Earnings call transcript: Sagicor Financial sees robust Q1 2025 growth

Sagicor Financial Company Ltd. reported significant growth in its Q1 2025 earnings, with core earnings to shareholders doubling from the previous year. Despite the global economic challenges, the company demonstrated resilience and strategic growth, particularly in its U.S. annuity business. The stock price, currently at $4.23, has shown remarkable strength with a 43% gain over the past year and an 8.35% increase year-to-date. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value assessment, suggesting potential upside for investors.

Key Takeaways

• Core earnings to shareholders increased by 100% compared to Q1 2024.
• Revenue rose slightly by 1.4% year-over-year.
• The company is targeting $1 billion in annuity sales for 2025.
• Sagicor raised its quarterly dividend to $0.20 per share.
• The Group LICAT ratio stands at a healthy 137%.

Company Performance

Sagicor Financial’s performance in Q1 2025 highlights its ability to navigate a challenging economic landscape. The company reported $30 million in core earnings to shareholders, a 100% increase from the same period last year. This growth was driven by strong performance across its operating segments, particularly in the U.S. annuity market, where new sales exceeded $400 million. Sagicor’s strategic focus on expanding its market presence and modernizing its technology infrastructure has positioned it well for future growth.

Financial Highlights

• Revenue: $648 million, up 1.4% from Q1 2024
• Core earnings to shareholders: $30 million, a 100% increase from 2024
• Net income to shareholders: $7 million
• Book value per share: $7.05
• Deployable capital: $2 billion, or $15.01 per share

Outlook & Guidance

Looking ahead, Sagicor Financial is confident in its ability to deliver sustained shareholder returns. The company has set ambitious targets, including over $1 billion in annuity sales for 2025 and maintaining a core EPS target of $0.80 per share. With plans to expand its U.S. annuity business and improve operational efficiency, Sagicor is well-positioned to capitalize on future opportunities. The company’s Financial Health Score from InvestingPro indicates FAIR overall health, with particularly strong scores in Price Momentum (3.23) and Relative Value (3.22). For detailed analysis and more exclusive insights, including the comprehensive Pro Research Report covering Sagicor’s growth prospects and risk factors, subscribe to InvestingPro.

Executive Commentary

CEO Andre Musso highlighted the company’s record quarterly core earnings since its conversion to IFRS 17 in 2023, stating, "Our quarterly core earnings to shareholders were our highest on record." He also emphasized the importance of strategic initiatives, saying, "We continue to advance our strategic initiatives including fostering greater collaboration across operating segments."

Risks and Challenges

• Global economic uncertainties could impact growth prospects.
• Competition in the annuity market may affect profit margins.
• Regulatory changes could pose compliance challenges.
• Currency fluctuations may impact financial results.
• Dependence on the U.S. market for growth could be a risk if economic conditions worsen.

Q&A

During the earnings call, analysts inquired about the mild mortality seasonality observed in the U.S. business and the reserve release in Jamaica. The company also addressed questions regarding tax rate normalization and potential economic improvements in Jamaica, highlighting its strategic focus on these areas to drive future growth.

Full transcript - Sagicor Financial Company Ltd (SFC) Q1 2025:

Sergio, Conference Operator: Good day. My name is Sergio, and I will be your conference operator today. At this time, I would like to welcome everyone to Sagicor Financial Company Limited First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

Thank you. Mr. George Sipsis, EVP of Corporate Development and Capital Markets, you may begin your conference.

George Sipsis, EVP of Corporate Development and Capital Markets, Sagicor Financial Company Limited: Great. Thank you, operator, and hello, everyone. Thank you for joining us today to discuss Sagicor’s first quarter twenty twenty five results. Our disclosures are available under the Investor Relations tab on our website at sajcor.com, which include a press release, financial statements, MD and A, and the unaudited supplemental information package containing core earnings, drivers of earnings, and additional disclosures. The link to our live webcast is also available on our website.

This conference call is open to the financial community, investors, the media and the public with a reminder that the Q and A period is reserved for financial research analysts. I’ll begin by referring you to the cautionary language and disclaimers in our materials and public filings regarding the use of forward looking statements and the use of non IFRS financial measures and ratios, which may be mentioned as part of our remarks today. I would also like to remind the audience that actual results regarding forward looking information could differ materially and please note that a detailed discussion of Sagcor’s risk factors is provided in our MD and A which is available on SEDAR plus and on our website. Discussion of the assumptions underlying our expectations is provided in our previous filings and earnings releases. Unless otherwise noted, all dollar amounts or reference will be in U.

