ANNUAL
REPORT
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
Our Vision:
to be a great company,
committed to
improving the lives
of people in the
communities in
which we operate.
CONTENTS
1840 – The Beginning The Establishment of Barbados Mutual Life Assurance Society
4
6
10
Overview
Financial Highlights
Chairman’s Statement
1849 – 1896 Caribbean Expansion
Corporate Social Responsibility
16
22 Human Resources
1987 – 1999 Winds of Change – Demutualisation
28 Operating and Financial Review
2000 Rebirth Sagicor
42
48
49
58
Board of Directors
Directors’ Interests
Corporate Governance Report
Executive Management
2005 – Present International Expansion
Index to the Financial Statements and Notes
Auditors’ Report
Actuary’s Report
Consolidated Statement of Financial Position
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
64
66
67
68
69
70
71
180 Shareholder Information
185 Advisors and Bankers
186 Offices
Sagicor
Financial
Corporation
1840
The Beginning
– The Establishment of Barbados Mutual Life Assurance Society
Sagicor’s legacy company, Barbados Mutual Life Assurance
Society (The Mutual) launched in 1840, amidst financial
uncertainty. It was a time when the sugar plantation-based
society of the West Indies was struggling with socio-
economic changes following emancipation in 1834.
From its inception, The Mutual made significant
contributions to capital formation and investment in
Barbadian sugar plantations and cocoa estates in Trinidad
and Grenada, keeping both industries afloat amidst this
period of crisis. In addition, all classes, including upper
mercantile, planter elites, working, and middle classes used
The Mutual’s policies as collateral.
Some see things as they are and say, “Why?”
Others dream of things that never were, and say, “Why not?”
OVERVIEW
2010 marked 170 years of our Company’s existence, first as The
Barbados Mutual Life Assurance Society, and then as Sagicor,
following our demutualisation in 2002.
We are justifiably proud of our longevity as one of the oldest
insurance companies in the Americas and the second oldest in the
Commonwealth.
Today, our company is synonymous with world-class financial
services, and is seen as a dynamic, indigenous Group which
has been re-defining financial services in the Caribbean. It is
not surprising therefore, that the proposed investment by the
International Finance Corporation in our Company will be IFC’s
largest investment to date in a single Caribbean entity as well as in
the insurance industry.
As we stand on the threshold of yet another extremely important
and critical time in the economic life of our region and indeed,
the rest of the world, Sagicor will continue to be at the vanguard
of providing a wide range of financial products and services,
while at the same time renewing our commitment to our vision,
“To be a great Company, improving the lives of the people of the
communities in which we operate.”
We are equally proud that the vision, tenacity, intrepid spirit and
strong belief in, and commitment to the region which led to the
start of our Company, has remained a guiding force more than a
century and a half later.
Over the years, our Company has played a critical role in the
seminal periods of financial development in our region. From
inception, we made significant contributions to capital formation
and investment and for several decades we were a net importer
of capital, at a time when capital for investment anywhere in the
region was in short supply.
We led the consolidation of the Caribbean life insurance industry
between the late 1990s and early 2000s, emerging as the Region’s
leading insurance company. Following a carefully crafted business
strategy, we transformed our company from a local single-line
life insurance company into a regional financial services Group.
Having built a strong regional base, we expanded into the
international financial services market.
Sagicor now operates in 22 countries in the Caribbean, Latin
America, the UK and the US. Our assets moved from US $150
million at the beginning of the 1990s to US $4.9 billion by end of
year 2010. Our Revenue moved from US $40 million to US $1.3
billion and our profits from US $2 million to US $42 million. Our
policies in force have also grown substantially, moving from 60,000
to over 600,000.
Sagicor
Financial
Corporation
4
If you can imagine it, you can create it.
FINANCIAL HIGHLIGHTS
SHAREHOLDER RETURNS AND SHAREHOLDER INFORMATION
NET INCOME ATTRIBUTABLE TO SHAREHOLDERS
EARNINGS PER SHARE
US$16.6m
2010
2009
(US$m)
16.6
66.8
2010
2009
5.7cents
(US cents)
5.7
24.0
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO SHAREHOLDERS
TOTAL COMPREHENSIVE INCOME - EARNINGS PER SHARE
US$38.2m
2010
2009
(US$m)
38.2
83.1
(US$m)
565.6
538.1
(US$m)
399.2
516.3
13.2 cents
DIVIDENDS
4.0 cents
BOOK VALUE PER SHARE
195.7 cents
SHARE PRICE
138.1 cents
2010
2009
2010
2009
2010
2009
2010
2009
(US cents)
13.2
29.8
(US cents)
4.0
4.0
(US cents)
195.7
185.7
(US cents)
138.1
178.2
NET INCOME – RETURN ON SHAREHOLDERS’ EQUITY
TOTAL COMPREHENSIVE INCOME – RETURN ON SHAREHOLDERS’ EQUITY
3.0%
(%)
3.0
14.5
7.2%
2010
2009
(%)
7.2
18.4
SHAREHOLDERS’ EQUITY
US$565.6m
MARKET CAPITALISATION
US$399.2m
2010
2009
2010
2009
2010
2009
Sagicor
Financial
Corporation
6
FINANCIAL HIGHLIGHTS
GROUP FINANCIAL POSITION
ASSETS
US$4,867.3m
2010
2009
2010
2009
DEBT
US$181.9m
GROUP PERFORMANCE
NET INCOME
US$41.6m
2010
2009
2010
2009
TOTAL COMPREHENSIVE INCOME
US$80.6m
EQUITY
US$738.8m
DEBT TO EQUITY
24.6%
REVENUE
US$1,256.1m
BENEFITS
US$769.7m
(US$m)
4,867.3
4,460.0
(US$m)
181.9
200.8
(US$m)
41.6
87.6
(US$m)
80.6
100.8
2010
2009
2010
2009
2010
2009
2010
2009
(US$m)
738.8
681.4
(%)
24.6
29.5
(US$m)
1,256.1
1,205.3
(US$m)
769.7
708.2
Sagicor
Financial
Corporation
7
FINANCIAL HIGHLIGHTS
SEGMENT PERFORMANCE
SAGICOR LIFE INC – SEGMENT REVENUE
SAGICOR LIFE INC – SEGMENT INCOME
US$311.1m
SAGICOR LIFE JAMAICA – SEGMENT REVENUE
US$389.9m
SAGICOR EUROPE – SEGMENT REVENUE
US$355.1m
SAGICOR USA – SEGMENT REVENUE
US$162.7m
(US$m)
311.1
300.4
(US$m)
389.9
431.5
(US$m)
355.1
255.6
(US$m)
162.7
189.7
2010
2009
2010
2009
2010
2009
2010
2009
US$29.0m
SAGICOR LIFE JAMAICA – SEGMENT INCOME
US$56.3m
SAGICOR EUROPE – SEGMENT INCOME
US$(13.1)m
SAGICOR USA – SEGMENT INCOME
US$3.1m
(US$m)
29.0
36.1
(US$m)
56.3
55.6
(US$m)
(13.1)
13.7
(US$m)
3.1
5.5
2010
2009
2010
2009
2010
2009
2010
2009
Sagicor
Financial
Corporation
8
The beginning
is the most important part
of the work.
CHAIRMAN’S STATEMENT
FINANCIAL CONDITION: The Group’s financial condition remains
strong with Total Assets increasing 9.1% from US $4.5 billion to
US $4.9 billion. Shareholders’ Equity grew 5.1% from US $538.1
million to US$565.6 million, whilst Book Value per Share moved up
5.4% from US$1.86 to US$1.96. The Group’s Debt to Equity Ratio
was 24.6% at the end of the year compared to 29.5% one year
earlier.
ANALYSIS: The primary source of the disappointing operating
results was the very poor returns from our global P&C business,
operated through our UK subsidiary Sagicor at Lloyds. Presented
by principal operating segments and summary analysis, the Group
net income attributable to shareholders for 2010 and 2009 was as
follows:
Income attributable to Shareholders
(in US$000)
Operating Segments
Sagicor Life Inc
Sagicor Life Jamaica
2010
2009
(restated)
30,236
40,437
31,960
34,155
Sagicor Europe (Sagicor at Lloyd’s)
(13,124)
13,693
Sagicor USA
Other Operating Companies
Group financing costs
3,144
2,130
5,461
4,257
(18,835)
(15,105)
35,511
82,898
Head office function and adjustments
(18,951)
(16,052)
Total net income attributable to shareholders
16,560
66,846
Stephen McNamara
Chairman
OPERATING RESULTS: The financial year 2010 was a disappointing
one for the Sagicor Group. Strong financial results from our
core Caribbean operations were offset by losses in our global
property and casualty (P&C) business written through our Lloyds
Syndicate Sagicor at Lloyds, increased financing costs, and
lower future investment yields which had a negative impact on
actuarial liabilities. Group Net income for the year amounted to
US $41.6 million, down from a restated US $87.6 million for 2009.
Consequently, Net Income attributable to shareholders was US
$16.6 million, compared to a restated US $66.8 million for 2009.
Group total comprehensive income amounted to US $80.6 million,
of which US $38.2 million was attributable to shareholders. The
comparable restated 2009 figures were US$100.8 million and
US$83.1 million respectively.
Earnings per Share amounted to 5.7 US cents, down from the
restated 2009 earnings of 24.0 US cents. The average Return on
Shareholders’ Equity in 2010 was 3.0%, compared to the 2009
restated percentage of 14.5%.
Sagicor at Lloyds, like other Lloyds Syndicates, had an extremely
difficult year incurring a significant increase in claims from
both global catastrophes and UK motor liability. I have already
made mention in previous quarters of the significant impact of
Sagicor
Financial
Corporation
10
the February 2010 Chilean and September 2010 New Zealand
earthquakes. In addition it also became necessary to increase
substantially the claims provision for the UK direct motor
insurance class, due to the worsening claims experience in that
market, as a result of unfavourable winter conditions. These
adverse claims experiences combined to produce a net loss for the
year at Sagicor at Lloyds of US $13.1 million, compared to a net
profit for 2009 of US $13.7 million.
On the other hand, Sagicor Life Jamaica and its subsidiaries
Sagicor Life Cayman and PanCaribbean Financial Services had a
very good year despite a lower interest rate environment. After the
Jamaica Government implemented the debt exchange programme
in early 2010 (wherein higher yielding government debt securities
were exchanged for lower yielding securities), interest rates and
inflation have declined, and the Jamaica dollar has maintained its
exchange rate with the US dollar. Net income (before allocation to
shareholders) in 2010 was US $56.3 million compared to US $55.6
million in 2009. However, since the Group reduced its effective
holding in PanCaribbean Financial Services in the segment, from
64% to 51% in late 2009, the resulting net income attributable
to shareholders fell to US $32.0 million from US $34.2 million in
2009.
The Sagicor Life Inc segment, which comprises the Barbados,
Trinidad, Eastern Caribbean, Dutch Antilles and Belize life
insurance operations, also had a good year earning net income
of US $30.2 million, compared to US $40.4 million for 2009.
The decline in net income from 2009 is mainly as a result of the
impact of changes in actuarial assumptions, which had a less
beneficial impact on income in 2010. In particular, because of the
general weak economic conditions, future investment yields were
anticipated to decline in most territories comprising the segment
and gave rise to an increase in the actuarial liabilities and a
corresponding reduction in net income for 2010.
The Sagicor USA operations continue to make progress in the US
writing annuity, single premium life and periodic life business in
that market. During financial year 2010, the company wrote settled
annualised premium totalling US $115.5 million, comprising 64%
annuity products and 36% life products. Sagicor US contributed
US $3.1 million, compared to a restated US $5.5 million for the
previous year.
Other operating companies comprise other subsidiaries not
managed as part of the principal operating segments and in
particular include Sagicor General Insurance Inc and Barbados
Farms Limited. These entities contributed net income of US $2.1
million in 2010, compared to US $4.3 million in 2009. The reduced
contribution reflects the lower earnings of Sagicor General as a
result of reduced investment gains and increased claims resulting
from hurricane Tomas.
The Group financing expense comprises the cost of the Sagicor
7.5% senior notes, and of banking and reinsurance financing
facilities. These principally finance our UK and USA operations.
The increase for the year arises primarily from interest on a new
bank loan taken out in late 2009 and from the cost of additional
reinsurance financing.
In the statement of income, total revenue for the year was US
$1,256.1 million (2009 - US $1,205.3 million) and was distributed
59% (2009 – 63%) across the Caribbean region, 28% (2009 – 21%)
in the UK and 13% (2009 – 16%) in the USA. Property and casualty
premium increased to US $350.2 million from US $249.5 million
in 2009, while annuity premium fell to US $127.7 million from
US $172.4 million in 2009. These amounts reflect the increased
business in the UK and a reduction in annuity business written in
the USA.
Sagicor
Financial
Corporation
11
Net policy benefits totalled US $691.7 million for the year, up from
US $606.3 million in 2009. Property and casualty claims increased
significantly to US $243.3 million from US $135.8 million. However
interest expense declined to US $78.0 million from US $101.9
million in 2009. This is largely a consequence of the reduction in
interest rates in Jamaica.
