(SFI) Sagicor Financial

SAGICOR FINANCIAL CORPORATION

FINANCIAL RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

The Sagicor Group recorded net income of US $20.3 million for the period. This compares to net income of US $33.4 million for the corresponding period in 2010. Net income attributable to common shareholders was US $0.9 million (2010 - US $15.7 million).

As we signalled in our two previous quarterly reports, the 2011 results will be overshadowed by the exceptional natural catastrophes that occurred earlier this year in Japan, Australia and New Zealand. These events, together with the more recent Hurricane Irene with claims of US $6.0 million impacted the performance of our Sagicor at Lloyd's subsidiary.

These particular events caused a net loss at the Sagicor at Lloyd's segment and its impact on the Group as a whole is summarised in the table below.

Overall, Group revenue for the period surpassed the billion dollar threshold to reach US $1,024.8 million, an increase of 13% over that for 2010. This was distributed 59% for the Caribbean operations (2010 - 60%), 30% for the Sagicor at Lloyd's segment (2010 - 28%), and 11% for the USA segment (2010 - 12%). Revenue growth was recorded in all segments.

Total benefits increased to US $644.9 million from US $560.9 million in 2010. The rise is a consequence of the increased catastrophe insurance claims and of the growth in premium revenue. Expenses also reflect the continued growth in business and increased to US $351.0 million from $301.6 million in 2010. Commissions and other selling expenses accounted for US $35.6 million of the expense increase. Income taxes declined by US $4.2 million in 2011, a consequence of the tax loss arising in respect of the Sagicor at Lloyd's segment.

At September 30, 2011, total assets were US $5,326.7 million and represented an increase of US $459.4 million over the nine month period. Financial investments totalled US $4,069.1 million and comprised 76% of total assets. Total liabilities increased by US $410.8 million over the nine month period to reach US $4,539.2 million.

In July, the Common Share Rights and Preference Share offerings closed and raised US $135.7 million net of associated expenses, of which US $51.1 million was recorded in shareholders' equity and the remaining US $84.6 million in other liabilities.  This capital is earmarked for funding expansion opportunities in the region.

On September 30, 2011, Standard & Poor's re-affirmed the investment-grade credit rating of Sagicor Life Inc of BBB-/Stable.

The 2011 results have been largely driven by the exceptional losses at Sagicor at Lloyd's. In response to this challenge, management is implementing the decision to exit two unprofitable insurance lines. The 2012 underwriting plan for Sagicor at Lloyd's is now in its final stages and we anticipate a return to profitability in 2012 for this segment.

Forecast growth in the US economy for 2011 has been reduced from 3.0% to 1.6%. Turmoil continued in the Eurozone financial markets and further government austerity measures were announced in a number of member countries. These factors cast considerable doubt over the strength of the global economic recovery and do impact all the markets in which Sagicor operates. The Board and management are committed to navigating the Group through this difficult economic climate.

On behalf of the Board of Sagicor, I wish to thank our policyholders, clients and shareholders for their continued and valued support.

Stephen McNamara

Chairman

9 November 2011

Enquiries:

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF INCOME

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

1.         BASIS OF PREPARATION

These condensed interim financial statements have been prepared in accordance with the accounting policies set out in note 2 of the December 31, 2010 audited financial statements. 

1.1       Accounting policy - recognition of and accounting for preference shares

On July 18, 2011, the Company issued convertible redeemable preference shares that are accounted for as a compound financial instrument. The shares are contractually redeemable on July 18, 2016 if the shareholder has not opted to convert the shares prior to this date.   Dividends may be declared semi-annually by the Company's directors.

The redemption value is therefore recognised as a contractual liability, and is measured initially at its discounted fair value. The discount rate reflects (i) the rate of interest applicable to similar liability with a contractual dividend rate, and (ii) the interest premium required by the shareholder for an instrument with a non-contractual dividend. 

The preference shareholders' right to receive dividends is recognised within shareholders' equity, and is measured initially as the residual fair value of the preference shares in their totality after deducting the liability for the redemptive value. It is initially recorded in a reserve within shareholders' equity.

Incremental costs directly attributable to the issue of the preference shares are allocated between the liability for the redemption value and the equity reserve in proportion to their initial carrying amounts.

After initial recognition, the liability for the redemption value is accreted to its ultimate maturity value using the effective interest yield method, with the accretion being recorded as a finance cost in the statement of income. After initial recognition, the equity reserve is transferred to retained earnings pro-rata to the dividends declared over the period to redemption.

2.         COMMON SHARES

On July 18, 2011, the Company issued 12,575,676 common shares at a price of US $1.63 or Barbados $3.26  per share.  The subscription consideration and issue costs are set out as follows:

3.   PREFERENCE SHARES

The 120,000,000 convertible redeemable preference shares issued by the Company have the following features: 

(i)         Issue price of US $1.00 or Barbados $2.00 per share;

(ii)  Annual dividend rate of 6.5%, dividends to be declared by the Company's directors' and payable half yearly on May 15

(ii)        Convertible into common shares at a ratio of 1.98 preference shares to 1.00 common shares, conversion to be at the option of the shareholder and exercisable on May 16 or November 16 in any year prior to the redemption date;

(iv)       Redeemable on July 18, 2016 at issue price, if not converted before.

These shares are accounted for as a compound financial instrument.  The subscription consideration, issue costs, and the initial recognition of the shares in the statement of financial position are as follows: