Q3 2024 Sagicor Financial Co Ltd Earnings Call
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Joanna: Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to Sagicore Financial Company's 3rd Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise.
Joanna: 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 the star then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by number 2.
Speaker Change: Thank you. Mr. George Sipsis, EVP, Corporate Development and Capital Markets. You may begin your conference.
Speaker Change: Great. Thank you, Operator. And hello, everyone. Thank you for joining us today to discuss SAGSCORE's third quarter 2024 results.
Speaker Change: Our disclosures, which include a press release, financial statements, MD&A, and the unaudited supplemental information package containing core earnings, drivers of earnings, and additional disclosures are available under the Investor Relations tab on our website at Sagegore.com.
Speaker Change: The link to our live webcast is also available on our website.
Speaker Change: A reminder that 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: I will begin by referring you to the cautionary language and disclaimers in our materials and public filings regarding the use of forelooking statements and the use of non-IFRS financial measures and ratios, which may be mentioned as part of our remarks today.
Speaker Change: 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 SADCOR's risk factors is provided in our MD&A, which is available on CDAR Plus and on our website. A discussion of the assumptions underlying our expectations is provided in our previous filings and earnings releases.
Speaker Change: Unless otherwise noted, all dollar amounts referenced will be in U.S. dollars, consistent with our reporting practice.
Speaker Change: And joining me today is our President and CEO André Mousseau, our Chief Financial Officer Kathy Jenkins, and Anthony Chandler, our Chief Controller.
Speaker Change: We'll begin with prepared remarks by Andre and Kathy followed by a Q&A session. With that I'll pass the call to our president CEO Andre Mousseau.
Andre Mousseau: Thank you, George, and good morning, everyone. We're pleased to announce another solid quarter in Q3 2024. Core earnings to shareholders was consistent with our expectations at $24 million.
Andre Mousseau: and positive market experience drove an extraordinary net income result. We remain on track with our growth initiatives.
Andre Mousseau: The integration of Sagicore Canada will continue to optimize our balance sheet through debt refinancing and opportunistic share repurchases, all of which we believe will drive return on shareholders' equity in 2025 and beyond.
Speaker Change: I'll hand the call over to Kathy to discuss our segment's results and then it'll come back to me for some closing remarks. Kathy?
Thank you, Andre, and good morning, everyone.
Speaker Change: SagiCorps' core earnings to shareholders was $24 million this quarter, consistent with our expectations and a material increase over the same period in 2023 due in large part to the acquisition of Avari, our SagiCorps Canada segment.
Speaker Change: Revenues were $1.1 billion for Q3 compared to $291 million for Q3 last year. New business CSM of $45 million for Q3 was strong across all segments.
Speaker Change: Once again we saw some divergence between reported net income and our view of the underlying profitability of our business or core earnings.
Speaker Change: In this quarter, reported net income was significantly higher, with net income attributable to common shareholders of $59 million.
Speaker Change: Also, this quarter we performed our annual actuarial review of non-financial insurance assumptions like mortality and policyholder experience.
Speaker Change: As we adjust our assumptions, some of that comes through the income statement and others affect contractual service margin or CSM.
Speaker Change: SagiCorps Canada's sales production in the quarter was consistent with the first half of the year, resulting in new business CSM of $11 million for the quarter. Core earnings to shareholders of $20 million for the quarter was in line with expectations.
Speaker Change: Net income to shareholders of $63 million for the quarter was significantly higher than core earnings to shareholders Primarily as a result of market experience gains from the movement of equities where we have a positive exposure Interest rates where we have a negative exposure with fixed income investments benefiting from falling rates
Speaker Change: and by positive net income generated by changes in actuarial assumptions pursuant to our annual review.
Speaker Change: Net CSM was $583 million, which was a modest increase quarter over quarter, resulting from a favorable currency impact and positive changes in assumptions.
Speaker Change: Sagicore Life USA generated 292 million dollars of new business production in the third quarter and was consistent with expectations for the quarter.
Speaker Change: Core earnings to shareholders for this segment was $14 million, which included insurance experience gains of $4 million.