Total expenses recorded were US $429.4 million (2009 – US $390.2
million). Increased commission and administrative expenses
arose directly as a consequence of the shift in premium to the UK
operations in 2010.
Other comprehensive income consists of net gains or losses
resulting from movements in fair value of assets, and currency
translation gains or losses from holding foreign currency
subsidiaries. The Group recorded net gains of US $33.3 million
resulting from movements in the fair value of assets and net
gains of US $6.0 million in respect of currency translation. Other
comprehensive income totalled US $39.0 million for the period, of
which US $21.6 million was attributable to shareholders.
capital to meet these anticipated obligations. Management have
reviewed the current risk profile of the Syndicate and are in the
process of taking corrective actions to reduce the level of exposure
to global catastrophes. We expect that these changes will take
effect from the second half of the year.
The global economy continues to show signs of improvement.
Despite civil unrest in several areas and increasing oil prices we
remain optimistic that 2011 will be a year of moderate growth for
the global economy. Caribbean economies continued to experience
difficulty during 2010 as the benefits from the global up turn are yet
to be felt in our region. Going forward, we expect that the region
will gradually emerge from the global economic down turn and
return to a period of modest growth.
For the Sagicor Group, our traditional operations performed well
during 2010 despite challenging economic circumstances. We are
confident of a similar performance in 2011. Once the corrective
action at Sagicor at Lloyds begins to impact our Group, we expect
our results to return to the strong levels of previous years.
OUTLOOK: 2010 was the seventh most expensive year for
catastrophes for the P&C insurance industry since 1970, according
to the latest sigma study by Swiss Re. Insurance losses were up
60% over 2009 which was a relatively benign year. The Sagicor at
Lloyd’s business as a part of the Lloyds environment has exposures
to global insurance catastrophes. 2011 is also shaping up to be
an active year for catastrophes. Events have occurred in 2011 to
date include the Queensland Australia floods and cyclone, and
the earth quake in Christchurch New Zealand, and the earthquake
and tsunami across parts of Japan. We anticipate that Sagicor will
incur insurance claims arising out of these events. Though we
have significant reinsurance coverage in place, the magnitude and
number of these events within a space of three months will have
an adverse effect on our first quarter 2011 results. Notwithstanding
this, Sagicor at Lloyd’s has more than adequate resources and
DIVIDEND: Despite the reduced operating results in 2010, and
the challenging prospects arising from the property and casualty
experience in the first quarter of 2011, the Group remains in strong
financial condition. Accordingly, the Board has decided to declare a
final dividend of US 2 cents for 2010 which taken with the interim
dividend paid in October 2010 maintains a total dividend of US 4
cents for the year.
In 2005, Mr Christopher de Caires was elected as a Director of
SFC, and subsequently served as a Director on a number of other
subsidiaries within the Sagicor Group. He became Chairman of the
Human Resources Committee of the SFC Board from June 2006.
Mr de Caires will not be seeking re-election at this Annual Meeting.
On behalf of the Directors, Management and Staff of the Sagicor
Group, I wish to thank Mr de Caires for his yeoman service to the
Sagicor
Financial
Corporation
12
Sagicor Group, and his many valuable contributions as Chairman
of the HR Committee.
On behalf of the Board, I would also like to sincerely thank our Staff
and Advisors for their continuing support and hard work during
the year. I would particularly like to extend congratulations to those
Staff members and Advisors throughout the Group who excelled in
their performance during 2010, and were recipients of our highest
awards and accolades.
Finally, on behalf of the Board, I sincerely thank our Policyholders,
Clients, and Business Partners for their continued and valued
support to Sagicor in 2010.
Stephen McNamara
Chairman
Sagicor
Financial
Corporation
13
1849 – 1896
Caribbean Expansion
Barbados was the major port for lively trade between
the Caribbean islands, and it was a natural progression
for The Mutual to branch out for new clients. Over the
next 20 years, The Mutual expanded its operation, and
branches were opened in St. Vincent (1849), Trinidad and
Tobago (1858), Grenada (1858), St. Kitts (1861), Antigua
(1863), Montserrat (1863), Guyana (1866), Dominica
(1868), and Jamaica (1896). The Mutual was the only
indigenous life insurance company to establish agencies
throughout the British Caribbean, with the largest
operations and investments during the entire nineteenth
and early twentieth century.
You cannot aspire
if you look down;
you must look up.
CORPORATE SOCIAL RESPONSIBILITY
Sagicor has always recognised the importance of social investment,
and that is why, from the very beginning, we have been committed
to enhancing the long-term quality of life in the communities we
serve. For over several decades, we have provided financial support
and voluntary assistance to several organisations and institutions.
Sagicor’s social responsibility initiatives stretch across multiple
countries, and focus on a number of pillars within each community.
We actively seek opportunities and charitable organisations that
focus on the youth in our societies - specifically in the areas of
education, health, sports and community development. In addition
to providing wise financial counsel, we wish to ensure that the
legacy we pass on to future generations is an appreciation for
education in a world filled with opportunity, health and wellbeing.
On January 12, 2010, Sagicor, like the rest of the world, was
profoundly moved by the earthquake in Haiti which wrought
massive devastation. In addition to pledging US$250,000 to assist
the Haitian people, Sagicor offered to match all donations made by
staff members across the Group. The full amount contributed by
Sagicor and its staff totaled US$309,456.
Donations were made to several organisations working in Haiti.
The largest of these – US$155,212 – was made to UNICEF.
Immediately after the earthquake, UNICEF was one of the first
responders. They focused their attention on the children of
Haiti, addressing their urgent nutritional and health needs, while
simultaneously creating a programme for re-registering and
ensuring that they returned to school as soon as possible.
In addition to the donation to UNICEF, Holy Seed International,
a non-profit organisation that supports an orphanage in Marigot,
Haiti received US$16,500 from Sagicor Life Inc. We thought that
this orphanage, Arc en Ciel (French for ‘Rainbow’) was special, as
it supports children who have been orphaned or abandoned and
children who are already fighting against the odds, having lost
their parents either to tuberculosis and HIV/Aids, or the recent
earthquake. The orphanage provides care for children between
the ages of five and nine years old who are in need of basic food,
clothes and other personal items.
Sagicor Jamaica and PanCaribbean Financial Services donated
US$50,744 to the Red Cross and the Salvation Army relief efforts in
Haiti.
Our United States operation, Sagicor Life Insurance Company,
donated a total of US$ 87,000 to two organisations, Partners in
Health and Project 81. Partners in Health has been working in
Haiti for over 20 years. The organisation is based in Boston, and
brings modern medical care to poor communities. Project 81
is the brainchild of Annie and Jared Brown, two volunteers at a
Haitian orphanage, who are themselves former Sagicor producers.
The organisation was named after Village 81, a poor community
in which they installed a well to provide clean water, and also
distributed food and parasite-fighting medicine to young children.
They still use the arts and other creative media to raise awareness
about Haiti.
Sports:
As a result of the UNICEF programmes, the children of Haiti
are given the opportunity to receive an education and much-
needed health services. UNICEF places a great emphasis on
education because they believe that, by educating children from
early childhood, they will have a better start in life and greater
opportunities.
Sagicor has a vision which sees our people and our institutions,
including our sporting teams, competing as equals in the
global arena. On 6 March, the Sagicor West Indies Cricket High
Performance Centre, the first cricket academy of its kind in the
Caribbean, based at the Cave Hill Campus of the University
of the West Indies in Barbados, was officially opened. Sagicor,
Sagicor
Financial
Corporation
16
having first strengthened its base in the Caribbean, now operates
in 22 countries, including the United States and the United
Kingdom. Our investment in the Sagicor West Indies Cricket High
Performance Centre must therefore be viewed within the context
of this vision. We believe that the return of West Indies cricket
to its rightful place on the world stage is a necessary part of the
restoration of the rapidly declining pride once associated with the
region’s superior cricketing standards, and of our people. The High
Performance Cricket Centre is an important part of this process. It
will provide the much-needed strategic guidance and stimulating
environment necessary to hone the competitive skills required in
today’s cricketer, and we hope that this will be the catalyst which
sparks the beginning of the re-emergence of high-quality West
Indies cricket. Sagicor is proud to be a part of this initiative, and is
working with the University of the West Indies and the West Indies
Cricket Board to make this vision a reality.
The Sagicor West Indies Cricket High Performance Centre provides
a unique educational and training facility, designed to create
well rounded, multi-skilled young cricketers. It offers support in
physical, technical, psychological and lifestyle areas of the game,
and players follow a programme specifically tailored to their
individual needs.
As a Group, Sagicor has continued nurturing proficiency in several
sporting disciplines. In the USA, 2010 marked the third year of
our Sagicor USA partnership with the University of South Florida
(USF) Tampa as one of the sponsors of USF’s Athletics, with
concentration on the “Bulls” Football Team.
Sagicor USA is also a proud corporate partner with Major League
Baseball’s Tampa Bay Rays and the National Football League’s
Arizona Cardinals. Through these partnerships, Sagicor USA is
active in a number of community outreach programs both in
Tampa Bay, Florida, and metro Phoenix, Arizona.
Sagicor USA’s association with the Tampa Bay Rays allows players
to arrange a series of visits, throughout the baseball season, to
the children undergoing medical treatment at the All Children’s
Hospital in St. Petersburg, Florida. With the Arizona Cardinals,
Sagicor USA was the corporate sponsor for the annual St. Mary’s
Food Bank Alliance food drive. Just prior to the U.S. Thanksgiving
holiday, Arizona Cardinal fans were asked to bring canned food
donations which are then distributed to those in need throughout
the Phoenix metropolitan area.
In the United Kingdom, Sagicor at Lloyd’s (SaL) raised funds
for several charities by sponsoring staff participation in several
sporting activities including netball, cricket and golf. In addition,
we supported three staff teams for the Insurance Endurance Go-
Kart race which lasts for well over 6 hours.
Sagicor Life Jamaica (SLJ) concentrated on training young athletes
during the year. The highlight of their several initiatives was the
Jamaica Teachers Association/Sagicor National Primary, All Age &
Junior High Meet, an annual sporting event for all age schools with
participation of over 5,000 students in the lead up to the event. At
the championships, over 1,200 students compete to be crowned
national champions. Still in the area of sports, PanCaribbean
Financial services (PCFS) focused on the Junior Tennis
Championships and Development Tournament. However their
single largest project, the PanCaribbean’s Sigma Corporate Run,
attracted over 11,000 participants and, as a result, PCFS were able
to donate money to the Sir John Golding Rehabilitation Centre, the
Jamaica Association for the Deaf and the Jamaica Society for the
Blind.
Sagicor Life Inc (SLI) supported several sporting disciplines,
including golf, game fishing, Special Olympics, an annual
summer camp and the uniquely Barbadian sport, Road Tennis.
SLI continued its support to the Primary Schools Chess
Championships. The tournament is the nucleus for developing
Sagicor
Financial
Corporation
17
junior chess players, some of whom go on to represent Barbados
regionally and internationally. Participation allows the children
to meet new people and make new friends, while encouraging
sportsmanship; striving for excellence and surpassing their
personal best. Chess also prepares them for certain aspects of
their life, since it exposes them to a healthy level of competition.
SLI in Trinidad and Tobago continued its long association with the
Sagicor Junior Tennis Tournament for 8 to 18 year olds, and the
St Andrew invitational Golf Tournament. Trinidad also sponsored
the new Bago Sports Beach Football Invitational Tournament. This
new tournament, which was held at Turtle Beach in Tobago, was an
overwhelming success and attracted several teams from Tobago,
Antigua, Barbados and Trinidad. In the Eastern Caribbean, SLI
entered its nineteenth year of support for the OECS Swimming
Championships, one of the region’s premier sporting events.
The centerpiece of Sagicor General’s commitment to sport
continued to be the Sagicor General Super-Cup, Shield and
Twenty/20 competitions. In 2010, they also supported the Junior
National Squash Championships, the National Junior Track and
Field Championships in Trinidad, and the Somerset Cricket Team in
Dominica.
Health:
During 2010, Sagicor continued to provide significant support
in the area of Health. Emphasis was placed on the prevention
of non-communicable diseases, the promotion of healthy living
and facilitating access to health-care. Throughout the Sagicor
Group, funds were raised for organisations which are advocates
for specific health issues. Sagicor Life supported the Trinidad and
Tobago Cancer Society programme, which builds awareness about
the disease in primary and secondary schools, and teaches about
the lifestyle changes that can assist in preventing various forms of
cancer. Sagicor Life Jamaica supported the Consie Walters Cancer
Care Hospice, the Jamaica Cancer Society and MacMillan Cancer
Support in the United Kingdom, an organisation that provides
practical, emotional and financial support to people who live with
cancer.
Another area supported was health care facilities catering
specifically to children. These included the Bustamante Hospital
for Children in Jamaica, for whom funds were raised through the
Shakti Love Fest. This annual one-day health and fitness event was
the brainchild of the Shaggy Make a Difference Foundation.
