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Commercial and Investment banking businesses performed satisfactorily in 2020 as losses mount on hotel investments

The Sagicor Group managed to make a profit in 2020 but lower than in the previous year, due to the extremely challenging environment last year marked by the coronavirus (COVID-19) pandemic.

While the group’s full-year 2020 results exhibited a notable robustness, the pandemic impacted the business, where profits were down to $13.78 billion showing a 12 per cent decline compared to 2019. Net profit attributable to stockholders for the last quarter was $3.45 billion compared to $4.79 billion for 2019.

The December quarter results included additional impairment charges of $2.94 billion. Amid the pandemic, the group’s insurance businesses continued to show remarkable performance, evidenced by net premium income being eight per cent above the prior year.

The key metrics of the commercial and investment banking businesses have also performed satisfactorily and are expected to continue to improve as the economy shows greater activity. Profits before results attributed to Associate show a three per cent improvement compared to prior year.

Total revenue decreased by nine per cent or $8.03 billion, a decrease of six per cent ($5.39 billion) when adjusted for unrealised capital losses. Travel-related revenue continues to be impacted by the significant fall-off in tourism, resulting in declines in the valuations of Sagicor’s holdings in this segment.

Adverse impact on the group in three primary areas

The group’s results in the December quarter continue to be impacted by:

• Unrealised capital losses driven by the broad decline in bond and equity prices earlier in the year. The local markets have rebounded somewhat and the impact of this has been reduced on a year to date basis;
• Unrealised IFRS 9 Expected Credit Losses (ECL) on loan portfolios and investment securities;
• Travel restrictions’ effect on investments in hotel operations, which has led to the group recognising a significant share of loss and impairment charge from its investment in Associate (Playa) and an impairment charge relating to the Goodwill that arose on the acquisition of the X-Fund Group in 2018.

However, despite these adverse effects, the operating cash flow of the company has increased significantly by $16.60 billion, while the financial group continues to maintain strong liquidity, improving its cash position by $20.03 billion year-on-year. Net Premium Income and Net Investment Income both showed an increase of eight per cent over 2019 ($50.38 billion and $18.12 billion respectively).

Substantial credit loss reported

The group has recorded substantial expected credit losses (ECL) on its portfolios of loans and domestic and international investment securities and has continued to strengthen its provisions in this area given the slow economic recovery projected. Of note is that the value of Sagicor’s equity investments has shown improvement since the first quarter of 2020.

Fee and other income of $13.51 billion fell three per cent compared to prior year, primarily from the slowing of consumer activity and the decline in corporate financing deals closed during the period. The group recognised impairment charges of $5.74 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, Sagicor’s assets showed a seven per cent increase since December 2019. There were large unrealized foreign currency gains of $3.86 billion taken through Other Comprehensive Income resulting from translation of Sagicor’s foreign operations.

Individual insurance

The Individual Life segment continued its strong performance, posting an improved net profit of $7.95 billion compared to $5.37 billion in 2019. Net premium income of $28.23 billion was seven per cent higher than the comparative 2019 period.

This was driven by exceptional new policy sales in Jamaica and Cayman, being three per cent ahead of last year, resulting in a six per cent growth of the portfolio year-to-date to over 600,000 policies.

There were large unrealised capital losses related mainly to its segregated funds and an increase of $2.28 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 our clients.

Employee benefits

The Employee Benefits segment produced profits of $4.15 billion, being three per cent less than in 2019. Net Group Insurance and annuity premiums earned of $20.03 billion were ahead of last year.

The segment capitalised on market opportunities during the period and showed improvement in its net investment income. Despite the health claims ratio remaining stable, Group Life experienced unfavorable claims during the period.

Commercial banking

Sagicor Bank contributed net profits of $2.46 billion for the year, a 19 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.

Fee-based income of $3.97 billion was two per cent less than the prior year. 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.

Loans and advances, net of provision for loan losses, were $87.42 billion, three per cent ahead of December 2019.

Investment banking

The Investment Banking segment showed good profitability during the period, contributing $2.78 billion (excluding the share of AGIC earnings) to the group, four per cent lower than the prior year.

Despite total revenue of $6.50 billion being two per cent below 2019, this segment has benefited from the increased market activity in the last half of the year, recording higher trading gains and improvement in its net investment income.

Fee income was down compared to last 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. There has been a steady rise in market values since the second quarter resulting in a 14 per cent increase in management fees over the prior year.