Speaker Change: Net loss to shareholders was less than $1 million for the quarter, which was lower than core earnings to shareholders due to $7 million of market experience losses together with $6 million of impacts from assumption changes and other non-core items and tax on the aforementioned of $3 million
Speaker Change: Net CSM decreased by $47 million to $166 million quarter over quarter due to changes in assumptions and model refinements.
Speaker Change: Much of this changed related to strengthening of reserves as we reflected a more conservative renewal rate on our MIGA product.
Speaker Change: Sadikor, Jamaica saw a strong quarter for its short-term insurance business with higher sales and renewal rates for its group health products, while its long-term insurance business was weaker, largely due to unfavorable insurance experience.
Speaker Change: The Commercial Banking Division saw growth in profit year-over-year and a continued trend in improving profits while the Investment Banking Division saw softer trading gains in fee income.
Speaker Change: Satya Kaur's share of, Satya Kaur Jamaica's core earnings to shareholders in the third quarter was $6 million and was impacted by experience losses.
Speaker Change: Our share of reported net income to shareholders was $8 million this quarter due primarily to favorable market experience.
Speaker Change: Net CSM of $277 million decreased 1% quarter-over-quarter as strong new business CSM of $10 million was offset by changes in assumptions and currency impact.
Speaker Change: Sagicore Life continued to see improvements in insurance service results over the prior year from its long-term, short-term, group life and PNC insurance businesses.
Speaker Change: Core earnings to shareholders of $7 million benefited from insurance service and investment results, which were partially offset by lower income on non-insurance businesses.
Speaker Change: Net income to shareholders was $14 million for the quarter, which included market experience gains that were reversed to losses from Q2.
Speaker Change: Net CSM was $244 million, a slight increase quarter-over-quarter driven by new business CSM and a benefit resulting from an insurance experience gain with organic CSM growing by $13 million.
Speaker Change: Returning to the consolidated picture, as Andre mentioned earlier, Zadigor remained well capitalized in Q3. The group LIHCAT ratio was 140%, which improved by two percentage points quarter over quarter.
Speaker Change: MCCSR ratio was 304% and our financial leverage ratio was 26.8% which was unchanged quarter-over-quarter.
Speaker Change: Our book value per share finished the quarter strong at $6.86 U.S. or $9.26 Canadian.
Speaker Change: Our deployable capital, or shareholders' equity plus net CSM to shareholders, was $2.1 billion, or $14.99 per share U.S., or $20.24 Canadian per share.
With that, I will hand it back to Andre.
Thank you very much, Kathy.
Andre Mousseau: Well, as Kathy described, our financial results were quite solid and I think it's pretty well representative of how things are going overall. Many of our hypotheses are proving to come true and we're quite pleased with this performance. We continue to...
Andre Mousseau: Get good traction in the debt capital market side with Fitch upping our outlook to positive. And we believe that we can continue the momentum of reducing our cost of funding on our balance sheet, both in terms of interest costs as well as other costs such as reinsurance.
Andre Mousseau: as more of our pricing reflects our investment grade. And so we'll see that continue to improve our are we little by little into 2025.
All of our operations are going well.
Andre Mousseau: We've now owned our Canadian business for four quarters and its financial results have been very strong and came through the second re-evaluation of actuarial assumptions.
very well.
Andre Mousseau: Our U.S. business continues to execute well and we believe it's well positioned to add well over a billion dollars of new business in 2025, continuing its growth.
Andre Mousseau: In the Caribbean, we're seeing some results from our repricing initiatives, and so it's good to see improving results in SLI in particular.
Andre Mousseau: existing long-standing public investors in the Caribbean. We've been getting a great reception and have seen volumes of our shares significantly higher since we started the outreach in September. It's quite exciting to see some shares transition to new shareholders who can get in at this attractive valuation.
Andre Mousseau: We've also been taking advantage of pricing in the market to accelerate the pace of our share buybacks in recent months.
Andre Mousseau: repurchasing about $10 million worth of shares at a significant discount to book value in the third quarter. And you're starting to see that accretion run through our book value per share. We continue to believe.
