Expected credit losses climbing
Sagicor Group Jamaica has doubled its profit for the just-ended September quarter with net profit attributable to stockholders amounting to $5.97 billion compared to $2.47 billion for the June quarter.
This strong quarterly performance was even better than the comparable period last year, which realised $4.47 billion. For the nine-month period ended September 30, 2020, profits were down five per cent to $10.33 billion.
Total revenue decreased by 11 per cent or $7.27 billion to $60.25 billion. Sagicor reported that, as the impact of COVID-19 continues to influence financial markets, its financial performance remains impacted by, among other things, unrealised capital losses driven by the broad decline in bond and equity prices earlier in the year.
However, in recent months, the local markets have rebounded somewhat and the impact of this has been reduced on a year-to-date basis. Sagicor has also been negatively impacted by unrealised IFRS 9 Expected Credit Losses (ECL) on loan portfolios and investment securities as well as the effect of travel restrictions on its investments in hotel operations.
Despite these adverse effects, the operating cash flow of the company has increased by $2.62 billion while the group continues to maintain strong liquidity, improving its cash position by $11.19 billion year on year. Net premium income increased by 10 per cent to $37.25 billion increased when normalised for premiums from Advantage General Insurance Company (AGIC), which was acquired in September 2019.
Net investment income amounted to $13.35 billion, which is seven per cent better than last year.
EXPECTED CREDIT LOSSES JUMP
On the negative side, the group has recorded substantial ECL on its portfolios of loans and domestic and international investment securities. The group has continued to strengthen its provisions on loans and investments given the slow economic recovery projected.
The value of Sagicor’s equity investments has shown improvement since the first quarter of 2020. Fee and other income of $10.32 billion fell two per cent compared to prior year, primarily from the slowing of consumer activity and the decline in corporate financing deals closed during the period.
Sagicor recognised impairment charges of $2.80 billion, resulting from the lower valuations of its investments in hotel operations, a direct result of the uncertainty surrounding the expected impact of travel restrictions caused by COVID-19. Despite the effect of unrealised losses on investment securities, the group’s assets showed a five per cent increase since December 2019 and prior year.
The Individual Life segment posted improved net profits of $5.91 billion compared to $3.78 billion in 2019. Net premium income of $20.65 billion was six per cent higher than the comparative 2019 period.
This was driven by new policy sales, both in Jamaica and Cayman, with significant improvement seen in Q3, resulting in a three per cent growth of the portfolio year-to-date to 613,092 policies. There were large unrealised capital losses related mainly to Sagicor’s Segregated Funds and an increase of $1.96 billion in benefits to policyholders.
The increase in benefits is mainly due to withdrawals from Segregated policy funds, primarily driven by a change in the investment stance of clients. The Employee Benefits segment produced profits of $3.29 billion, being three per cent more than in 2019.
Net Group Insurance and annuity premiums earned of $14.58 billion were ahead of last year. In the commercial banking segment, Sagicor Bank contributed net profits of $1.50 billion for the current period, a 23 per cent reduction when compared to 2019.
The results were impacted by higher ECL on loans as a result of the impact of COVID-19 on tourism, entertainment and energy sector loans and the slower than expected recovery of the economy. The bank has continued to strengthen its provisions for credit card and retail loans and overdrafts.
Fee-based income of $2.89 billion was two per cent less than prior year. The Payments channels, Loans and Credit Cards business have slowed appreciably in 2020 as a direct result of the decline in consumer activity caused by COVID-19.
For the investment banking segment there was strong profitability during the period, contributing $2.19 billion (excluding the share of AGIC earnings) to the group. This was nine per cent higher than the prior year.
This segment has benefited from the increased market activity in the last quarter, recording higher trading gains and improvement in its net investment income, contributing to total revenue of $5 billion, being 11 per cent above 2019. Fee income was down compared to the similar period in prior year as less corporate financing deals were closed and asset management fees were reduced in line with the reduction in value of assets under management.
This quarter there has been a steady rise in market values causing a significant increase in management fees over prior quarter.