Speaker Change: Yeah.
Speaker Change: I think if you look at typical triple B spreads you could connect the dots and say that we should be able to do better than 300%.
Speaker Change: Okay. Thank you.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one youre.
Operator: Ladies and gentlemen, as a reminder, should you have a question, please press star followed by one. Your next question comes from Gabriel Deshane with National Bank. Your line is now open.
Speaker Change: Your next question comes from Gabriel <unk> with National Bank. Your line is now open.
Gabriel: Hi, good afternoon.
Gabriel Deshane: I just want to follow up on that line of questioning. I guess the interplay of sales and capital deployment and your debt refinancing. The $238 million of production in the U.S. represents fixed annuity sales for the quarter, a bit shy of the $1 billion-plus you were talking about last quarter because you want to ensure you have enough capital and liquidity and all that to support the sales. But then if the sales may have fallen short, I would have expected to see more buyback activity, which we didn't.
Gabriel: I just wanted to follow up on that line of questioning actually just the I guess, the interplay of sales and on capital deployment and your debt refinancing.
Speaker Change: So the $238 million of production in the U S.
Speaker Change: I figure I think it represents the fixed annuity sales for the quarter, but shy of the billion plus you were talking about last quarter.
Speaker Change: Because if you want to ensure you have enough capital and liquidity and all of that to.
Speaker Change: Sport the sale, but then if the sales may have fallen short.
Speaker Change: I would've expected to see more buyback activity, which we didn't.
Speaker Change: So maybe there's something I'm missing in all of this is there a seasonality in sales effect are you holding back on buybacks on island sales volumes until you're you settled out your debt refinancing.
Gabriel Deshane: Maybe there's something I'm missing in all of this. Is there a seasonality in sales? Are you holding back on buybacks and on sales volumes until you've settled out your debt refinancing picture? Maybe you that, you know, story.
Speaker Change: Victor.
Victor: Maybe you can walk me through that.
Victor: But.
Victor: Story.
Andre Mousseau: Well, I think by the end of it, you got to the right point, which is that in the first quarter, we were holding back a little bit, waiting to get the capital situation resolved. Our target of a billion dollars plus requires a little bit of a capital injection from the top company, and so we will do that once we're comfortable that the debt situation has resolved itself.
Victor: Well I think by the end of it.
Victor: You got to the right point, which is in the first quarter, we were holding back a little bit waiting too.
Victor: Waiting too.
Speaker Change: Uh huh.
Speaker Change: Get the capital situation.
Speaker Change: <unk> got the capital situation resolved, our target of $1 billion plus.
Speaker Change: Requires a little bit of a capital injection from the top company and so.
Speaker Change: We will do that when were once we're comfortable.
Speaker Change: The debt the debt.
Speaker Change: That situation has resolved itself, we have plenty of liquidity.
Andre Mousseau: We have plenty of liquidity in the meantime, but we're managing liquidity in a conservative manner until we get that over the line. Similarly, with buybacks, the buyback number was a little bit light relative to some of the prior quarters. I wouldn't read too much into that other than to say that for most of, well, actually for all of the first quarter, we were blacked out because it took us until the second half of March in order to get our financials out and get out of blackout.
Speaker Change: In the meantime, but we would be.
Speaker Change: We're managing.
Speaker Change: Liquidity and conservative manner.
Speaker Change: Until we get that over the line.
Speaker Change: Similarly, with buybacks the buyback number was a little bit light relative to some of the some of the prior quarters.
Speaker Change: Read a ton into that.
Speaker Change: Other than other than to say that.
Speaker Change: For most of the well actually for all of the first quarter.
Speaker Change: We were blocked out.
Speaker Change: Because it took us until the second half of March.
In order to.
Speaker Change: In order to.
Speaker Change: Get our financials out and get out of blackout, So we werent able to be in the market.
Andre Mousseau: So, you know, we weren't able to be in the market for anything larger than kind of an automatic daily purchase. So, that won't be the case in the second quarter. So, I wouldn't look too much into that.
Speaker Change: For anything larger than kind of the automatic.
Speaker Change: Daily purchase so that that wont be the case.
Speaker Change: In the second quarter, so I wouldn't look too much into that okay.