Sagicor Life (USA) participated once again in the annual telethons
for Tampa Bay’s All Children’s Hospital and the Phoenix Children’s
Hospital annual “Give for Kids” telethon. In addition to a corporate
donation to each cause, staff members volunteered their time
to make the telethons a success. The funds raised from both
telethons go to ongoing support of the hospitals, purchase of
advance medical technology and specialised medical treatments.
SaL supported the Great Ormond Street Hospital, so that it may
remain at the forefront of international paediatric medicine, and
continue to offer specialist, world-class care to thousands of
patients every year.
The Stroke Association also benefitted from SaL. It is the only
UK-wide charity solely concerned with combating stroke in people
of all ages. Recognising that strokes have a greater disability
impact than any other medical condition, the Stroke Association
funds research into prevention, treatment and better methods of
rehabilitation. It also helps stroke patients and their families cope
with the effects of the disease through its Life After Stroke Services.
These include Information, Advice and Support, Communication
Support and Life After Stroke grants. In addition, the Association
also crafts campaigns to educate, inform and increase knowledge
and awareness of the disease at all levels of society.
Sagicor
Financial
Corporation
18
continued sponsorship of Sagicor Exodus, one of the island’s
premier steel orchestras, entered its 6th year in 2010 and remains
a rewarding community engagement. Other activities included
support for Special Olympics, the B.T. Washington Elementary
School in Tampa, Florida, Arthritis Foundation, Habitat for
Humanity, and Lowery Park Zoo in the USA; British Heart
Foundation, Royal British Legion, Lloyd’s Patriotic Fund and First
Central Charity Auction in the United Kingdom; Scout Association
of Jamaica, West regional Foundation for Disabled Children,
Dare-to-Care children homes, the Jamaica Defence and Jamaica
Constabulary Forces and Camp Yellow Bird, Wolmer Boys and
William Knibb High Schools in Jamaica; The Optimists, Crime
stoppers, Small Business Association.
2010 was the first year of a commitment made by SLI Trinidad
and Tobago towards the upkeep of the Vitas House facility, which
provides a sanctuary for those afflicted with cancer.
Education
The “Read with Big Red” program is sponsored by Sagicor USA.
An Arizona Cardinals player and the Cardinals’ mascot, “Big Red”,
visit elementary schools in the Phoenix area, where they read story
books to the children. This program provides a fun and exciting
way for young students to experience the joy of reading.
Sagicor USA also continues to collaborate with USF’s College of
Business in a special project with the Marketing Faculty.
Sagicor Life Inc and PanCaribbean provided scholarships for
University students. In the case of Sagicor Life Inc, Barbados, the
awarding of these scholarships started approximately 20 years ago.
In Trinidad and Tobago, Sagicor’s sponsorship of the Fulbright
Scholarship stands as testimony to the fact that Education remains
high on the company’s agenda. Supplementary to this effort was
the establishment of a scholarship for studies in insurance at the
University of the West Indies under the auspices of the Trinidad
and Tobago Association of Insurance and Financial Advisors.
Sagicor Life Jamaica awarded scholarships to outstanding children
of public sector workers for the duration of their high school
career. They also continued their Adopt-A-School projects, in
which company branches execute building projects and repair
and beautification work for 12 basic schools across the Island.
In-house health checks for vision, hearing and general health were
conducted at each of the schools.
Several other organisations, schools, specific interest groups,
community projects and sporting associations were supported
by the Sagicor Group during the year. Trinidad and Tobago’s
Sagicor
Financial
Corporation
19
1
2
3
5
1. Sagicor branding at the Raymond James Stadium, home of the USF Bulls.
2. Participants warming up before the 2010 Sigma Corporate Run in Jamaica.
3. Presentation of cheque to the Trinidad & Tobago Cancer Society.
4. Presentation of cheque to UNICEF Regional Representative towards their Haiti Relief Fund.
5. Participants after a fundraising event for the Arthritis Foundation in Florida.
4
1
2
3
4
1. Young players and their coaching staff at the Sagicor West
Indies Cricket High Performance Centre, 3W’s Oval in
Barbados.
2. The winning team of the Bago Sports Beach Football
Invitational Tournament in Trinidad.
3. Presentation of cheque to the Jamaica Red Cross towards
their Haiti relief efforts.
4. A member of the Sagicor-sponsored Major League
Baseball’s Tampa Bay Rays at a community outreach event.
HUMAN RESOURCES
Modern organisations can survive in the dynamic, competitive
environment of today only if they capitalize on the full potential
of each employee. In this regard, the Sagicor Group continues
its focus on employee development through education, training
and various programmes geared towards employee engagement,
many of which are available online for convenience and ease of
use. Many of our staff have successfully pursued, and have been
awarded key industry designations during 2010. These include
Fellow, Life Management Institute (FLMI), Associate, Insurance
Agency Administration (AIAA) and Professional, Customer Service
(PCS). In addition, Sagicor employees across the Group have
gained Masters of Business Administration degrees and other
degrees, at Masters level, across a spectrum of disciplines.
In addition to the above training programmes, Sagicor initiated a
Memorandum of Understanding with the University of the West
Indies in Trinidad and Tobago, for a Bachelor’s Degree in Risk
Management and Insurance. The degree programme is expected
to become part of the curriculum for the academic year, September
2011. We will leverage opportunities for similar programmes for
Management and Staff development in other regions.
In 2010, training facilitators embraced available technologies
for remote training, using video conferencing facilities and
“GoToMeeting”, for delivering Corporate Induction, Performance
Management and Time Management programmes. Ongoing
workshops on Anti-Money Laundering and our Code of Ethics and
Business Conduct will be moving to online facilitation, thereby
making delivery more convenient. These programmes are key to
ensuring that our Management, Advisors and Staff are able to
deliver a high quality of service to Customers, whilst maintaining
the highest standards of integrity and full compliance with all legal
and regulatory requirements.
During 2010, the Global Human Resources Task Force successfully
introduced a new Group-wide talent management system internally
branded ‘Sagicor Success’. The system includes modules in
performance, talent and recruitment management, succession
planning, and learning and development. It is anticipated that
implementation will improve performance and productivity,
enhance training, career development and succession planning,
and provide Management with analytical reports for critical
decision-making of our human capital. As part of this exercise, the
Sagicor Group also moved to a new nine (9) grade salary structure.
This initiative provides the following benefits:
(cid:116)(cid:1) Equity - all positions that require similar skills and experience
are classified in the same grade.
(cid:116)(cid:1) Standardisation of competency requirements for each grade to
facilitate consistent job evaluations,
(cid:116)(cid:1) A foundation for the standardisation of jobs, employee training
and development programmes, and the harmonisation of
benefits and rewards.
Sagicor Life Jamaica launched a three-year Customer Service
Training programme to strengthen its customer service culture.
Under the theme, “Service First”, it included workshops and
themed programmes for all staff. Similar initiatives will be
launched in other Group Companies in 2011.
Sagicor Life Inc launched the pilot for a Coaching Program
facilitated by the Cave Hill School of Business. Initially rolled out
in Barbados and Trinidad, this initiative will be expanded across
Group companies in 2011. Managers will participate in practical,
hands-on workshops which will focus on group-work and role-play.
Coaching and mentoring enhance morale, motivation, productivity,
and will support our efforts to improve employee engagement.
Employee engagement continued to be at the forefront of
initiatives across the Group for 2010. Using the independent
services of LOMA, Group companies conducted employee opinion
surveys. These reports provided employee feedback on key issues,
Sagicor
Financial
Corporation
22
and helped to guide Management’s decisions for employee
participation and satisfaction. Sagicor USA focused their efforts
on benefits education for Staff and introduced “Benetrac”, a
system allowing for Online Benefits Enrolment and Maintenance.
Sagicor Life Jamaica hosted a motivational seminar, which included
internationally renowned speakers, Les Brown and Susan Taylor.
During the year, multiple events were hosted across the Group to
recognise and reward team members for their dedication and high
performance, and to foster social interaction. Our Family Fun Days,
our Wellness Programmes and Healthy Lifestyle activities have
become important social events on our calendar.
won by Kareem Prescod from Trinidad, is awarded for outstanding
contribution in the areas of new business, service above and
beyond the call of duty and/or commitment to excellent service.
The Employee of the Year Award recognises outstanding
contribution for customer service, creativity and innovation and
demonstrating all the qualities that best exemplify the Sagicor
Spirit including sound knowledge of our business, wise judgment
that has led to business development and good corporate citizenry.
For 2010, the winners were Maritza Pottinger, USA; Earlene Davis,
Trinidad; Victoria Dalrymple, Barbados and Wayne Thorpe of
Jamaica.
Our reward and recognition programmes culminated in
recognising the best employees across geographical boundaries.
These Group- level awards are judged by an external panel of three
regionally eminently qualified persons. The Contributor of the Year,
The Sagicorian is recognised as the most outstanding Employee
of the Year in the Sagicor Group. Wayne Thorpe of Sagicor Life
Jamaica won this coveted title in 2010.
Maritza Pottinger
Earlene Davis
Victoria Dalrymple
Wayne Thorpe
Sagicor
Financial
Corporation
23
Amongst our Advisors, the leading producers in individual life
sales, in their specific territory were Patricia Gilding, Barbados;
Rudolf Coelho, Capital Life; Cheryl Rolle, Eastern Caribbean; Rosa
Rengifo, Panama, and Winston Williams, Trinidad & Tobago. USA.
In the area of Group Life & Health, the leading producers for 2010
were Gay Griffith, Barbados; Abel Simpson, Capital Life; Dane Vigo,
Eastern Caribbean and Patti Hudson, Trinidad & Tobago.
Sagicor continues to focus heavily on rewards and recognition
as we believe that these programmes and initiatives foster a
performance based culture and encourage our Managers, Advisors
and Staff to give of their best, especially in these challenging times.
Patricia Gilding
Sagicor
Financial
Corporation
24
Rudolf Coelho
Cheryl Rolle
Rosa Rengifo
Winston Williams
Your aspirations are
your possibilities.
1987 – 1999
Winds of Change – Demutualisation
The mid-1980’s was the springboard for the development
of the modern company and The Mutual saw
unprecedented growth. In 1987 it established Mutual
Finance and acquired Travelers Overseas, renamed
Capital Life. This acquisition expanded its portfolio by
30%, added 10,000 new policyholders, and extended
its operations from eight to fifteen territories, by adding
Aruba, Curacao, St Maarten, Belize, Haiti,
Cayman Islands, and the Bahamas.
In 1999, two more acquisitions were made in the
Caribbean - Island Life in Jamaica and Nationwide
Insurance Company in Trinidad and Tobago
During this period, The Mutual also increased its
commitment to community affairs and built its
reputation role as a good corporate citizen.
Let go of the past and go confidently in the
direction of your dreams.
OPERATING AND FINANCIAL REVIEW
(amounts expressed in US currency unless otherwise stated)
INCOME - $ millions
Overview
2010 was a year in which the economic environment remained
difficult for many of the major economies. Growth remained
slow and unemployment levels remained high. In the Caribbean,
the international effects were felt as many economies which are
dependent on tourism saw a significant decline in earnings from
this sector.
Net premium revenue
Net investment income
Fees and other revenues
Total revenue
Net benefits
Expenses
Income taxes
In this environment, the Sagicor Group made steady progress. Our
Caribbean operations continue to enjoy a strong position in the
marketplace and generated good results. The Sagicor at Lloyd’s
operations suffered from international property claims arising
from natural disasters and from a very poor experience in motor
insurance.
Group net income
Fair value reserve gains (net)
Retranslation of foreign currency operations
Total comprehensive income
Revenue
2010
2009
restated
901
293
62
843
294
68
1,256
1,205
(770)
(429)
(15)
42
33
6
81
(708)
(390)
(19)
88
26
(13)
101
Group net income for the year was $42 million, contributing
to total comprehensive income of $81 million. The restated
2009 results were Group net income of $88 million and total
comprehensive income of $101 million.
The tables below summarise the components of income and
comprehensive income for 2010 and 2009.
Sagicor recorded total revenue of $1,256 million for 2010, an
increase of $51 million or 4% over 2009’s total.
Net premium revenue in 2010 totalled $901 million, up from $843
million recorded in 2009. The components of this revenue are as
follows:
NET PREMIUM REVENUE – $ millions
Life insurance
Annuity
Health insurance
Property and casualty insurance
Net premium revenue
2010
2009
294
128
129
350
901
280
173
141
249
843
Sagicor
Financial
Corporation
28
Life insurance premium grew by 5% to $294 million. Annuity
premium, which has a substantial proportion of single premiums,
declined by 36% to $128 million. Health insurance premium
declined by 9% to $129 million; the decline is a consequence
of the Group’s exit at the end of 2009 from this market in the
Cayman Islands. Property and casualty insurance premium grew
substantially by 41% to total $350 million in 2010. This growth
came principally from Sagicor at Lloyd’s.
represent (i) the amounts due to policyholders which arise during
the year and (ii) the amounts expensed during the year for future
amounts payable to policyholders. After deducting reinsurance
recoveries, the net amounts are disclosed in the next table.
Interest expense represents the interest returns to contract-holders
and financial institutions which place or advance funds to the
Group to earn interest and, in some instances, capital returns.
The table below summarises the net insurance benefits and
interest expense for 2010 and 2009.
Net investment income for 2010 amounted to $293 million, a
decrease of $1 million from 2009’s total. Interest income is the
main component of investment income. Investment yields were
lower especially in the Jamaica market where the Government
introduced a debt exchange program and issued lower yielding
securities. The interest yields of the principal assets classes are
summarised in the table below.
NET BENEFITS – $ millions
Life insurance
Annuity
INTEREST YIELDS
Debt securities
Mortgage loans
Policy loans
2010
2009
Amounts expensed for future benefits
8.1%
8.3%
8.6%
9.8%
8.6%
8.6%
Health insurance
Property and casualty insurance
Net insurance benefits
Finance loans and finance leases
11.4% 12.9%
Interest expense
Securities purchased under agreements to resell
5.6% 15.5%
Net benefits
Deposits
2.5%
2.9%
2010
2009
restated
132
78
145
94
243
692
78
770
118
73
164
115
136
606
102
708
Fees and other revenue totalled $62 million in 2010 as compared
to $68 million in 2009. With the strengthening of the Jamaica
dollar in 2010, there was a reversal of the foreign exchange gains
traditionally recorded by Sagicor’s Jamaica operations.
Benefits, expenses and taxes
The Group recorded net insurance benefits of $692 million in 2010,
an increase of $86 million over 2009’s total. Insurance benefits
In the foregoing table, life insurance and annuity benefits comprise
amounts which become due to policyholders and beneficiaries
during the year. Life insurance benefits grew by 11% when
compared to the previous year. Annuity benefits grew by $5 million
to $78 million in 2010. The amounts expensed for future benefits
are principally in respect of life insurance and annuity policies.
These represent the amounts the Group should prudently set aside
in order to fund future benefits of inforce policies. The amount
expensed in 2010 amounted to $145 million, a decrease of $19
million from 2009. The amount expensed is influenced by the
Sagicor
Financial
Corporation
29
quantum of single premiums written which were significantly lower
in 2010.
in these expenses is consistent with the growth experienced in
premium revenue.
Health insurance benefits declined by $21 million in 2010
in comparison to 2009’s total. $15 million of the decline is
attributable to the Group’s exit at the end of 2009 from this
market in the Cayman Islands. In addition, the Group experienced
improved claims ratios on its continuing health business.
Property and casualty (P&C) insurance benefits comprise amounts
due and paid on policy contracts during the year and the estimates
of claims incurred during the year, but not reported to the Group.
P&C benefits grew substantially to $243 million in 2010. Included
in this growth is a worsening net claims ratio, which increased to
69% in 2010 from 55% in 2009.
There was a reduction in interest expense in 2010 when compared
to 2009. This reflects the trend of reduced investment yields,
particularly in Jamaica, where the Group has a significant banking
operation. The interest yields of the principal liability classes are
summarised in the following table.
INTEREST YIELDS
Investment contracts
Other funding instruments
Customer deposits
2010
2009
8.3%
2.0%
5.3%
8.1%
2.4%
6.7%
Securities sold under agreements to repurchase
7.4% 11.8%
In 2010, the Group recorded total expenses of $429 million.
These included administrative expenses of $212 million and
commissions and related expenses to agents and brokers of $174
million. Administrative expenses increased 7% over 2009’s total
and commissions increased 16% over 2009’s total. The growth
Income taxes are levied on the investment income of certain life
insurance subsidiaries of the Group, and on net income before
tax on most of the remaining Group companies. Total investment
income and net income subject to taxation declined to $128 million
compared to $133 million in 2009. The resulting tax charge in 2010
was $15 million, a reduction of $4 million from the previous year.
Group net income and total comprehensive income
During the year, the Group changed its accounting policy for
recording changes in actuarial liabilities which result directly
from the fair value movements of assets which are booked
in other comprehensive income. The new policy is to record
those movements in actuarial liabilities in other comprehensive
income. The policy achieves a better matching of asset fair
value movements and the consequential changes in actuarial
liabilities. The 2009 results have been restated to conform to the
revised accounting policy, resulting in a decrease in net benefits
of $24 million and an increase in income tax of $7 million. These
amounts which net to $17 million have been reclassified to other
comprehensive income under the revised accounting policy.
Group net income for 2010 totalled $42 million as compared to a
restated $88 million for 2009.
In other comprehensive income, the Group recorded in 2010 an
increase of $33 million in the fair value reserves (including the
consequential movements in actuarial liabilities). The comparable
result for 2009 was $26 million. The Group also recorded gains
on the retranslation of foreign currency operations in 2010 of $6
million (2009 – losses of $13million). The turnaround is a result of
the strengthening of the Jamaica dollar.
Sagicor
Financial
Corporation
30
In summary, the Group’s total comprehensive income for 2010 was
$81 million, a reduction of $20 million from the prior year’s result.
Allocation of income to shareholders
The Group’s net income and comprehensive income are allocated
ultimately to the equity owners of the respective Group companies
in accordance with their results. As some Group companies have
minority shareholders, particularly in Jamaica, the Group’s net
income is allocated accordingly between Sagicor shareholders
and the minority interest shareholders. There is also an allocation
to Sagicor Life Inc policyholders who hold participating policies.
This latter arrangement was established on the demutualisation of
Sagicor Life Inc.
Accordingly, the income attributable to shareholders was $17
million (2009 - $67 million), representing earnings per share of
6 cents and a modest return on shareholders’ equity of 3%. Other
comprehensive income attributable to shareholders totalled $21
million (2009 - $16 million).
Operating Segments
The table below presents the management structure of the Group.
Sagicor
Financial
Corporation
(Head Office)
Sagicor
Europe
(Sagicor
at Lloyd’s)
Sagicor
Life
Inc
Sagicor
Life
Jamaica
Sagicor
USA
Other
Operating
Companies
Sagicor Financial Corporation is a holding company and does not
engage directly in trading activities. Most trading activities are
carried out by Group companies within the principal operating
segments, namely Sagicor Life Inc, Sagicor Life Jamaica, Sagicor
Europe and Sagicor USA. The contribution of each of these to
income and comprehensive income is considered and discussed in
the following sections.
Sagicor Life Inc Segment
The Sagicor Life Inc segment consists of the life insurance
subsidiaries which conduct business in Barbados, Trinidad and
Tobago, the Eastern and Dutch Caribbean islands, Belize and
Panama.
The main activities of the segment are the provision of life and
health insurance, retirement accumulation savings, annuities,
mortgages, pension investment and pension administration
services.
This segment generated $311 million in total revenue for 2010,
a marginal increase over the prior year. Net premium revenue
advanced to $216 million, with growth being recorded in the
Trinidad and Tobago and Dutch Caribbean markets.
Net benefits incurred totalled $185 million in 2010, as compared
to $173 million in the previous year. Compared to 2009, declining
investment yields was a feature in most territories. This impacted
the actuarial assumptions used for valuation of life insurance
and annuity liabilities, generating a higher liability as a result.
Sagicor
Financial
Corporation
31
Administrative and commission expenses recorded increases of $5
million.
In summary, the Sagicor Life Inc segment recorded total
comprehensive income attributable to shareholders of $30 million
in 2010, a reduction from the 2009 result of $44 million.
SAGICOR LIFE INC SEGMENT
INCOME - $ millions
Net premium revenue
Net investment income
Fees and other revenues
Segment revenue
Net benefits
Expenses
Income taxes
Segment income
Income attributable to shareholders
Comprehensive income attributable to
shareholders
2010
2009
restated
216
80
15
311
209
77
14
300
(185)
(173)
(92)
(5)
29
30
30
(86)
(5)
36
40
44
The overall Segment net income totalled $29 million as compared
to a restated $36 million for 2009. After adjusting for the net
income or loss attributable to the participating policyholders
of Sagicor Life Inc, the net income attributable to shareholders
totalled $30 million and $40 million for 2010 and 2009 respectively.
Notwithstanding the decline from 2009, the 2010 performance
is in line with management’s expectations since the favourable
investment yield assumption for 2009 was not projected to
continue.
Unrealised investment gains had a more beneficial impact on other
comprehensive income in 2009 than in 2010.
Sagicor Life Jamaica segment
This segment comprises Group subsidiaries in Jamaica and
Cayman Islands conducting insurance under the Sagicor brand,
and banking and other financial services under the PanCaribbean
Financial Services (PCFS) brand. The principal products of
the segment are the provision of life, critical illness and health
insurance, annuities, pension administration, investment
management, securities dealing and commercial banking.
During 2010, the Government of Jamaica (GOJ) implemented the
Jamaica Debt Exchange program (JDX). The JDX was a program to
exchange the majority of existing GOJ domestic debt instruments
for new debt instruments having longer maturities and lower
coupon rates. The exchange date for the new debt instruments was
February 24, 2010. Sagicor’s Jamaica operations participated in the
JDX.
As a large holder of long-term GOJ bonds, the JDX program had a
negative impact on current and expected future bond yields. This
reduction in bond yields affected the segment’s 2010 investment
income. The future bond yields impact the assumptions used in
computing the actuarial liabilities. This was reflected in the 2009
computation of actuarial liabilities and remained effective for the
2010 computation. In addition, the interest rates payable on non-
insurance liabilities also declined in 2010.
With the implementation of the JDX and other fiscal and economic
measures by the GOJ under an International Monetary Fund
Standby Agreement, Jamaica in 2010 continued to experience lower
inflation than in the relatively recent past. In 2010 the Jamaica
dollar currency (JMD) experienced an overall strengthening when
Sagicor
Financial
Corporation
32
translated to the US dollar (USD), moving from an exchange rate
of JMD89:USD1 to JMD86:USD1 over the course of the year.
SAGICOR LIFE JAMAICA SEGMENT
Net premium revenue totalled $213 million a reduction of $19
million from 2009’s total. The reduction is a consequence of the
disposal effective January 1, 2010 of Sagicor General Insurance
(Cayman) Limited (SGC), which generated $22 million in premium
revenue in 2009. Net investment income recorded was $157
million in 2010, a decrease of $10 million over 2009’s total. Fees
and other revenue totalled $20 million in 2010, a decline of some
$13 million when compared to 2009. A reversal of foreign exchange
gains and the disposal of SGC are contributing factors for this
variance.
As a result of the foregoing, total revenue in the segment declined
by $42 million in comparison to 2009.
Net benefits incurred in 2010 were $213 million, a decline of $39
million when compared to 2009. $17 million of this reduction is
attributable to the disposal of SGC. Interest expense declined by
$21 million as explained in a foregoing paragraph.
Expenses recorded a slight decline of $3 million and income taxes
remained constant at $9 million.
INCOME - $ millions
Net premium revenue
Net investment income
Fees and other revenues
Segment revenue
Net benefits
Expenses
Income taxes
Segment income
Income attributable to shareholders
Comprehensive income attributable to
shareholders
2010
2009
213
157
20
390
(213)
(112)
(9)
56
32
54
232
167
33
432
(252)
(115)
(9)
56
34
31
The segment achieved net income of $56 million in 2010, which
remained unchanged in comparison to 2009. After adjusting for
minority interests, the income attributable to shareholders for
the two years totalled $32 million and $34 million respectively.
It should be noted that the Sagicor Group reduced its effective
interest in the PCFS Group of companies from 64% to 51%
in November 2009. This resulted in the reduction in income
attributable to shareholders.
Other comprehensive income included $28 million (2009 - $21
million) in unrealised investment gains. Due to the strengthening
of the JMD in 2010, the segment recorded a currency translation
gain of $10 million as compared to a currency translation loss
of $22 million in 2009. These movements contributed to the
overall $22 million other comprehensive income attributable to
shareholders.
Sagicor
Financial
Corporation
33
In summary, the segment contributed $54 million total
comprehensive income attributable to shareholders in 2010, in
contrast to the corresponding figure of $31 million for 2009.
Sagicor Europe Segment
This segment comprises the Sagicor at Lloyd’s business which
consists primarily of property and casualty (P&C) insurance
business written through Lloyd’s of London Syndicate 1206.
The principal insurance lines underwritten by this syndicate are
in respect of personal accident, property, liability and motor
risks. The Lloyd’s of London franchise enables the syndicate to
write international business outside of the United Kingdom. A
substantial proportion of the syndicate’s property business is
international.
2010 was a very disappointing year for this segment. Earthquakes
were recorded in Chile in February and in New Zealand in
September. While there were no major hurricanes affecting
North America and the Caribbean, the claims generated from the
aforementioned earthquakes adversely affected the 2010 results.
In addition, the direct motor insurance class, underwriting motor
risks in the UK, experienced exceptionally high levels of incurred
claims. A trend of escalating claims became critical late in the year.
Notwithstanding the implementation of premium rate increases
as the year progressed, the claims experience continued to
worsen. Other syndicates in the Lloyd’s UK insurance market also
experienced very poor results.