Andre Mousseau: Our shares offer the possibility of excellent risk adjusted returns at these levels. We're also pleased to have announced our 20th consecutive quarterly dividend to shareholders.
Andre Mousseau: of $0.06 U.S. per share or an annualized $0.24 U.S. per share. With that, I think we're ready to start the Q&A period, so operator, please go ahead.
Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press star followed by 2. And if you are using a speakerphone, please lift the handset before pressing any keys.
Speaker Change: The first question comes from Manny Grauman at Scotiabank. Please go ahead.
Speaker Change: Hi, good morning. Two questions on the U.S. One in terms of insurance experience, again this quarter after a tougher first half of the year. So I'm just wondering if you can give us an update in terms of your outlook here.
Speaker Change: Did the Q3 result more indicative of what you expect going forward?
Speaker Change: Clarity in terms of what's going on from an experience perspective in the US and and if you can comment on the outlook You know for q4 and beyond that would be helpful
Speaker Change: Sure, happy to. Look, it was good to see the insurance experience reverse, you know, because of the the chunky nature of these products and policies, be careful to extrapolate too much from any quarter, positive or negative, so I wouldn't necessarily take the...
Speaker Change: the 4 million of positive experience and extrapolate that forward. But it's good to see back to back to balance for the year. What we are aiming for actuarially is to come up as close to a zero on insurance experience as we can every quarter. But, you know, just the nature of quarterly reporting means it's going to it's going to move around.
Speaker Change: I think we've had a good year in general in terms of the business that we've put on the books.
Speaker Change: we came through and we looked at the actuarial assumptions and have put it at a place where you know we're comfortable with where we see the the experience coming out. I think in terms of Q4 a dynamic that we've seen in the market is that production is probably going to be a little bit softer across the board just because of the velocity at which interest rates moved and so if you look at September and into early October when a lot of the production was being signed up because there's kind of a one to two month lag between a sale and when it gets on the books there was some you know
Speaker Change: retraced themselves in recent weeks and so I think the entire industry saw a soft few weeks of sales and so
Speaker Change: We wouldn't necessarily see Q4 as high as they were in Q3.
Speaker Change: but I can tell you that being back and engaged in the market now as it's normalized, we continue to feel confident about being through a billion, significantly more than a billion of sales.
Speaker Change: next year so our outlook for 2025 remains positive and I think the as we continue to add assets to that business the ROE will improve and
Speaker Change: as we continue to explore potential synergies with our Canadian business under our North American platform. There's opportunities to improve our we on that side as well. So we feel quite good about that going into 2025 and beyond.
Sipsis
Speaker Change: Very helpful. I was going to ask about the outlook for new business production. I think you're pretty clear, but maybe just in terms of one follow-up on the outlook for 2025. I mean, you're talking about a billion plus.
Speaker Change: How should we think about it from a quarterly perspective in terms of
Speaker Change: the patterns even from a seasonality perspective, any help there would be good.
Speaker Change: I think we're going to continue to be opportunistic and pick our spots and so flex the production when we see moments with the best risk-adjusted returns in the market which can be you know a function of spreads or even you know in which asset class.
Speaker Change: are you seeing the best capital-adjusted and risk-adjusted spreads? And so it's not so much seasonality, necessarily, as I think there could still be...
Speaker Change: you know, some quarters that are higher and lower than others. But, you know, we would be going in.
Speaker Change: all things being equal, being looking to have about $100 a month in production.
but that may, you know, flex in and out.
Got it. Thanks so much.
Thanks for watching!
Speaker Change: Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star 1 at this time.
Speaker Change: It's not, it's not limited to LAPS. It is in, it is in the, it is related to, primarily to, to that the big MIGA product base, but it's, it's everything together including LAPS.
And then, yeah, I'll have a follow-up.
Speaker Change: We are confident we have the issue addressed. I think that if you said we had done it prior, it would have been this time last year as opposed to as opposed to last quarter. But.
Right. So.
You're putting a portion of future profits on renewable business.