Gabriel Deshane: Okay, so if I'm looking at a couple timing or outlooks here, Q2, the blackout won't be as much of a hindrance to buyback activity, but from a sales standpoint, it could be similar to this quarter because you know what you were commenting on earlier is that you're not counting on your debt refinancing until you know it to have been completed, I guess, and be effective until the second half. So Q2 might still be a little bit shy of your targets for fixed annuity sales.
Speaker Change: Okay. So if I'm looking at a.
Speaker Change: Couple timing or outlook here Q2, the blackout won't be as much of a hindrance on.
Speaker Change: Buyback activity.
Speaker Change: But from a sales standpoint could be similar to this quarter. Because you know what you were commenting on earlier, but youre not counting on your debt.
Speaker Change: Refinancing until two have been completed I guess, it would be effective until the second half so.
Q2 might still be a little bit.
If your targets for fixed annuity sales book.
Speaker Change: We're looking at it.
Andre Mousseau: Yeah, I think being between $200 million and $250 million was exactly where we wanted to be for the conservative scenario where we weren't going to put any more capital in to grow the U.S. business faster. And so as soon as we're comfortable that we can land that, you should expect to see production. We haven't announced a refinancing yet, and therefore, I think you're right about Q2. And then it's a matter of, you know, can we get it into Q3 or does it go into Q4 to start accelerating production?
Speaker Change: I think being between 200 and $250 million was exactly where we wanted to be for the conservative scenario, where we werent going to put any more capital in to grow grow the U S business faster and so as soon as we're comfortable that.
Speaker Change: That we can land that you should expect to see production.
Speaker Change: Great.
Speaker Change: We would have we haven't announced the refinancing yet and therefore I think you're right about Q2, and then it's a matter of can we get it into Q3 or does it go into Q4 to start accelerating production.
Gabriel Deshane: I guess we've got it, so that thing might not be until sometime during Q3.
Speaker Change: I guess, we've got.
Speaker Change: So this thing might not be on cohort sometime during Q3.
Speaker Change: We're we're very motivated to work on it.
Andre Mousseau: We're very motivated to work on it, and we'll pick a good window. We have plenty of liquidity available.
Speaker Change: Okay.
Speaker Change: We'll take a good window, we have plenty of liquidity available it's more about.
Andre Mousseau: It's more about optimizing things. So we'll make sure that we hit a good window, but we'd rather get it done sooner rather than later.
Optimizing things so we'll make sure that we had a good window, but we're.
Speaker Change: We'd rather get it done sooner rather than later.
Gabriel Deshane: Okay, great. And then my next question is tied to this crediting rate assumption thing. Pardon me if I...
Speaker Change: Great and then my next question is tied.
Speaker Change: Part of this the crediting rate assumption thing and pardon me if I.
Gabriel Deshane: It's an assumption change because you're assuming higher crediting rates on renewables. So, you know, just maybe, I want to try to dumb this down as much as possible and help understand it and help clarify something because it seems like, you know, there's a missing link there. I get why it's happening, that when you were selling some product a few years ago, rates were lower, and today, their rates are higher, so maybe the rates shot up faster than you expected, so the lending rates have to be higher.
Speaker Change: It's an assumption change because youre assuming higher.
Speaker Change: The crediting rates on renewals.
So just maybe.
Try to dumb it down as much as possible and help them understand it now.
Speaker Change: Clarify something because it seems like it.
Speaker Change: I'm missing link there but.
Speaker Change: I guess why it's happening but.
Speaker Change: You know the when you were selling some products a few years ago rates were lower and today their rates are higher so maybe the rates shot up faster than you expected. So the crediting rates that could be higher.
Gabriel Deshane: But the flip side of that coin is that you're probably earning more on the asset side of the product as well. So why are we seeing these assumption changes that are negative as opposed to maybe a bit more neutral because you're losing on one side with the credit and the rights, but you should be earning more. Is it a market dynamic thing? You know, it's competitive or not? And what does that say about the future profitability of this block?
Speaker Change: But the flip side of that coin is that you're probably earning more on the asset side of the of the.
The product mix.
Speaker Change: So why are we seeing these assumption changes that are negative as opposed to maybe a bit more neutral because youre, losing on one side with the credit and rates, but you should be.
Speaker Change: Earning more.
Speaker Change: The market dynamic thing.
Speaker Change: It's competitive or or what and what does that say about the future profitability of this block.