Net premium revenue for the year totalled $345 million, an
increase of $94 million over 2009’s figure. Increases were recorded
across motor, property and liability insurance lines. Foreign
exchange gains contributed to the increase in other revenue of $4
million.
Net benefits grew to $236 million from $127 million in 2009. The
overall net claims ratio incurred in 2010 for the P&C insurance
lines was 70%, an increase of 17% from the 53% net claims ratio
incurred in 2009.
Total expenses increased in 2010 over 2009’s total by $33 million.
Additional commissions costs and administrative expenses were
incurred in support of the increase in premium revenue recorded.
International Financial Reporting Standards (IFRS) require that
non-monetary deferred premiums and commissions are brought
into the income statement at the rates of exchange prevailing on
the dates of inception of the premiums. Because this applies to
premium and commissions, and not to the corresponding claims
and administrative expenses, it means that IFRS requires different
rates of exchange for different types of transactions in the income
statement.
The items in the table below, up to and including segment income
before FX (foreign exchange) unwinding, have all been converted
at consistent rates of exchange. The amount of FX unwinding
disclosed in the table below is the net adjustment required to
comply with IFRS.
The amount of FX unwinding was minimal in 2010 as exchange
rate movements of the Pounds Sterling to the other operating
currencies did not have a significant impact. In 2009, the impact
was quite significant, generating an expense of $9 million.
Sagicor
Financial
Corporation
34
SAGICOR EUROPE SEGMENT
INCOME - $ millions
Net premium revenue
Net investment income
Fees and other revenues
Segment revenue
Net benefits
Expenses
Income taxes
2010
345
3
7
355
(236)
(136)
3
Segment (loss) / income before FX unwinding
(14)
FX unwinding
Segment (loss) / income
(Loss) / income attributable to shareholders
Comprehensive (loss) / income attributable to
shareholders
1
(13)
(13)
(15)
2009
251
2
3
256
(127)
(103)
(3)
23
(9)
14
14
18
opposed to periodic premium polices which prevail in Sagicor’s
Caribbean markets.
Sagicor has continued to maintain the success in this market which
was established in 2009. Total settled annualised premium in 2010
was $116 million, of which $74 million comprised annuities and
$42 million comprised life insurance products. Settled premium
for 2009 totalled $143 million, comprising annuities $94 million
and life insurance $49 million. Consequently, net premium revenue
in 2010 totalling $120 million declined from 2009’s total of $153
million.
Net investment income grew by $6 million to $41 million in 2010,
the increase arising from the larger quantum of assets invested
throughout 2010.
Consistent with the reduction in premium revenue, total net
benefits declined by $23 million to $122 million.
In 2010, expenses and income taxes were broadly consistent with
the prior year amounts.
Other comprehensive income includes a charge of $2 million for
the retranslation of the Group’s investment in the segment. The
retranslation is done from Pounds Sterling, which is the functional
currency of the segment, to USD. In 2009, a retranslation gain of
$4 million was recorded.
Accordingly, in 2010 the total comprehensive loss for this segment
totalled $15 million (2009 – income of $18 million).
Sagicor USA segment
This segment comprises the USA operations of Sagicor. Life
insurance and annuity products are offered in this segment. The
USA market has a strong appetite for single premium policies, as
Sagicor
Financial
Corporation
35
SAGICOR USA SEGMENT
INCOME - $ millions
Net premium revenue
Net investment income
Fees and other revenue
Segment revenue
Net benefits
Expenses
Income taxes
Segment income
Income attributable to shareholders
Comprehensive income attributable to
shareholders
2010
2009
restated
120
41
2
163
153
35
2
190
(122)
(145)
(36)
(2)
3
3
7
(37)
(3)
5
5
10
The segment generated net income of $3 million for 2010,
compared to a figure of $5 million in 2009. In other comprehensive
income unrealised investment gains were the principal feature.
In summary, the total comprehensive income attributable to this
segment for 2010 was $7 million.
Statement of Financial Position
In the Group’s consolidated statement of financial position, assets
totalled $4,867 million, an increase of $407 million during 2010.
Liabilities grew by $350 million during the year to reach $4,128
million. This growth in assets and liabilities has been generated
internally from operations.
As of December 31, 2010, total equity amounted to $739 million, of
which shareholders’ equity amounted to $566 million.
With 289 million common shares outstanding, the book value per
share was $1.96, up from $1.86 at the beginning of the year.
Consolidated assets, liabilities and capital are discussed in the
following three sections.
Assets
The Group’s primary assets are its investments comprising debt
securities, loans, deposits, equity securities and investment
property. These investments back the insurance and financial
liabilities assumed by the Group. The distribution of investments
and cash is summarised in the following table.
INVESTMENTS & CASH
2010
2009
$ millions % $ millions %
Government debt securities
1,497
Corporate and other debt securities
1,111
Total debt securities
2,608
Loans and finance leases
Deposits and repo securities
Cash
Equity securities
Investment property
Associated companies and other
items
565
340
219
112
119
45
37
28
65
14
9
5
3
3
1
1,350
874
2,224
572
357
196
117
117
37
38
24
62
16
10
5
3
3
1
4,008
100
3,620
100
Debt securities remain the principal class of investment held
by the Group, comprising 65% of the total. Of this percentage,
37% comprises government securities, while corporate and other
securities comprise 28%.
Sagicor
Financial
Corporation
36
The remaining assets totalled $859 million (2009 - $840 million).
The more significant balances comprising this total are reinsurance
assets of $282 million, property plant and equipment of $131
million, premium receivables of $145 million, and intangible assets
of $123 million.
no significant insurance risk, and supplement our life insurance
and annuity suite of products. Securities sold under agreements
to repurchase, customer deposits and a significant proportion of
other funding instruments represent the liabilities arising from
our banking, investment management and securities dealing
operations.
Liabilities
The Group’s principal activities consist of accepting insurance risks
from policyholders and of accepting funds from depositors and
lending institutions. The liabilities which arise from these activities
are summarised in the following table.
The remaining liabilities totalled $432 million (2009 - $452 million).
Included in this total are notes and loans payable of $182 million,
amounts due to reinsurers and policyholders of $80 million and
general payables and accruals of $108 million.
OPERATING LIABILITIES
2010
2009
Capital
Life and annuity insurance
contracts
Health insurance contracts
Property and casualty insurance
contracts
Investment contracts
Securities sold under agreements
to repurchase
Customer deposits
Other funding instruments and
other items
$ millions % $ millions %
1,840
50
1,689
41
537
294
576
174
234
1
14
8
16
5
6
41
385
304
501
168
238
51
1
12
9
15
5
7
3,696
100
3,326
100
The provision of life insurance and annuity contracts remains
a core product line of Sagicor. Liabilities from these contracts
represent some 50% of the Group’s operating liabilities. Property
and casualty insurance contracts are a significant product line
forming 14% of operating liabilities. Investment contracts carry
The capital resources of the Group consist of equity, debt and off
balance sheet contingent debt. Capital resources are summarised
in the following table.
CAPITAL RESOURCES - $ millions
Sagicor shareholders’ equity
Minority shareholders’ equity
Total equity
Total debt
Off balance sheet contingent debt
Total capital resources
2010
2009
566
169
735
182
34
951
538
138
676
201
35
912
There have been no new external sources of capital during the year.
There were however debt repayments of $14 million during the year
as a Group company partially repaid its preference shares and as
certain other debt obligations were repaid. The result is a debt to
equity ratio of approximately 25% at the end of 2010 compared to a
ratio of 29% a year before.
Sagicor
Financial
Corporation
37
performance of Sagicor at Lloyd’s was a major disappointment.
The combination of earthquakes in two countries with a history
of infrequent exposure to such disasters and an adverse claims
experience in underwriting UK motor risks meant that this segment
of our business incurred a significant loss.
The economic and financial landscape continues to exhibit
challenges which will influence the Group’s performance in the
foreseeable future. Particular attention has to be drawn to the
natural disasters which have occurred early in 2011 in Queensland
Australia, Christchurch New Zealand and in Japan. Unfortunately,
these events will adversely affect the results of Sagicor at Lloyd’s in
2011.
In recent years, Sagicor’s operations have become more diverse,
entering the USA and Lloyd’s insurance markets. Management
believes that diversification strengthens the Group’s ability to
deliver consistently favourable results to shareholders over time.
In 2011, the Group will continue to refine its strategies to take
advantage of the opportunities available and to make adjustments
when it is fitting to do so.
Shareholders’ equity increased by $28 million during the year. The
increase largely arose from total comprehensive income of $38
million which was offset by dividends declared of $12 million.
Minority interests increased during the year to $169 million from
$138 million. The increased is explained by total comprehensive
income generated of $44 million offset by dividends paid of $9
million and a disposal of $4 million.
The Group maintained its off balance sheet letter of credit facility
which supports the Sagicor at Lloyd’s operations. The change in
the balance is attributable to exchange rate movements.
The Group is subject to a number of capital adequacy standards
for its insurance, banking, investment management and securities
dealing operations. In addition, in some Caribbean jurisdictions
where there are no prevailing international capital adequacy
insurance standards, the Group has voluntarily adopted a standard
for its subsidiaries operating in those countries. The Group meets
the prevailing capital adequacy standards and the standards it has
voluntarily adopted.
The principal standard followed by the Group is the Canadian
Minimum Continuing Capital and Surplus Ratio (MCCSR), which
was a consolidated 224% for the Group as of December 31, 2010,
well in excess of the minimum recommended requirement of
150%. The MCCSR is a standard for life insurance operations.
The Group’s major property and casualty operation is Sagicor at
Lloyd’s, which is subject to and complies with the capital standards
established by Lloyd’s of London and by the Financial Services
Authority of the United Kingdom.
Conclusion
Sagicor
Financial
Corporation
For Sagicor 2010 was a year of mixed results. Our Caribbean
businesses performed well in a weak economic environment.
Our US business continues to demonstrate promise. The
38
Believe you can and
you’re half way there.
2000 Rebirth
Sagicor
In 2001, Sagicor acquired Life of Jamaica. Operations of
Island Life and Life of Jamaica were amalgamated and
the company was subsequently rebranded to Sagicor Life
Jamaica Limited in 2008.
In November 2002, after 162 years as a mutual company,
policyholders overwhelmingly agreed to demutualise. To
mark the rebirth the Company was rebranded Sagicor,
a combination of two words: “Sage” meaning wise and
“Cor” for heart or judgment.
Sagicor Financial Corporation was established in 2002
with 45,000 of its policyholders as shareholders. The
company’s Initial Public Offering was oversubscribed by
162%. Sagicor was first listed in 2003 on the Barbados
Stock Exchange and a year later on the Trinidad and
Tobago Stock Exchange.
To accomplish
great things,
we must not only act,
but also dream;
not only plan,
but also
believe.
BOARD OF DIRECTORS
STEPHEN McNAMARA,
60, was appointed Non-
Executive Chairman on
January 1, 2010, having
formerly served as Vice-
Chairman since June
2007. He has been an
independent Director
since December 2002,
and is a citizen of
St Lucia and Ireland. He is a British-trained Attorney-at-law, and
is the Senior Partner of McNamara & Company, Attorneys-at-Law
of St Lucia. Mr McNamara was elected to the Board of Sagicor
Life Inc in 1997. He is Chairman of the Group’s main operating
subsidiary, Sagicor Life Inc, and also of Sagicor Capital Life
Insurance Company Limited, Sagicor USA, and Sagicor Finance
Inc. He is also a Director of a number of other subsidiaries within
the Group.
ANDREW ALEONG, 50,
has been an independent
Director since June
2005, and is a citizen
of Trinidad and Tobago.
He holds an MBA from
the Richard Ivey School
of Business, University
of Western Ontario,
Canada. Mr Aleong is
Group Managing Director of the Albrosco Group of Companies,
Trinidad and Tobago, and has served the Trinidad and Tobago
manufacturing industry for over 20 years. He is a former President
of the Trinidad and Tobago Manufacturers’ Association. Mr Aleong
also serves as a Director of a number of private companies. He
was elected a Director of Sagicor Life Inc in 2005, and is also a
Director of Sagicor Capital Life and a number of other subsidiaries
within the Group.
Sagicor
Financial
Corporation
42
PROFESSOR
SIR HILARY BECKLES,
K.A., 55, has been an
independent Director
since June 2005, and is
a citizen of Barbados.
Sir Hilary earned his PhD
from Hull University,
United Kingdom, and
received an Honorary
Doctorate of Letters from the same University in 2003. He has
served as the Head of the History Department and Dean of the
Faculty of Humanities, University of the West Indies. In 1998, he
was appointed Pro-Vice-Chancellor for Undergraduate Studies and,
in 2002, the Principal of Cave Hill Campus. Sir Hilary has published
widely on Caribbean economic history, cricket history and culture
and higher education, and serves on the Editorial Boards of several
academic journals. He has lectured in Africa, Asia, Europe and the
Americas. He was elected a Director of Sagicor Life Inc in 2005,
and is also a Director of Sagicor Life Jamaica and a number of
other subsidiaries within the Group.