Speaker Change: Miller better experience coming off it going forward. We still think we'll be able to have the similar asset levels
on our books, but, you know, as
Speaker Change: where we would have planned a year ago. But what we're seeing is sometimes that presents itself as a new policy. And so, you know, it's got out of one CSM pocket and into another when new business is being written.
Speaker Change: So, we've taken the adjustment to try and put it at a spot where we're comfortable that we've got that dealt with.
Speaker Change: When we look through and look at the union economics of the business that we're selling, we're still driving those kind of high teen marginal returns on equity that we've been targeting. So we'd like to see this as be done through this quarter.
Speaker Change: Okay, great. That's very helpful. Can you remind me again what the...
Speaker Change: The gist of the issue is that you're assuming higher renewal commissions or a lower renewal rate when these policies, or the fixed annuity policies, mature.
Speaker Change: Yeah, so we're assuming now higher lapse at the window, at the renewal window, which means lower renewal rates.
Speaker Change: Yeah, okay, and then just a quick one on Jamaica the tax rates moving around a fair bit there. What's the What's the story there? Is it just a mix issue or something like that or true up of some sort?
Speaker Change: There was a little bit of a true up in the in the Jamaica earnings and so if you look through to expected insurance earnings in Q3 it was a little lower than than what it was in Q2 and so I think if you looked at that in retrospect you might have wanted to flatten that out a little bit.
Speaker Change: No major change in tax policy, just a little bit of quarterly noise.
got it all right have a good day
Thank you.
Speaker Change: Thank you. The next question comes from Darko Mihalic at RBC Capital Markets. Please go ahead.
Speaker Change: Hi, thank you. Good morning. My first question is with respect to the market experience.
Speaker Change: and the significant benefit you got from equities and rates in the quarter. Can you just remind me...
Speaker Change: I recall that when you had acquired Avari that there was going to be some changes to the to the portfolio and
Speaker Change: there's going to be reduction to some of the sensitivity with respect to equities.
Is there room for further
or reduction of that sensitivity.
Andre Mousseau: Or is it really the set the way it is and we can expect that in a bad equity market this could completely reverse or maybe just frame it for me Andre and Provide sort of an outlook on on where the sensitivity can go longer term with respect to the Canadian business
All right.
Andre Mousseau: So, you do recall correctly, when we acquired EVARI, we backed off the equity loan a little bit, in that it used to have
Andre Mousseau: some equity exposure as kind of the barbell end of its assets backing liabilities to get returns up and we've turned that off under our watch. What we have is
Andre Mousseau: for the equity proportion of the Universal Life portfolio, where some of our businesses, you could think of as an asset center management business.
Andre Mousseau: When markets go up by 10%, we have 10% more AUM. And so the present value of those anticipated fees run their way through the reserves.
Andre Mousseau: The majority of the market experience in Canada in Q3 was related to interest rates, not to equities. But we still have a directional, positive tie to equities.
Andre Mousseau: It's expensive over the long term to be short equity markets, so it's still not completely down to zero.
Andre Mousseau: All that being said, the bigger piece in Canada is around interest rates. And so, you know, if you're looking at the market experience for the Canadian business, a good measure is going to be, you know, positive correlation.
Andre Mousseau: to positive correlation to equity markets and positive correlation to bond prices. So a negative correlation to medium and long-term rates.
Okay, that's helpful. Thank you.
My second question
with respect to Sagicore Lite.
and Iz.
Speaker Change: If you could just remind me the path to a higher ROE for this segment, is it just tied to repricing initiatives or is there something else that you can do in the Sagicor life business to improve that ROE?
Speaker Change: The near term is going to come from the repricing and so that's both in terms of our long-term you know new life insurance business which takes a while to to to come on as you add each new cohort but you know in particular we have a short-term business.
group business where we're still on risk.
Speaker Change: where we've needed to reprice that business coming out of how that has emerged through the pandemic. And so we're seeing that.
Speaker Change: We're seeing that come through now, which is good. And our view is that momentum will continue into 2025.
Speaker Change: Longer term, I think there's a significant opportunity to improve the cost of doing business with technology and working with other areas in the Sagicore group and, you know, behind the scenes.
Speaker Change: [music].
Speaker Change: Yeah.