Andre Mousseau: You're right about the unit economics, and all things being equal, I think with higher rates, we're better off for business when it renews and for new business we're putting on the books because of the spreads that are available. Cathy, maybe you could follow up with the specific asset versus liability side of this.
Speaker Change: Youre right about the unit economics.
Speaker Change: All things being equal.
Speaker Change: I think it with higher rates were better off for our business.
Speaker Change: When it renews and.
Speaker Change: And for new business were putting on the books.
Speaker Change: Because of the spreads that are available.
Kathy Jenkins: Kathy maybe you could follow up with the specific asset versus liability.
Kathy Jenkins: Side of this.
Kathy Jenkins: Yeah, no absolutely and to your 0.1.
Kathy Jenkins: Yeah. No, absolutely not.
Kathy Jenkins: And to your point, part of the reason we did see such an increase in the mark-to-market gains for the U.S. is because of the U.S. liability curve. And so because it doesn't incorporate all the PREFs and hybrid securities, we actually got a bit of an increase there. So we actually did, to your point, part of the increase that we saw on the experience – market experience gains were due to that.
Speaker Change: The reason, we did see such an increase in the mark to market gains for the U S is because.
Speaker Change: The U S liability curve and so because it doesn't incorporate all of that.
Speaker Change: Perhaps in hybrid securities, we actually got a bit of a.
Speaker Change: Got it and.
Speaker Change: Or is there some we actually did to your point see part of the increase that we saw on the.
Speaker Change: Experienced market experience gains was due to that we also had some increases.
Kathy Jenkins: We also had some increases in our market experience gains related to our ply shares, and we also saw some net positive asset movements from some of the less liquid end of our traded securities, like our preferred shares and hybrid securities. So the U.S. is seeing that in their results this quarter.
Speaker Change: On.
Speaker Change: Contributing to our market experience gains related to apply a shares and we also saw some net positive asset movements from some of the less.
Speaker Change: Liquid MTF are traded securities like our preferred shares and hybrid securities.
Speaker Change: So the U S is seeing that through the <unk>.
Speaker Change: In our results this quarter.
Gabriel Deshane: This is a geographic thing because of IFRS 17, where your, you know, your asset yields are real-time, and the future costs are, you know, you know, go through.
Speaker Change: There's a geographic thing because of ire for 17, where your asset yields are real time.
Speaker Change: The future costs are.
Speaker Change: Go through an assumption.
Speaker Change: Gain or loss in this case or is that.
Speaker Change: Thank you.
Speaker Change: That does sound right to me.
Andre Mousseau: That does sound right to me. I think we could. I hope so. We could.
Speaker Change: I think I hope so.
Speaker Change: We could.
Speaker Change: If we if you wanted to take a look at a specific note we could we could follow up with you again.
Speaker Change: Maybe.
Speaker Change: Maybe not today, but down the road sure. Thank you.
Speaker Change: We are all continue to learn as.
Speaker Change: For 2017 evolves.
Speaker Change: It's supposed to learn something new every day and it's not always a fun, though but anyway. Thanks.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the wider.
Gabriel Deshane: [inaudible]
Speaker Change: Your next question comes from Darko <unk> with RBC. Your line is now.
Gabriel Deshane: We are all continuing to learn as IFRS 17 of all. Yeah, you're supposed to learn something new every day.
Speaker Change: Hi, Thank you good afternoon few questions Kathy you mentioned.
Gabriel Deshane: Yeah, you're supposed to learn something new every day. It's not always fun, though, but anyway, thanks.
Speaker Change: Yeah.
Speaker Change: You sort of size the mortality issue around $5 million to $7 million.
Speaker Change: In the U S. Why is it that you expect that to you.
Speaker Change: Normalized lower in the future.
Speaker Change: We believe this is a one time.
Speaker Change: Blip.
Speaker Change: <unk> experience will will continue to monitor this but we did have.
Speaker Change: This was exactly like this was an exceptional situation, we have not seen that level.
Kathy Jenkins: Kathy if I can step in here I think it comes down to the cohorts, where we've seen it.
Speaker Change: And the products as well, we actually had.
Speaker Change: Hum.
Speaker Change: However, some of it.
Speaker Change: Actually came through in annuities, where it's pretty rare to where it's pretty rare to have.