PETER CLARKE, 56, has
been an independent
Director since June
2010, and is a citizen
of Trinidad and Tobago.
He obtained a Bachelor
of Arts degree from Yale
University and a Law
degree from Downing
College, Cambridge
University. He was called to the Bar as a member of Grays Inn,
London, in 1979, and to the Bar of Trinidad and Tobago in 1980. He
is a Financial Consultant with a 22-year career in stockbroking. From
1984 to 2000 he was the Managing Director of Money Managers
Limited, one of the leading stockbrokers in Trinidad and Tobago.
On the acquisition of Money Managers by West Indies Stockbrokers
Limited (WISE), he became Managing Director of WISE in 2000
and was appointed its Chief Executive in 2001 until his retirement
in 2005. Between 1980 and 1984 he practised as a Barrister-at-
Law in private practice in Trinidad and Tobago. Mr Clarke is a
Director of a number of companies in Trinidad and Tobago, and a
former Chairman and Director of the Trinidad and Tobago Stock
Exchange. He is also a member of the University of the West Indies
Development and Endowment Fund and the Finance Council of the
Roman Catholic Archdiocese of Port of Spain. From 2002 to 2005 he
was a Director of the Trinidad and Tobago Chamber of Industry and
Commerce, and from 1992 to 1995 was a member of the Betting
Levy Board and Deputy Chairman of the Trinidad and Tobago Free
Zones Company. Mr Clarke was elected a Director of Sagicor Life
Inc in August 2010, and is also a Director of a number of other
subsidiaries within the Group.
Sagicor
Financial
Corporation
43
DR JEANNINE COMMA,
60, has been an
independent Director
since June 2007, and
is a citizen of Trinidad
and Tobago. She holds
a PhD from George
Washington University,
Washington, DC, USA,
and is also a graduate
CHRISTOPHER
DE CAIRES, 55, has been
an independent Director
since June 2005, and is
a Citizen of Barbados,
Guyana and the United
Kingdom. He is a
Chartered Accountant
and holds an MBA from
Henley Management
of the University of the Virgin Islands. Dr Comma is CEO/Director
of the Cave Hill School of Business of the University of the West
Indies, where she specialises in organisational development,
strategy and leadership development. She has made significant
contributions to the sustainable development of human capital
within the regional business community. Dr Comma has extensive
experience in Leadership Development, Organisational Strategic
Planning and Change Management. She has also taught at
the undergraduate and graduate levels at George Washington
University, Howard University, Washington, DC, and the University
of the West Indies. She is a member of The American Society for
Training and Development and the Commonwealth Association of
Public Administration and Management (CAPAM). Dr Comma was
elected a Director of Sagicor Life Inc in 2006, and is also a Director
of Sagicor Capital Life and a number of other subsidiaries within
the Group.
College, United Kingdom. He is the Managing Director of the
Fednav Group, a private international shipping company, and
has significant experience in management and financial services.
Mr de Caires is a former Partner of PricewaterhouseCoopers
where he was responsible for corporate finance, business advisory,
international business and trust services in the Caribbean. He has
also served as President of the Institute of Chartered Accountants
of Barbados, and as Chairman of a number of Government and
national institutions. He was elected a Director of Sagicor Life Inc
in 2005, and is also a Director of PanCaribbean Financial Services,
Sagicor USA, and a number of other subsidiaries within the Group.
Sagicor
Financial
Corporation
44
JOYCE DEAR, 67, has
been an independent
Director since August
2006, and is a citizen
of Barbados. She is a
Fellow of the Association
of Chartered Certified
Accountants of the
United Kingdom, and
holds an MBA from the
MARJORIE
FYFFE-CAMPBELL
(formerly Marjorie
Chevannes-Campbell),
59, has been an
independent Director
since June 2005, and
is a citizen of Jamaica.
She holds an MSc in
Accounting from the
University of Warwick. She is also a Member of the Hospitality
Financial and Technology Professionals. She was, until 2004, a
Partner in the Assurance and Business Advisory Services Division
of PricewaterhouseCoopers in Barbados. Mrs Dear has over
31 years’ experience in rendering audit and financial services
to a wide variety of industries, including public companies,
tourism and hospitality entities, manufacturing companies,
statutory corporations and international funding agencies/
government-financed programs and projects. Mrs Dear was the
PricewaterhouseCoopers Industry Lead Partner for the public
service assignments, and is a past President of the Institute of
Chartered Accountants of Barbados. She is a former Director of a
general insurance company in Barbados, and is also the Vice-Chair
of the subsidiary, Globe Finance Inc.
University of the West Indies, and is a Member of the Institute of
Chartered Accountants of Jamaica and of the Hospitality, Financial
and Technology Professionals. She is a former President and Chief
Executive Officer of the Urban Development Corporation, Jamaica,
a large property-owning company that manages several entities
such as hotels, attractions, a maintenance company, a water
supply company, a shopping centre, a conference centre and a
golf course. Mrs Fyffe-Campbell is a part-time Lecturer in Financial
and Management Accounting at the Mona School of Business
of the University of the West Indies, where she is also pursuing a
Doctorate in Business Administration with emphasis on corporate
governance. She was elected a Director of Sagicor Life Jamaica in
2002, and is also a Director of other subsidiaries within the Group.
Sagicor
Financial
Corporation
45
RICHARD KELLMAN, 59,
was elected as a Director
in June 2009, and was
appointed Group Chief
Operating Officer on
November 1, 2009. He is
a citizen of Guyana and
of the United Kingdom.
He holds a BSc in
Statistics from University
College, London University, and is a Fellow of the Institute of
Actuaries and an Associate of the Society of Actuaries. He has also
attended training programs at Harvard Business School and has
completed other financial, investment and management training
courses. Mr Kellman is a financial services professional with wide
knowledge regionally in the areas of finance, pensions, insurance
and investments. He has business experience at board level,
and is a former CEO of a quoted diversified Group with interests
in insurance, banking and real estate. He has also held senior
actuarial positions and served on several boards.
WILLIAM
LUCIE-SMITH, 59, has
been an independent
Director since June
2005, and is a citizen
of Trinidad and Tobago.
He holds an MA from
Oxford University and is
a Chartered Accountant.
He is a retired Senior
Partner of PricewaterhouseCoopers, Trinidad and Tobago, where
he headed the Corporate Finance and Recoveries Divisions,
specialising in all aspects of business valuations, privatisation,
mergers and acquisitions and corporate taxation. Mr Lucie-
Smith has been a Special Advisor to the Trinidad and Tobago
Government and Central Bank on divestment, and has served on
several national committees, such as the Rampersad Committee to
Review the Reorganisation and Rationalisation of State Enterprises
of Trinidad and Tobago, and the Daly Committee on Corporate
Insolvency and Company Law with Special Reference to Severance
Pay. He was elected a Director of Sagicor Life Inc in 2005, and is
also a Director of Sagicor USA, Sagicor at Lloyd’s, Sagicor Life
Jamaica, and a number of other subsidiaries within the Group.
Sagicor
Financial
Corporation
46
DODRIDGE MILLER, 53,
was appointed Group
President and Chief
Executive Officer in July
2002, and has been a
Director since December
2002. A citizen of
Barbados, Mr Miller is a
Fellow of the Association
of Chartered Certified
Accountants (ACCA), and obtained his MBA from the University
of Wales and Manchester Business School. He holds an LLM in
Corporate and Commercial Law from the University of the West
Indies and, in October 2008, he was conferred with an Honorary
Doctor of Laws degree by the University of the West Indies. He
has more than 25 years’ experience in the banking, insurance and
financial services industries. Prior to his appointment as Group
President and Chief Executive Officer, he held the positions of
Treasurer and Vice President – Finance and Investments, Deputy
Chief Executive Officer and Chief Operating Officer. Mr Miller
joined the Group in 1989. He is the Chairman of Sagicor at Lloyd’s,
and is also a Director of Sagicor Life Inc, Sagicor USA, Sagicor Life
Jamaica, PanCaribbean Financial Services and a number of other
subsidiaries within the Group.
JOHN SHETTLE, Jr, 56,
has been an independent
Director since June
2008, and is a citizen
of the United States of
America. He received his
undergraduate degree
from Washington & Lee
University, and holds an
MBA from the Sellinger
School of Business at Loyola College, Maryland. Mr Shettle is an
Operating Partner of Stone Point Capital, a private equity firm
in the global financial services industry. He has over 20 years’
experience in senior management positions in the property/
casualty, health and insurance-related services industry. More
recently, he served as Senior Advisor, Lightyear Capital, a private
equity firm, and President and Chief Executive Officer of the Victor
O Schinnerer Company. Prior to that, he was the Chief Executive
Officer of Tred Avon Capital Advisors, Inc, a firm providing advisory
services to companies and private equity firms focused on the
insurance sector. He has held senior management positions at
Securitas Capital, Swiss Reinsurance Company and Frederick, the
Maryland-based AVEMCO Corporation (NYSE). Mr Shettle is also
a Director of Sagicor USA and a number of subsidiaries within the
Group.
Sagicor
Financial
Corporation
47
DIRECTORS’ INTERESTS
Directors’ interests as at December 31, 2010 and as at the record date, April 15, 2011, are as follows:
Shares as at 31-Dec-10
Shares as at 15-Apr-11
Beneficial
Non-beneficial
Beneficial
Non-beneficial
Non-Executive Directors:
Stephen McNamara
Andrew Aleong
Professor Sir Hilary Beckles
Peter Clarke
Jeannine Comma
Christopher de Caires
Joyce Dear
Marjorie Fyffe-Campbell
William Lucie-Smith
John Shettle, Jr
Group Chief Operating Officer:
Richard Kellman
President and Chief Executive Officer:
9,834
505,002
9,579
10,000
11,523
22,378
25,000
7,484
40,000
1,000
1,000
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
16,218
505,002
9,579
10,000
11,523
22,378
25,000
7,484
45,000
1,000
1,000
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Dodridge Miller
As at 31-Dec-10
Shares
As at 15-Apr-11
Shares
Beneficial
912,050*
Non-beneficial
Nil
Beneficial
912,050*
Non-beneficial
Nil
Restricted Stock Grants
Restricted Stock Grants
Vested
924,349
Unvested
167,208
Vested
924,349
Unvested
167,208
Stock Options
Stock Options
Vested
519,012
Exercised
Unvested
Nil
624,655
Vested
519,012
Exercised
Unvested
Nil
624,655
* Includes vested Restricted Stock.
Sagicor
Financial
Corporation
48
CORPORATE GOVERNANCE REPORT
Board Composition and Structure
The maximum number of Directors permitted by the Articles of
Incorporation of the Company is 12 and the minimum is 7. The
Board of Directors presently consists of 12 Members, 10 of whom
are independent Non-Executive Directors. The remaining 2 are
the President and Chief Executive Officer and the Group Chief
Operating Officer. Biographical information on the Directors and
details of their interests in the Company as at December 31, 2010
and as at the record date, April 15, 2011, are set out earlier in this
Report. Non-Executive Directors do not participate in performance-
related incentive plans, and their remuneration consists solely
of cash. The Board Chairman and Directors are paid fees, and
Committee Chairmen and Members are paid an additional fee for
each Committee on which they serve. Executives who are Directors
are not paid fees.
Board and individual Director core competencies, knowledge,
experience and skills are as illustrated on the following Board Core
Competency matrix:
Sagicor
Financial
Corporation
49
a
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Directors’ Skills and Experience
General Management
International Business
Finance/Accounting
Corporate Finance, Mergers & Acquisitions
Strategic Marketing
Corporate Law
Banking
Asset Management
Insurance
Human Resource Management
Property Management and Development
Regulatory
Information Technology
Other: Education
Sagicor
Financial
Corporation
50
Rotation and Re-election of Directors
The Company’s Bylaws provide that at least one-third, or the
number nearest thereto, of the Directors must retire every year,
but a Director shall not be required to retire unless he has been in
office for three years.
Professor Sir Hilary Beckles, and Messrs Andrew Aleong,
Christopher de Caires and John Shettle, Jr will retire at the Eighth
Annual Meeting and, with the exception of Mr de Caires, have
offered themselves for re-election. The Corporate Governance
and Ethics Committee considered the candidates who are
standing for election or re-election at the Eighth Annual Meeting
of Shareholders, and recommends to Shareholders that all the
nominees be re-elected. Profiles of the nominees are contained
in the Management Proxy Circular accompanying the Notice of
the Meeting. In making this recommendation, the Committee
had regard to the core competency requirements of the Board
as a whole; the skills and experience of each nominee; their
independence as defined by our Corporate Governance Policy and
their willingness and ability to devote the time necessary to fulfil
their role as Directors.
Board Responsibilities
The Board of Directors is collectively responsible for providing
entrepreneurial leadership, guidance and oversight to the
Company within a framework of prudent and effective controls
that enable risk to be assessed and managed, with a view to
maximising shareholder wealth within the bounds of law and
community standards of ethical behaviour. The Board’s six main
responsibilities, which it executes through decision-making and
oversight, are strategic planning, enterprise risk management,
executive succession planning and performance evaluation,
Shareholder communications and public disclosures, internal
controls, and Corporate Governance.
