Sagicor rebounds but tempers outlook

Financial conglomerate Sagicor Group Jamaica Limited, operator of the leading insurance company, reported a rebound in profit and capital for the September quarter, but was subdued in its outlook on business.

The group made profit of $4.5 billion for the quarter, which reversed an adjusted loss of $3.9 billion in September 2022, due to improvements in insurance, investment and fee income.

Both long-term and short-term insurance lines experienced strong new business sales, showcasing the group’s continued strength in the life insurance sector, which it dominates through Sagicor Life Jamaica. Its other business lines include commercial banking, investment banking and property services.

Insurance companies have been going through a period of adjustment regarding the booking of revenue under new accounting rules, impacting both revenue and profit outturns.

However, in the third quarter, Sagicor Group still made higher profit even when matched against results under the former treatment of contracts. Its original September 2022 accounts recorded profit of $4.2 billion, $300 million less than the current outturn.

Rising interest rates

The newly adopted accounting standard IFRS 17 deals with the treatment of long-term insurance contracts and the cash flows surrounding them. Sagicor said that upon the adoption of IFRS 17, the prior year’s restated results now include the impact of increases in interest rates and the volatility of security prices.

Contextually, the adjustments in insurance reporting is happening at the same time that Jamaica’s central bank has been utilising interest rates as policy tool to cool inflation.

It’s served to make borrowing more expensive for businesses generally, dampen the equities market and, therefore, the returns and value of investments, and cut into the margins of securities dealerships as clients demand higher returns. Additionally, inflation has served to dampen purchasing power within the economy.

Otherwise, there are external factors relating to the war in Europe that have cast shadows over other economies.

Sagicor Group sees an impending economic slowdown on the horizon and wants to shield its $89 billion in shareholder capital that recorded improvement of seven per cent year-on-year, driven by profit from insurance contracts, financial investments, and bank loans.

“We remain alert to the impact of a tight monetary climate and its corollary effects of dampened demand for credit and an overall slowdown in economic activity, both of which will impact Sagicor Group’s results in the medium term. As such, we are managing capital and liquidity prudently within this uncertain environment,” the company said in its outlook on business.

The Organisation of Economic Cooperation and Development this week affirmed that a global slowdown is expected. But the Paris-based body also said it does not expect economies to fall into recession.

During January to September, Sagicor Group’s long-term insurance results more than doubled to $6.7 billion in profit. The short-term insurance segment grew to $1.4 billion in profit, reversing heavy losses in the prior year

The group’s commercial banking profit dipped to $2.1 billion from $2.3 billion, and investment banking profit dipped to $801 million from $1.2 billion.

“The investment banking business continues to face challenges with unfavourable capital market conditions and declining net interest income, due to elevated liability costs,” the conglomerate stated.

steven.jackson@gleanerjm.com