That sort of emergence and so at this point the view of the actuarial team is that just statistically it was a noisy quarter not in our favor but.
Speaker Change: But theres not a not a trend that would cause you to reconsider your.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: The other question I had was with respect to <unk>.
Speaker Change: The view on Europe.
Speaker Change: Core.
Speaker Change: Earnings in somewhere in the range of 15 to 20, that's a fairly wide range I don't blame you.
Speaker Change: There's a lot of new stuff happening here.
Speaker Change: To provide a wide range.
Speaker Change: But I guess.
Speaker Change: What.
Speaker Change: What is it that creates the wide range.
Speaker Change: Is it specifically <unk>.
Speaker Change: Or or is it potentially this mortality.
Speaker Change: Well the that 15 to 20 includes taking the hit from from mortality and so.
Even in your card.
Speaker Change: For earnings you're going to say, okay, I did better or worse than expected from a mortality.
Speaker Change: Our policy holder experience point of view the issue that we're having is.
Speaker Change: Geography versus.
Speaker Change: <unk> core earnings versus what is core.
Speaker Change: Non core market experience gains and losses.
Speaker Change: And so.
Speaker Change: That number is the one that.
Speaker Change: We need to get precisely consistent among the.
Speaker Change: Precisely consistent among the different subsidiaries and consistent with.
Speaker Change: In the long run having core earnings.
B be equal to our reported net net.
Speaker Change: Net income in the aggregate and so.
Speaker Change: It's a wide range. So that we can put round numbers on it and not try and be overly precise I think internally, we have an internal range, that's a little narrower than that.
Speaker Change: But.
Speaker Change: We we can't we don't want to put that out well.
Speaker Change: While we are still having debates around that.
Speaker Change: Okay Alright.
Speaker Change: Thank you very much.
Speaker Change: Okay.
Speaker Change: There are no further questions at this time I will now turn the call over to George for closing remarks.
Operator: Ladies and gentlemen, as a reminder, should you have a question, please press star, follow the one. Your next question comes from Darko Malek with RBC. Your line is now open.
George: Thank you operator, and thank everyone for joining the call today, a replay of this call will be available for one month on our website and a transcript will be posted as soon as available. If you have any additional questions. Please do not hesitate to reach out to any one of us with that thanks again for your participation and interest today have a great one.
Darko Malek: Hi, thank you. Good afternoon. A few questions. Kathy, you mentioned that you sort of size the mortality issue around 5 to 7 million, uh... in the U.S. Why is it that you expect that, normalized lower in the future?
Kathy Jenkins: We believe this is a one-time blip, I mean experience will continue to monitor this, but we did have, this was an exceptional situation; we have not seen that level before.
Andre Mousseau: Kathy, if I can step in here, I think it comes down to the cohorts where we've seen it, and the products as well. We actually had half or so of it actually come through annuities, where it's pretty rare to have that sort of emergence. And so at this point, the view of the actuarial team is that just statistically, it was a noisy quarter, not in our favor, but that there's not a trend that would cause you to reconsider your assumption.
Darko Malek: And the other question I had was with respect to sort of the view on... the or uh... earnings in somewhere in the range of fifteen to twenty. That's a fairly wide range, and I don't blame you. There's a lot of new stuff happening here. For what? What is it that creates the wide range? Is it specifically Avari or is it potentially this mortality? Well, that's it.
Andre Mousseau: Well, that 15 to 20 includes taking the hit from mortality. And so even in your core earnings, you're going to say, okay, I did better or worse than expected from a mortality or policyholder experience point of view. The issue that we're having is geography versus what's core earnings versus what is non-core market experience gains and losses. And so that number is the one that we need to get precisely consistent among the different subsidiaries and consistent with, in the long run, having core earnings be equal to reported net income in aggregate.
Andre Mousseau: And so it's a wide range so that we can put round numbers on it and not try and be overly precise. I think internally we have an internal range that's a little narrower than that, but we don't want to put that out while we're still having debates around it.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Operator: There are no further questions at this time. I will now turn the call over to George for his closing remarks.
Giuseppe: Thank you, operator, and thank you everyone for joining the call today. A replay of this call will be available for one month on our website, and a transcript will be posted as soon as available.
Operator: If you have any additional questions, please do not hesitate to reach out to any one of us. With that, thanks again for your participation and interest today. Have a great day.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
[music].