JAM | May 16, 2024

Constricting operating environment and IFRS 17 weigh on Sagicor Jamaica’s Q1 profitability

Al Edwards

Al Edwards / Our Today

Reading Time: 4 minutes
(OUR TODAY photo)

Interest rates, inflation and a stagnant operating environment have impacted many financial sector players in Jamaica and Sagicor Group is no exception.

For the first quarter of 2024, Sagicor Group Jamaica reported a net profit attributable to stockholders of J$1 billion, a 54 per cent decline on the J$2.18 billion reported for the same period last year.

Total assets climbed by seven per cent to $565.40 billion for the period under review, coming from $529.94 billion for the corresponding period in 2023. 

Meanwhile, ‘Total Assets Under Management’ increased to $1.04 billion, a five per cent uptick on the $989.83 billion posted for Q1,2023.

Earnings per share (EPS) fell significantly to $0.26 from $0.56 registering a 54 per cent decline. Sagicor Group Jamaica’s market capitalisation took a hit, sliding to $160.06 billion from $206.61 billion in March 2023.

(OUR TODAY photo)

What has hampered Sagicor Group Jamaica’s performance for this period is a confluence of events.

A one-time adjustment and unrealised mark-to-market losses on a segment of its life insurance investment portfolio stymied its overall performance figures.

The group draws attention to “ excluding the one-time adjustment and unrealised mark-to-market losses, the net profit attributable to stockholders for the period would have been approximately $2.32 billion.”

Notwithstanding these impediments, the group’s core businesses performed creditably with its insurance revenue up by 14 per cent year over year to $1.53 billion. The imposition of IFRS 17, a one-off also had an impact on its insurance service expense. This saw a fall in its Insurance Service results to $1.02 billion, a 20 per cent dip from the unaudited figure of $1.24 billion for March 2023. This fall here is not expected to continue throughout the rest of this year.

(OUR TODAY photo)

Sagicor’s banking arm has performed well under the stewardship of Chorvelle Johnson-Cunningham with deposits growing by 5 per cent and Sagicor Bank taking market share away from competitors. 

Commenting on the group’s banking performance, Sagicor Group Jamaica’s CEO Christopher Zacca said: “Chorvelle’s unit continues to show strong performance, for the last three years in a row. She grew deposits during a tough period where we all know what is going on in terms of liquidity and interest rates. It indicates strong consumer confidence in Sagicor Bank. Commercial banking has also shown robust expansion both in terms of the commercial loans portfolio and our card payment portfolio. Growth in transactions of card payments led to a record 15 per cent growth in revenues year over year and the loan portfolio experienced $510 million of growth, an 18 per cent increase in interest income.

(OUR TODAY photo)

“ We have also seen improved interest margins on our investment banking business which is slowly starting to turn around after a very difficult year last year, particularly with the headwinds that faced the investment banking industry and the poor performance of asset prices in the local market. We are gratified that Sagicor Investments net investment income recorded $810 million in the quarter which was a 106 per cent increase over the previous year.

Sagicor Group Jamaica operates the largest insurance business in the country with over half a trillion dollars in assets. Zacca has spoken on the effectiveness of having diverse and integrated portfolios which allows the Group to perform well as a whole despite certain segments experiencing dips. Inflation is proving stubborn and interest rates continue to be a thorn in the side of financial sector players who have to navigate around these obstacles.

Zacca concluded: “ 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 players in the market. We remain focused on our long-term strategy and its execution which is delivering value to our customers and shareholders. We will leverage our strengths to overcome challenges and sieze opportunities.

“Despite the one-off hits our strong insurance revenue, our commercial investment banking performance highlight our resilience and diversity so where one thing does bad, others do good. When interest rates go up and hurt a particular part of the business, another part of the business can benefit from investments and higher returns.”

(OUR TODAY photo)

The reduction in insurance service results for the quarter was due to refinements around the IFRS 17 model. That model is a complex computer model that takes the old results from a company’s actuarial system and translates it into IFRS 17 which is a complicated new standard. Sagicor is continuously refining the inputs into that model and in Q1 it made some further refinements. This was an expense that hit the profit and loss line. Sagicor has been at this now for about the last three and a half years. It felt it prudent to take the hit now rather than see outcomes become more deleterious in subsequent quarters. 

As a result of IFRS 17, Sagicor Group Jamaica elected to take asset prices to the ‘Profit and Loss’ line which is new for it. Previously, this was placed under other comprehensive income.


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