S. Dollars consistent with our reporting practice. Joining me today is our President and CEO, Andre Musso our Chief Financial Officer, Kathy Jenkins and Anthony Chandler, our Chief Controller. We’ll begin with prepared remarks by Andre and Kathy, followed by a Q and A session. With that, I’ll pass the call to our President and CEO, Andre Musso.

Andre Musso, President and CEO, Sagicor Financial Company Limited: Thank you, George, and good morning, everyone. Thank you for taking the time to join us today. We’re pleased to announce another solid quarter in Q1. Our quarterly core earnings to shareholders were our highest on record since our conversion to IFRS 17 in 2023. This reflects our operating segments firing on all cylinders and an improved corporate cost of funding.

Both of our Caribbean segments showed significant progress expanding margins and growing core earnings to shareholders year over year. Our US business continued its strong growth with over 400,000,000 of new annuity production and our Canadian segment showed robust profitability. All of our segments produced strong new business sales. This performance puts us in an excellent position to weather market volatility and achieve our targets for 2025. We continue to advance our strategic initiatives including fostering greater collaboration across operating segments, modernizing our technology infrastructure and enhancing both our access to and cost efficiency of capital, all with the objectives of lowering expenses, driving growth and ultimately strengthening our returns on shareholders’ equity.

Now I’ll hand the call over to Kathy Jenkins to discuss our consolidated results and comment on the segments in details. Kathy?

Kathy Jenkins, Chief Financial Officer, Sagicor Financial Company Limited: Thank you Andre and good morning everyone. As Andre mentioned, we are reporting a strong first quarter to start off 2025. For Q1, core earnings to shareholders were up over 100% from 2024 to $30,000,000 and net income to shareholders was 7,000,000 Revenues were $648,000,000 for the quarter compared to $639,000,000 for the same quarter last year. New business CSM of $46,000,000 for Q1 reflected strong sales across all segments. Now, I will give you some more detail on the segment financials.

SAGICOR Canada’s sales production of $17,000,000 in Q1 was consistent with management expectations, resulting in new business CSM of $12,000,000 for the quarter. Core earnings to shareholders of $25,000,000 for the quarter increased $8,000,000 or 46% from the same quarter in the prior year, driven by higher core net investment results and insurance experience reverting towards expectations. Net income to shareholders of $11,000,000 for the quarter was lower than core earnings to shareholders due to negative equity returns which affect the calculated future profitability of our Universal Life business. Net CSM was $541,000,000 an increase of 1% quarter over quarter. Fagicor Life USA generated $411,000,000 of new business production for the quarter one of our highest quarters ever.

We were able to drive higher than budgeted business due to competitive crediting rates and market momentum from multi year guaranteed annuity products. Core earnings to shareholders for the quarter of $6,000,000 was lower than our core net income because of unfavorable insurance experience on our legacy block of life insurance. This was a combination of mild seasonality in mortality, which we observe in our U. S. Segment most first quarters some under accrued expenses carried over from Q4 and a minor positive correlation to equity due to how we reserve for our indexed business.

We note experience was right on target for our annuities business, where we are writing most of our premium now. We continued to see an accounting mismatch between asset prices, which appreciated in Q1, and the calculation of our liabilities, which appreciated more, generating an unfavorable market impact, leading to a marginal net loss to shareholders. We believe this market experience will reverse itself in coming quarters as we have observed since the implementation of IFRS 17. Net CSM was $153,000,000 a slight decrease of 1% quarter over quarter. Sagicor Jamaica had a strong net premium across all product lines as compared to Q1 twenty twenty four.

Core earnings to shareholders of $10,000,000 for the quarter increased over the same quarter in the prior year due to improved margins and reserve release on the short term business and higher net income from the growing loans portfolio at its bank. Sagicor’s share of Sagicor Jamaica’s net income to shareholders of $13,000,000 for the quarter was positively impacted by improved mark to market gains. Net CSM was $282,000,000 a decline of under 1% quarter over quarter. Sagicor Life’s short term business benefited from repricing initiatives on renewals, while the long term business had favorable insurance experience. Core earnings to shareholders of $11,000,000 doubled the Q1 twenty twenty four result, reflecting improved profitability in a short term business and favorable insurance experience in both the short term and long term business.

Net income to shareholders of $8,000,000 for the quarter was lower than core earnings to shareholders in the quarter, primarily due to rising interest rates impacting mark to market loss on our fixed income portfolio, partly offset by the gain on the valuation of assets. Net CSM was $249,000,000 a slight increase quarter over quarter. Returning to the consolidated picture, Sagicor remained well capitalized in Q1. Group LICAT ratio was 137% and our financial leverage ratio was 27.2%. Our book value per share finished the quarter at US7.05 dollars or US10.14 dollars Our deployable capital, or shareholders’ equity plus net CSM to shareholders, was US2 billion dollars or US15.01 dollars per share or US21.59 dollars With that, I will hand it back to Andre.