The four Committees of the Board - Audit, Corporate Governance
and Ethics, Human Resource, and Investment and Risk - play an
integral role in the governance process, in that they assist the
Board with the proper discharge of its functions by providing an
opportunity for more in-depth discussions on areas not reserved
specifically for the Board. The mandates of all the Committees
comply with best practice.
The respective roles of the Chairman of the Board, the Board,
Committee Chairmen, Committees and Management are clearly
defined. The Group CEO and the Executive Committee (Excom)
are responsible for the day-to-day management of the Group. Their
role is to formulate and implement strategy, operational plans,
policies, procedures and budgets, monitor operating and financial
performance, assess and control risk, prioritise and allocate
resources and monitor competitive and environmental forces in
each area of operation. The roles of functional Group Executives,
who form part of Excom, are also specifically defined.
Board Evaluation
The Board undertook its annual performance evaluation to assess
the effectiveness of the Board’s performance in 2010 as a whole,
as well as that of the Chairman, Directors, Board Committee
Chairmen, Board Committees, the President, Management and the
Corporate Secretary. The 2010 evaluation took the form of a self-
assessment and peer review questionnaire, and the findings have
revealed ongoing opportunities for the continued enhancement of
our Corporate Governance practices.
The Corporate Governance and Ethics Committee also completed a
detailed and rigorous self-assessment of Directors’ independence
as defined under the Corporate Governance architecture. Areas
addressed included the relationship between Sagicor and Directors
in terms of legal and regulatory issues faced by Directors, their
share ownership and share dealings, cross directorships and
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potential conflicts of interest. The Committee concluded that
Directors all meet the independence requirements under our
Corporate Governance Policy.
On-going Director Education
A comprehensive Director Education Program was held during the
year, which also served as an induction exercise to assist Mr Peter
Clarke, who was elected a Director in 2010, in understanding the
operations of the Group and the markets in which it operates.
These sessions expedited his effectiveness as a new Director.
Subjects covered included the allocation of capital and expected
returns on allocated capital, capital standards and requirements,
actuarial reserving, asset liability management, reinsurance, risk
management, financial reporting, and key financial monitoring
ratios.
Board Operations
During 2010, Management engaged the Board of Directors (BOD)
14 times, either in formal meetings or by requests for round-robin
decisions in between meetings. The Audit Committee (AC) met 6
times; the Corporate Governance and Ethics Committee (CGC) met
7 times; the Human Resource Committee (HRC) met 5 times, and
the Investment and Risk Committee (IRC) met 3 times. Directors’
record of attendance was as follows:
Stephen McNamara
Andrew Aleong
Prof Sir Hilary Beckles
Peter Clarke*
Dr Jeannine Comma
Christopher de Caires
Joyce Dear
Marjorie Fyffe- Campbell
Richard Kellman
William Lucie-Smith
Dodridge Miller
John Shettle, Jr
BOD
14 of 14
12 of 14
8 of 14
6 of 7
11 of 14
11 of 14
14 of 14
12 of 14
13 of 14
13 of 14
14 of 14
7 of 14
AC
6 of 6
6 of 6
4 of 6
6 of 6
6 of 6
6 of 6
6 of 6
* Mr Peter Clarke was elected a Director on June 11, 2010.
CGC
7 of 7
HRC
4 of 4
5 of 7
4 of 5
5 of 5
5 of 5
5 of 5
6 of 7
5 of 7
3 of 3
IRC
3 of 3
3 of 3
1 of 1
3 of 3
1 of 3
3 of 3
Total
34 of 34
21 of 23
17 of 26
7 of 8
20 of 25
16 of 19
20 of 20
24 of 27
13 of 14
22 of 23
31 of 35
13 of 20
%
100
91
65
88
80
84
100
89
93
96
89
65
Sagicor
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The Board manages an annual schedule of critical agenda items
designed to ensure that it fulfils its recurring obligations, and
that Board-reserved items are routinely considered. The principal
business at Board meetings in 2010 was to:
(cid:116)(cid:1) consider and approve the Group strategic plan, capital plan
and projections for the period 2010 to 2012;
(cid:116)(cid:1) review periodically the Group capital and liquidity plan,
strategic and business development initiatives forming part of
the Strategic Plan, and other key initiatives;
(cid:116)(cid:1) consider and approve strategic acquisitions and divestments
in furtherance of Group strategy;
(cid:116)(cid:1) receive and consider periodic reports and presentations from
Management on the performance of various subsidiaries
within the Group and the Group on a consolidated basis;
(cid:116)(cid:1) review and approve unaudited interim and audited annual
consolidated financial statements;
(cid:116)(cid:1) approve interim and final dividends; and
(cid:116)(cid:1) receive reports on work being carried out by Board
Committees, and consider and approve their
recommendations as required.
Committee Reports
Corporate Governance and Ethics Committee Report
The role of the Corporate Governance and Ethics Committee is
principally to develop and recommend to the Board policies and
procedures to establish and maintain best practice standards of
Corporate Governance and Corporate Ethics. It also manages
the process for Director succession, Director performance,
the operation of the President, the composition of Board and
Committees, Shareholder communications, and corporate image.
The Committee meets the independence requirements of the
Group’s Corporate Governance Policy. The current Members are
Stephen McNamara (appointed a Member on March 9, 2004 and
Chairman on February 17, 2010), Professor Sir Hilary Beckles
(appointed a Member on March 18, 2009), Marjorie Fyffe-Campbell
(appointed a Member on March 18, 2009) and John Shettle
Jr (appointed August 18, 2010).
The Committee’s business during 2010 included:
(cid:116)(cid:1) reviewing Board and Director core competencies and
identifying gaps to inform the nomination process;
(cid:116)(cid:1) overseeing Director nominations, Board Committee,
subsidiary and outside Board appointments;
(cid:116)(cid:1) overseeing the management of independence requirements
and conflicts of interest;
(cid:116)(cid:1) reviewing the adequacy of Director and Officer liability
insurance cover;
(cid:116)(cid:1) monitoring Director attendance;
(cid:116)(cid:1) reviewing investor relations plans and programs;
(cid:116)(cid:1) generally monitoring the operation of Corporate Governance
practices; and
(cid:116)(cid:1) assessing the adequacy of the Committee’s mandate and
evaluating its effectiveness in fulfilling the same.
Audit Committee Report
The mandate of the Audit Committee is to oversee the external
audit process, and manage all aspects of the relationship with the
External Auditors. The Committee is also required to review the
annual audit plan, interim and audited financial statements, and
international financial reporting standards having a significant
impact on the financial statements. It also reviews actuarial reports
and recommendations.
Sagicor
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The Committee oversees the Internal Audit function, reviewing
Internal Audit’s assessment of the adequacy and effectiveness of
the Group’s internal controls, compliance with legal, statutory and
regulatory requirements, and management of risk.
The Committee meets the independence and skill requirements
of the Group’s Corporate Governance Policy. The majority of the
Members are financially literate, and three Members, William
Lucie-Smith, Joyce Dear and Marjorie Fyffe-Campbell, all Chartered
Accountants, have recent and relevant accounting expertise.
The current Members are William Lucie-Smith (appointed a
Member on August 24, 2005 and Chairman on June 28, 2006),
Andrew Aleong (appointed a Member on June 28, 2006), Joyce
Dear (appointed a Member on August 11, 2006), Marjorie Fyffe-
Campbell (appointed a Member on September 11, 2008) and
Dr Jeannine Comma (appointed a Member on September 11,
2008).
The 2010 activities of the Committee included:
(cid:116)(cid:1) reviewing and approving the external audit plan and timetable;
(cid:116)(cid:1) evaluating the performance of the External Auditors for Group
entities and approving their audit fees;
(cid:116)(cid:1) reviewing the External Auditors’ 2009 management letter and
report on the 2009 audit;
(cid:116)(cid:1) approving the 2010 audit engagement letter;
(cid:116)(cid:1) approving interim and annual audited financial statements,
dividend recommendations, valuation of intangible and other
assets, goodwill impairment tests, actuarial reports and
reports from the External Auditors on key audit issues;
(cid:116)(cid:1) reviewing the financial performance of the Group and key
subsidiaries;
(cid:116)(cid:1) approving the 2010 Internal Audit Plan, reviewing Internal
Audit reports and monitoring Management action on open
Internal Audit items;
(cid:116)(cid:1) reviewing compliance with various financial covenants;
(cid:116)(cid:1) reviewing reports on pending material claims and litigation;
(cid:116)(cid:1) reviewing regulatory compliance reports;
(cid:116)(cid:1) assessing the adequacy of the Committee’s mandate and
evaluating its effectiveness in fulfilling the same.
Human Resource Committee Report
The role of the Human Resource Committee is to advise the
Board with respect to compensation policies, programs and plans,
human resources policies and practices to attain the Company’s
strategic goals, executive management recruitment, succession
plans, performance evaluation and compensation.
The Committee meets the independence requirements of the
Group’s Corporate Governance Policy. The current Members are
Christopher de Caires (appointed Chairman on June 28, 2006
and a Member on October 26, 2005), Professor Sir Hilary Beckles
(appointed a Member on June 28, 2006), Dr Jeannine Comma
(appointed a Member on September 18, 2007) and Stephen
McNamara (appointed a Member on August 18, 2010).
During the year the Committee:
(cid:116)(cid:1) reviewed progress in the implementation of the Group Global
Human Resources Development and Compensation Strategy,
designed to standardise human resource practices, and to
facilitate knowledge transfer of human resource policies and
practices within the Group;
(cid:116)(cid:1) examining the implications of changes to International
(cid:116)(cid:1) reviewed executive performance, compensation and terms of
Financial Reporting Standards;
engagement;
(cid:116)(cid:1) monitored succession planning and leadership and
development plans at the executive level;
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(cid:116)(cid:1) granted awards to qualified participants under the annual cash
incentive, long-term incentive plan (LTI) and employee share
ownership plan (ESOP);
(cid:116)(cid:1) reviewed aspects of the rules of the Company’s annual long-
term incentive plans;
(cid:116)(cid:1) made incentive awards based on performance against
established benchmarks, and
(cid:116)(cid:1) assessed the adequacy of the Committee’s mandate and
evaluated its effectiveness in fulfilling the same.
Investment and Risk Committee Report
The Investment and Risk Committee is charged with ensuring
generally that the Group manages risk within its defined philosophy
and appetite, and in compliance with policy risk parameters. Its
specific mandate is to ensure that an appropriate enterprise risk
management framework is implemented throughout the Group,
approve risk policies and risk undertakings and exposures reserved
for Board decision. It continually monitors exposures relating to
insurance, financial and operational risks. Committee Members
are required to understand the enterprise’s significant inherent
risks and the policies and controls used by Management to assess,
manage and report these risks. The Committee regularly reviews
the Group risk profile, and assesses Management’s plans for
ensuring financial stability and capital soundness.
The Committee meets the independence requirements of the
Group’s Corporate Governance Policy. The current Members are
Stephen McNamara (appointed a Member on November 26, 2003
and Chairman on February 17, 2010), Andrew Aleong (appointed
a Member on March 18, 2009), William Lucie-Smith (appointed
a Member on October 26, 2005), John Shettle, Jr, (appointed
a Member on March 18, 2009) and Peter Clarke (appointed a
Member on August 18, 2010).
In 2010, the Committee saw the results of Management’s work to
strengthen aspects of the Group’s enterprise risk management
architecture, which focused on infrastructural development, risk
identification, assessment and prioritisation, and the development
of quantitative risk models for assessing risks to which the Group
is exposed, including the key risks relating to interest rate, credit
and liquidity. The Committee’s work included:
(cid:116)(cid:1) review of interest rate, credit and liquidity risk dashboards
and ratings for the Company as a whole, and for its major
subsidiaries;
(cid:116)(cid:1) monitoring of risk exposures and review of mitigation
strategies designed to manage risk; and
(cid:116)(cid:1) assessment of the adequacy of the Committee’s mandate and
an evaluation of its effectiveness in fulfilling the same.
Enterprise Risk Management
The Group continued its work to strengthen its integrated
and centralised risk management function. The enterprise risk
management framework comprises articulation of risk philosophy
and appetite, risk structures and processes, risk policies and a
regime of monitoring risk exposures both at the enterprise and
subsidiary levels.
The Group’s activities of issuing insurance contracts, accepting
funds from depositors, and investing insurance premium and
deposit receipts in a variety of financial and other assets expose
the Group to various insurance, financial and operational risks.
Insurance risks include pricing, claims and lapse risks. Financial
risks include credit, liquidity, interest rate and market risks.
Operational risks include fraud, damage to physical assets,
improper business practices, improper employment practices,
business interruption and system failures, and execution and
process errors. Exposure to and sensitivity to financial and
Sagicor
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55
insurance risks are disclosed in Notes 41 and 42 respectively to the
2010 audited financial statements contained in this Annual Report.
