Sagicor Financial Corporation (SFC) was not spared the effects of the global economic recession and weakened financial environment in 2009. For the year ended December 31, 2009, SFC reported diluted earnings per share (EPS) of US$0.181. This represents a decline of 48.7 per cent from the EPS of US$0.346 recorded in the previous year. Excluding one-off acquisition gains of US$18.8 million and foreign exchange gains of US$10.9 million in 2008, as well as a foreign exchange unwinding loss of US$9.3 million in 2009, Core EPS would have declined 10.0 per cent from US$0.239 in 2008 to US$0.215 in 2009. The board of directors has recommended a final dividend of US$0.02 to be paid on May 21 to shareholders on record as at April 21, 2010. This will bring the total dividend for the year to US$0.04, as compared to US$0.05 in 2008.

Excluding the one-time acquisition gain, Total revenue grew 14.9 per cent over the year from US$1.05 billion to $1.21 billion. Contributing to this growth was an 18.4 per cent expansion in Net premium revenue to US$842.9 million, with growth coming from the US and UK operations and a decline in the Caribbean. Net investment income increased 21.6 per cent to US$294.2 million. Fees and other revenue, which included foreign exchange gains and losses, fell 28.0 per cent to US$68.2 million.

On the expenditure side, Total Benefits rose 27.8 per cent from US$573.4 million to US$732.5 million in 2009. As a percentage of Revenue, Benefits accounted for 60 per cent in 2009, up from 54 per cent in the previous year. For the same period, Expenses increased 13.7 per cent to US$390.2 million.

The combined increase in Benefits and Expenses was significantly higher than the growth in Revenue, and as a result Income before taxes fell 45.2 per cent over the year from US$150.9M to $82.6 million.

A higher effective tax rate of 17.0 per cent in 2009, as compared to 14.7 per cent in 2008, further reduced the bottom-line profitability. Net Income for the year was US$70.5 million, a 43.8 per cent decline from US$125.2 million in the prior year. As a margin of the top-line, Net Income accounted for 5.8 per cent of Total revenue, versus a stronger 11.7 per cent in 2008.

Looking at the Group’s investment portfolio, marked-to-market losses on Available for sale financial assets of US$96.5M in 2008 were reversed, and a gain of US$44.1M was recorded in 2009 as financial markets rebounded. Overall, Total Comprehensive Income was US$100.8 million in 2009, as compared to a Loss of US$15.4 million in the prior year.

Total assets expanded from US$3.98 billion to US$4.46 billion, growing the balance sheet by 12.1 per cent. The group’s capital adequacy improved over the year, with the Minimum Continuing Capital and Surplus Ratio (MCCSR) increasing from 244 per cent to 273 per cent. This is comfortably above the 150 per cent ratio recommended by the Canadian regulations that SFC has adopted.

Going forward, growth in Net premium income will be challenged as the economic and financial environment remains weak, although stabilising. While new business growth in the US and UK has contributed substantially to the top-line, these operations have put increased pressure on the level of benefits paid out and expenses incurred. On a positive note, the Benefits ratio has been reduced over the last two quarters but the Group will need to manage costs to improve profitability.

The impact of the Jamaica Debt Exchange programme will be reflected in performance in the coming quarters. This impact is not expected to be significant as the face value of instruments exchanged for JM$ and US$-denominated instruments were US$372.5 million and US$100.3 million respectively. This accounts for approximately 21 per cent of debt securities or 14 per cent of total financial investments. The Group’s Standard & Poor’s credit rating of BBB (in line with the Barbados Sovereign rating) was unaffected by the Exchange.