Andre Musso, President and CEO, Sagicor Financial Company Limited: Thank you very much, Kathy. We are very pleased with the solid start to the year. I think our Q1 performance reflects continued progress on our key strategic priorities. We do continue to successfully grow the asset base of our U. S.

Business. We were pleased to write over $400,000,000 in the quarter, driving our assets above $6,000,000,000 It puts us in an excellent position to meet and exceed our target of over $1,000,000,000 of annuity sales for 2025. We remain focused on disciplined execution. I think you’re seeing this coming through in the margins across our business. We’re deepening our presence in our core markets.

We’re enhancing operational efficiency across all of our segments, including where we have large market shares and enabling us to grow efficiently in our larger markets. To that end, we’re pleased to have announced our latest twenty second consecutive quarterly dividend to shareholders since we’ve been listed on the TSX. This is our second dividend since we raised the quarterly payout to dollars per share, so annualized US0.27 dollars per share. And we feel we’re in a good spot. While macroeconomic uncertainty does persist, we’re confident that our focused execution on these core strategic initiatives positions us well to deliver continued sustained growth in shareholder returns.

Just before we close it up, I would like to thank those shareholders who chose to join us yesterday at the beautiful Hilton Barbados and took the time to engage with us in person and ask questions. Thank you very much to that. I would also like to thank in this forum Stephen Facy, who it was announced is retiring from the board of Sagicor Financial, will continue to be a partner of ours and involved on the board on the Jamaican business. We’d like to thank him very much for his friendship and partnership and stewardship on the SFC board. With that, I think we’re ready for Q and A if there’s any.

So,

Sergio, Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by number one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two.

If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Gabriel Dechaine from National Bank of Toronto. Please go ahead.

Gabriel Dechaine, Analyst, National Bank of Toronto: Hi. Good morning. Good quarter. Just wanna ask about the you know, you brought the attention to the fixed annuity sale. But before I get into that, on The US business overall, there was some negative policyholder experience or or claims experience.

Could you clarify what that was? And is the legacy life blocks? I don’t think ’s the same as the persistency issues in the fixed annuities business we saw a few times prior to today.

Andre Musso, President and CEO, Sagicor Financial Company Limited: Right. So thanks, Gabe. I think you are reading that correct. The persistency with the annuities, the multi year guaranteed annuities that we’re writing now was kind of right on the nose where we thought it would be. So this is related to two different blocks of business and it’s kind of a collection of a handful of sub $2,000,000 issues for the quarter.

So with respect to our term, our legacy term and universal life books, which collectively we refer to as the legacy life business, we usually do see some mild elevated mortality in Q1 because we budget for quarterly seasonality and mortality and that’s just winter and flu season. This is, as we’ve been building out our drivers of earnings, this is the third Q1 in a row where we’ve observed that. As Kathy mentioned, we carried over some mild unaccrued expenses from Q4 around settling stuff up for year end. And then there’s a little bit of an IFRS versus statutory accounting quirk on our legacy index business. So these are fixed indexed annuities that we wrote five years ago or more, where we’re buying equity participations for our policyholders on a statutory basis.

And think that’s the right way to do it economically. But because IFRS says that your reserves are lower than what your statutory reserves say, it presents itself temporarily as a positive correlation to equity indices. And so, again, it’s not a massive number, but each of these 1 and $2,000,000 things just happened to add up negative in the quarter.

Gabriel Dechaine, Analyst, National Bank of Toronto: Got it. Okay. So then about the fixed annuity sales quickly, is that are you seeing some of that momentum carry over into q two? Because, you know, market conditions that would have supported the strong sales probably are still in effect today?

Andre Musso, President and CEO, Sagicor Financial Company Limited: Yeah, well, going back to the commentary from March, we’re really picking our spots. I wouldn’t expect to annualize that $400,000,000 plus. We had talked about being over a billion for the year. I think we’re comfortable with that. So production won’t necessarily drop in half, but I wouldn’t expect 400,000,000 every quarter.

The market conditions are still good. We had a little pocket where we had got ahead of the market and raised rates and then we saw everyone catch up to us a number of weeks later and eventually pass us. So we let our weekly production come down. So wouldn’t expect to see $400,000,000 again in Q2, but it would be consistent with our guidance of annualized $1,000,000,000 for the year.

