Wed | Dec 2, 2020

Why the Scotia Ja insurance deal soured

Published:Sunday | December 8, 2019 | 12:30 AMSteven Jackson - Senior Business Reporter
David Noel, president and CEO of Scotia Group Jamaica Limited.
David Noel, president and CEO of Scotia Group Jamaica Limited.

Banking conglomer-ate Scotia Group Jamaica, SGJ, says the deal to sell its insurance arm to Sagicor soured because both parties could not find a sweet spot in the follow-on distribution deal that would have emerged.

“The sale would not make sense as a result of that distribution agreement not going through,” said president and CEO of SGJ David Noel at a briefing held at the bank’s head office in Kingston on Friday.

The deal involved the sale of its insurance arm – Scotia Jamaica Life Insurance Company Limited – to Sagicor Financial, which was valued at US$144 million, but it was conditional on both parties agreeing to partner in selling insurance in Scotia branches.

Under the distribution deal, Sagicor would have underwritten Scotia insurance products over 20 years. It was this distribution deal that fell through which resulted in the termination of the sale.

“We never intended to exit the insurance business altogether,” said Noel. “For us, the distribution agreement was the critical one. And that was the agreement we were trying to find mutual consensus on and it was difficult to do.”

Scotia executives said Friday that the decision to keep the company did not represent a change in strategy.

Dr Adrian Stokes, who heads the bank’s insurance arm, said that last year, the group saw value in partnering with someone who was “great in underwriting” but both parties were unable to agree on certain conditions.

“We tried for a year to seal that transaction but couldn’t arrive at a sweet spot where everyone could agree. We could not agree on where we were heading. So, we mutually agreed to end the pursuit of that strategic decision,” said Stokes, senior vice-president and head of insurance and wealth management at SGJ.

“We couldn’t find a sweet spot and so we decided to keep our business, invest in it, and grow. And I think the results we delivered this year corroborates the decision.”

The insurance arm was the second most profitable segment for the group during the financial year that ended October 2019.

SGJ made $13 billion in annual profit, to which insurance contribute $4 billion. SJLIC’s results were underpinned by a 20 per cent increase in policies sold. The treasury segment as top performer contributed $5.9 billion to group profit.

Scotia Group shares traded lower at times on the day following the release of the results, but closed up three per cent at $57.69. The stock is up nearly seven per cent for the week.

Noel said the bank’s core business continues to do well, with double-digit growth in loans – the portfolio climbed nearly 13 per cent to $206 billion.

Unlike its large rival, NCB Financial Group, which has grown to $1.6 trillion in assets through acquisitions, SGJ is signalling that it won’t be going the M&A route.

“No announcements at this time,” said Noel when asked whether there are plans to seek out entities that hold investment grade ratings.

“We are comfortable with the performance,” said the bank president, adding that the economy continues to show increased strength and opportunities for organic growth. “We are excited about the growth prospects for the economy but it doesn’t come without risks.”

At $549 billion, Scotia Group’s assets are one-third the size of NCB’s.