Gabriel Dechaine, Analyst, National Bank of Toronto: Got it. And then just from a scale standpoint, I I look at the AUM number for The U. S. And I think it’s just shy of $6,000,000,000 trying I I wonder if you can put some perspective every billion and I I equate the the the increase in AUM, you know, to multiple factors, but namely the the fixed annuities block growth. Every billion or or if there’s another benchmark, please share that.

What does that add to your consolidated ROE? Because I saw your I mean, for a different reason, but the 12% mark was exceeded this year for ROE. I’m just trying to get a sense for progression thereof.

Andre Musso, President and CEO, Sagicor Financial Company Limited: Oh, that it’s a very interesting question connecting that. You know, the the the way the way we would look at it is to say, okay, billion dollars of new annuity would generate net of commissions, etcetera, about order of magnitude $15,000,000 of gross margin to the business and then we would have to carry some excess capital on that, but on the margin we would view that as high teens return on equity business. And so I think you could extrapolate from there once we add a couple billion dollars more of AUM, it really does start to move the needle in the in our baseline ROE.

Gabriel Dechaine, Analyst, National Bank of Toronto: Got it. And just for definitional purposes, the 15,000,000 of gross margin, that’s pretax or or or what?

Andre Musso, President and CEO, Sagicor Financial Company Limited: Fully structured, that’s that would be that would be net of tax.

Gabriel Dechaine, Analyst, National Bank of Toronto: Oh, okay. Alright then. Thanks, and, yeah, enjoy the rest of your week.

Andre Musso, President and CEO, Sagicor Financial Company Limited: Alright. Thank you, Gabe.

Sergio, Conference Operator: Thank you. Your next question comes from Meny Grauman from Scotiabank. Please go ahead.

Meny Grauman, Analyst, Scotiabank: Hi. Good morning. A few questions. One, starting in Jamaica. Looks like you benefited from a reserve release.

I just wanted to get a little bit better understanding of that.

Kathy Jenkins, Chief Financial Officer, Sagicor Financial Company Limited: We had a small reserve release on of our P and C business, so it’s a one time, but it is quite small in terms of the amount that was released as we evaluated. We took a look at our business and how it was evolving. They made the determination they could release some

Andre Musso, President and CEO, Sagicor Financial Company Limited: It was group creditor policy where we got some improved pricing and just the way it’s shorter term business, which is why it’s lumped in with the P and C, but we did get a reserve release right away reflecting the increased profitability for the next few quarters. So not repeatable necessarily, but it is reflective of what we’re trying to do in Jamaica as well as in Sagicor Life of getting these group businesses reverting back to the mean in terms of profitability. And it’s not something you take as repeatable but it’s a good sign.

Meny Grauman, Analyst, Scotiabank: Okay. And then just thinking ahead in terms of Jamaica, there’s a banking business there. Just wanted to ask about what you’re seeing on the credit front and expectations going forward. Obviously, tariff related stresses are something top of mind for any banking business, say, around the globe. So just wondering what your thoughts were there for Jamaica business?

Andre Musso, President and CEO, Sagicor Financial Company Limited: I don’t think we’ve seen anything present itself yet. There are kind of two competing forces with respect to the Jamaican economy. I think that the consensus view is cautious around just global macroeconomic slowdown and that’s not good for anyone. I don’t think that’s disproportionate on our Jamaican business, but lower dollars means lower remittances means lower everything, deposits, premiums for that matter. So I wouldn’t see that disproportionate to us, but that’s the general tone.

The flip side in Jamaica is that there is continued improvement in the fiscal situation and you’re continuing to see the ratings agencies reflect that. And there is also the hope that US Department of State will lighten up on its travel warning to Jamaica that it’s had in place for some period of time, which has disproportionately affected tourist travel to Jamaica. And so Jamaica hasn’t seen quite the recovery that other fly in tourist markets have in and around The Caribbean. And if that gets lifted, that would be kind of a unique positive dynamic for economic activity into Jamaica and we’re hopeful that that’s actually imminent.

Meny Grauman, Analyst, Scotiabank: Got it. And then I just wanted to ask about reported earnings. You talked about the market impact, but there was another item there, tax item and other, it looked quite sizable. I’m just wondering what that was.

Andre Musso, President and CEO, Sagicor Financial Company Limited: I think there’s an annual asset tax in Jamaica that runs through the numbers in Q1 and on a core basis, what we do is we spread that over the four quarters of the year. And so that’s part of it. Kathy?

Kathy Jenkins, Chief Financial Officer, Sagicor Financial Company Limited: And we also that’s where we put the NCI goes through there as well, so we’d have the full impact of the market experience on the market experience line. Right. And then the portion that’s attributable, that that isn’t attributable to us gets, eliminated through there.

Meny Grauman, Analyst, Scotiabank: Understood. And then finally for me, just, it looks like the tax rate came in quite a bit lower than what we’ve seen last quarter and the year ago quarter. So I’m just wondering what drove that and is that something unusual or is that something sustainable?

Kathy Jenkins, Chief Financial Officer, Sagicor Financial Company Limited: Think it’s a more normalized rate that we have. It was in terms of some of our, the tax rates, it’s not like an income tax rate like you’d have in Canada and The US, so some of the Caribbean countries, how the tax rates are a little different. It was how some of the it’s how it was calculated for related to The Caribbean and it’s more normalized I think.

Andre Musso, President and CEO, Sagicor Financial Company Limited: Yeah. It’s hard to make sense of our tax rate on an aggregated basis because we’re taxed so simply in Canada and The US and idiosyncratically in our other markets and kind of going back to the comment that I had a minute ago about trying to normalize some of that out. But we continue to believe that managing that is a potential kind of medium to long term source of ROE expansion. Just one last thing before you’re off the line, Meny, I’d like to say thank you very much for your engagement and support over the years.

Meny Grauman, Analyst, Scotiabank: Thanks, man. I appreciate that. That’s all for me.

Sergio, Conference Operator: Thank you. Your next question comes from Trevor Reynolds from Acumen Capital. Please go ahead.

Trevor Reynolds, Analyst, Acumen Capital: Good morning, guys. Canada, the results there seem to come in a little stronger than discussed than the expectations that were discussed after last quarter. Maybe can you just touch on some of the gives and takes there?

Andre Musso, President and CEO, Sagicor Financial Company Limited: I think that’s accurate and it comes down to part of the reason that we’ve put forward consolidated guidance and not segment specific guidance. Everyone is still learning to see how earnings emerge through IFRS 17 and what the different component parts are telling us. So we’re not surprised that Canada had a good quarter operationally because it is having a good quarter operationally in terms of the cost structure, new business sales in seed dollars are up, which is good. And it’s a big book of business and so some quarters we see positive emergence, some negative and some quarters like this. It’s kind of right on the nose.

Profitability is a million or two higher on a quarterly basis than what we would have guided to and we’ll see it’s good to see, we’ll see whether that persists for the year.

Trevor Reynolds, Analyst, Acumen Capital: Okay, and then just on, you discussed the mortality generally being higher in Q1. Are you guys adjusting the way you model that out moving forward in The US?

Andre Musso, President and CEO, Sagicor Financial Company Limited: No plans to right now. I think the actuaries have enough on their place. I think that a good step for us as we’re managing the business is to look at the drivers of earnings and understand what happens. So we will, I think we observed some meaningfully good experience in the Canadian book or in the American book, excuse me, in the back half of last year. So you take a look every year and see whether in aggregate it’s working and use the drivers of earnings to understand what happened every quarter.

Trevor Reynolds, Analyst, Acumen Capital: Got it. And on your or your head office expenses, maybe just where you sit there, if there’s kind of where are you kind of targeting those over the coming quarters and years?

Andre Musso, President and CEO, Sagicor Financial Company Limited: I think on a year over year basis, we’re observing some improvement on the cost of funding side that runs through head office. And so for the time being that’ll be stable from Q1 going forward, because we had a couple of different refinancing events that happened in 2024. We do have some moving pieces on the mark to markets of assets and some other one time items in head office. So we encourage you to look at the core which sees through the noise and I think we’re budgeting on that basis.

Trevor Reynolds, Analyst, Acumen Capital: Great. And then last question, just your core EPS targets, I think the high end at $0.80 a share. Maybe do you think there’s upside to that target given kind of your performance in Q1?

Andre Musso, President and CEO, Sagicor Financial Company Limited: Well, if you annualize Q1, it would tell you so. I think we’re going to wait until we see the second quarter before updating guidance. So Q1 puts us in a good spot. But I think we’re going to wait and see one more before changing it.

Trevor Reynolds, Analyst, Acumen Capital: Great. That’s all my questions. Thank you.

Sergio, Conference Operator: Thank you. There are no further questions at this time. You may proceed.

George Sipsis, EVP of Corporate Development and Capital Markets, Sagicor Financial Company Limited: Thank you, operator, and thank you everyone for joining today’s call. A replay of this call will be available for one month on our website and a transcript will be posted as soon as available. If you have any additional questions, please do not hesitate to reach out to any one of us. With that, thanks again for your participation and interest today. Have a great day, everyone.

Sergio, Conference Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you all for your participation. You may now disconnect.

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