Internal Audit
The mission of Group Internal Audit is to provide independent,
objective assurance and consulting services designed to add
value and improve the organisation’s operations by utilising an
appropriate risk-based audit methodology across the Group.
It helps the organisation accomplish its objectives by bringing
a systematic, disciplined approach to the evaluation and
improvement of risk management, control, and governance
processes.
The scope of work of Internal Audit is to determine whether
the organisation’s network of risk management, control,
and governance processes, as designed and represented by
Management, is adequate and functioning in a manner to ensure
that:
(cid:116)(cid:1) risks are appropriately identified and managed;
(cid:116)(cid:1) interaction with the various governance groups occurs as
needed;
(cid:116)(cid:1) significant financial, managerial, and operating information is
accurate, reliable, and timely;
(cid:116)(cid:1) employees’ actions are in compliance with policies, standards,
procedures, applicable laws and regulations;
(cid:116)(cid:1) resources are acquired economically, used efficiently, and
adequately protected;
(cid:116)(cid:1) programs, plans, and objectives are achieved;
(cid:116)(cid:1) quality and continuous improvement are fostered in the
During 2010, Group Internal Audit continued work on its risk-
based, centralised approach to a range of activities and assurance
reviews across the Group in furtherance of its annual plan.
Operating through a modified shared services model, the Internal
Audit function was able to allocate resources in the most efficient
and effective way.
Compliance
Sagicor’s response to the increasing complexity of regulatory
risks has been to develop a centralised compliance function to
oversee the management of regulatory risks across the Group,
and to formalise reporting to the Audit Committee on all aspects
of regulatory compliance. During 2010, regular compliance
monitoring and reporting continued to be executed.
Code of Business Conduct and Ethics
Sagicor’s Code of Business Conduct and Ethics (which codifies
our corporate value system embracing legal, moral and ethical
conduct, accountability, corporate social responsibility and
leadership) requires Directors, Management, Staff and Advisors
to acknowledge, on an annual basis, that they have read the Code,
and whether or not they are in compliance. Mechanisms through
which code violations can be reported and channelled to the
appropriate parties operated reasonably satisfactorily, including
widely available anonymous whistle-blowing facilities. These
enabled Management to take timely corrective action. Further
training of Staff on the whistle-blowing facilities available to them
is planned for 2011.
organisation’s control process; and
Investor Relations and Communications
(cid:116)(cid:1) significant legislative or regulatory issues impacting the
organisation are recognised and addressed appropriately.
During 2010, we considerably improved our investor relations
communications program with the introduction of quarterly
Sagicor
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briefings to communicate our performance and major initiatives
to the market, through the Media, Analysts and Brokers. We
developed a new corporate website, designed specifically for
Shareholders and Investors, which publishes financial, governance
and other material information. We also regularly utilise the print
media and our website to communicate information on a timely
basis. We continue to ensure that price-sensitive information
is released to the market at the same time, and to manage our
Insider Trading Policy as an integral part of our Code of Business
Conduct and Ethics.
Shareholders who comprise the largest single geographical group
of 44%. We also regard our annual Shareholders’ meetings as an
important opportunity to interact further, particularly with smaller
investors who have an opportunity to ask questions of Directors,
both during the formal meeting and informally after the meeting.
By Order of the Board of Directors.
Cognisant of the fact that our Shareholders resident in Trinidad
and Tobago often do not have an opportunity to attend our Annual
Meetings of Shareholders held in Barbados, we extended the
scope of our annual investor briefings in Trinidad and Tobago in
2010 to allow Directors to interact with larger numbers of these
Sandra Osborne, QC
Corporate Secretary
May 10, 2011
Sagicor
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EXECUTIVE MANAGEMENT
DODRIDGE D. MILLER, FCCA, MBA, LLM,
LLD (Hons.)
Group President and Chief Executive Officer
RICHARD BYLES, BSC, MSC
President and Chief Executive Officer, Sagicor
Life Jamaica Limited
J. EDWARD CLARKE, FCCA, CIA
Chief Operating Officer, Sagicor Life Inc
Edward Clarke was
appointed to the
position of Chief
Operating Officer
for Sagicor Life
Inc in September,
2010. Prior to
this, he held the
position of Group Internal Auditor. Mr.
Clarke is a Fellow of the Association of
Chartered Certified Accountants and is a
Certified Internal Auditor with more than 25
years’ experience in the field of auditing and
finance. Mr. Clarke began his accounting
career at Pannell Fitzpatrick & Company
Chartered Accountants (now Ernst &
Young). He later joined Texaco and served
as a senior member of its finance team in
Barbados, Nigeria and the USA. Prior to
joining Sagicor, Mr. Clarke was the Chief
Finance Officer of Goddard Enterprises
Limited.
Dodridge
Miller is Group
President and
Chief Executive
Officer of the
Sagicor Group of
Companies.
He is a Fellow of the Association of
Chartered Certified Accountants (FCCA),
and obtained his MBA from the University
of Wales and Manchester Business
School. He holds an LLM in Corporate and
Commercial Law from the University of the
West Indies, and in October 2008, he was
conferred with an Honorary Doctor of Laws
degree by the University of the West Indies.
He has more than 20 years experience
in the insurance and financial services
industries.
Prior to his appointment as Group
President and Chief Executive Officer, he
previously held the positions of Treasurer
and Vice-President – Finance and
Investments, Deputy Chief Executive Officer
and Chief Operating Officer. Mr. Miller is
the Chairman of Sagicor at Lloyd’s, and is
a director of a number of other companies
within the Sagicor Group and the Caribbean
Private Sector.
Richard Byles is
President and
CEO of Sagicor
Life Jamaica
Limited, a
member of the
Sagicor Group.
He is Chairman
of the Board of PanCaribbean Financial
Services Ltd., Sagicor Property Services
Limited, Sagicor Life of the Cayman Islands
Ltd., Sagicor Insurance Managers (Cayman)
and Desnoes and Geddes. He also serves
on the boards of several subsidiary and
associated companies as well as Pan
Jamaican Investment Trust Limited. He has
earned valuable experience and within the
financial sector spanning the areas of Life,
Health and General Insurance, Asset and
Investment Management, Banking, Pension
Administration, Property Development and
Reinusrance Management. Mr. Byles holds
a BSc in Economics from the University of
the West Indies and an Ms.c in National
Development from the University of
Bradford, England.
Sagicor
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DR. M. PATRICIA DOWNES-GRANT, BA,
MA MBA, DBA
President and Chief Executive Officer, Sagicor
Life Inc
Dr. Patricia
Downes-Grant
was appointed
President and
Chief Executive
Officer of Sagicor
Life Inc on
January 1, 2006,
having served as Group Chief Operating
Officer, since July 1, 2002. She joined
Sagicor in 1991 and held several senior
positions, including those of Vice President,
(Investments), and Treasurer and Executive
Vice President (Finance and Investments)
before being appointed Chief Executive
Officer. She holds an MBA in Finance,
an MA in Economics, and a Doctorate in
Business Administration (Finance). She is
a former Chairman of the Barbados Stock
Exchange and Barbados Central Securities
Depository and a Director of several
companies within the Sagicor Group and
within the private sector of Barbados.
J. ANDREW GALLAGHER, FSA, FCIA
Chief Risk Officer
RICHARD M. KELLMAN, BSC, FIA, ASA
Group Chief Operating Officer
Andrew Gallagher
was appointed
to the position
of Chief Risk
Officer for the
Group in 2007.
He joined Sagicor
in August 1997,
and previously held the position of
Resident Actuary. He holds a Bachelor of
Mathematics degree from the University
of Waterloo, and is both a Fellow of the
Canadian Institute of Actuaries and a
Fellow of the Society of Actuaries. Prior to
joining Sagicor, Mr Gallagher worked with
Eckler Partners in Toronto in their financial
institutions practice. He has over 20 years
of experience in the industry.
Richard Kellman
was appointed to
the post of Group
Chief Operating
Officer of
Sagicor Financial
Corporation
in November,
2009. He holds a BSc in Statistics from
University College, London University, and
is a Fellow of the Institute of Actuaries and
an Associate of the Society of Actuaries.
He has also attended training programmes
at Harvard Business School and has
completed other financial, investment and
management training courses. Mr. Kellman
is a financial services professional with wide
knowledge regionally in the areas of finance,
pensions, insurance and investments. He
has held senior actuarial positions in the
insurance industry, is a former CEO of the
Guardian Holdings Group, has business
experience at board level, and prior to
joining Sagicor, was the Executive Officer
of the Caribbean Court of Justice Trust
Fund. He is a Director of Sagicor Financial
Corporation, a position he has held since
June 2009.
Sagicor
Financial
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59
Sector Regulator in Canada. Ms. MacLure
has an MBA from the Richard Ivey School
of Business at the University of Western
Ontario, Canada, a Masters degree in
Education from Western Washington
University in the United States, and a BSc
from the University of Manitoba, Canada,
with a major in Mathematics.
PHILIP N.W. OSBORNE, BSC, ACA, FCA
Chief Financial Officer
Philip Osborne
was appointed
Chief Financial
Officer for the
Group in 2003.
He has held
senior finance
positions in
life insurance for over 20 years, having
joined Life of Barbados Limited (then
a Barbados-based life insurer) in 1989.
Subsequently, in 1996, he was appointed a
Director of Life of Barbados and remained
so through its acquisition by and its
eventual amalgamation with Sagicor Life
Inc. Mr. Osborne is currently a director of
a number of subsidiaries in the Sagicor
Group, of Almond Resorts Inc, a publicly
listed company in Barbados and of TD
Reinsurance (Barbados) Inc, a reinsurance
company. Mr. Osborne is a UK-trained
chartered accountant and has worked in
professional accounting firms in London
and Barbados over a ten-year period. He
also holds a BSc in mathematics with
Computer Science from the University of
London.
MAXINE MACLURE, BSC, MED, MBA
Executive Vice President, Corporate Services
and Chief Compliance Officer
Maxine MacLure
was appointed
Executive Vice
President,
Corporate
Services for
Sagicor Financial
Corporation
in February 2007. She is responsible
for acquisitions in the US, Group-wide
Compliance and Regulatory Liaison. Prior
to this position she served as President
and CEO, Sagicor USA where in September
2005, she successfully completed the
Group’s acquisition of its first US life
insurance subsidiary, Sagicor Life Insurance
Company (formerly American Founders
Life) and oversaw its integration into the
Sagicor Group. Ms. MacLure joined Sagicor
in December 2001 as president and CEO
of Life of Jamaica (LOJ). She effectively
managed that company through its merger
with Island Life Insurance Company. Prior
to joining the Sagicor Group, Ms. MacLure
was General Manager of Insurance for the
Jamaican Government, and led a two-year
joint insurance reform project sponsored
by the Inter-American Development Bank
and the Jamaican Government, where
she participated in the resolution of the
financial sector crisis. She also spent seven
years as a Senior Government Financial
Sagicor
Financial
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60
SANDRA OSBORNE, SCM, QC, BSC, LLB,
FCIS
Executive Vice President, General Counsel and
Secretary
Sandra Osborne
was appointed
General Counsel
and Secretary
for the Sagicor
Group in April
1989. An Attorney-
at-Law and
Chartered Secretary, Ms. Osborne has 30
years’ experience in the legal field, having
previously practiced as a Crown Counsel
and at the private Bar in civil practice in civil
practice in Barbados. For the last 20 years,
her focus has been in the corporate area,
both as Corporate Counsel and Corporate
Secretary. She has also contributed to
legislative reform in Barbados in the area of
securities. Ms. Osborne holds a BSc (Hons)
in Political Science and an LLB (Hons)
both from the University of the West Indies
and a Certificate in Legal Education, Hugh
Wooding Law School, Council of Legal
Education, Trinidad. She is also a Fellow
of the Institute of Chartered Secretaries
and Administrators in Canada and has
completed an Executive Development
Program at Kellogg Graduate School of
Management, Northwestern University,
United States. She was appointed a
Queen’s Counsel of Barbados in 2007.
RAVI RAMBARRAN, BSC, MSC, FIA
President and Chief Executive Officer, Sagicor
International
MELBA SMITH, BA
Vice President, Corporate Communications
Ravi Rambarran
is President and
Chief Executive
Officer of Sagicor
International. His
work experience
includes Pensions
Actuary of Life
of Jamaica (LOJ), Appointed Actuary of
Global Life Bahamas and Global Life
Cayman, Chief Financial Investment Officer
of LOJ, Managing Director of NCB Capital
Markets and West Indian Trust Company,
part-time Lecturer in Actuarial Science
at the University of the West Indies and
running his own actuarial practice. Prior
to joining LOJ, Mr. Rambarran was a
Consulting Actuary with Aon Group and the
HSBC Group in the United Kingdom. Mr.
Rambarran has a BSc(Hons) in Actuarial
Science from City University, London, and
an MS.c in Finance from the University
of London. Mr. Rambarran was awarded
an Open Mathematics Scholarship by the
Government of Trinidad and Tobago, and is
also a Fellow of the Institute of Actuaries.
Melba Smith
was appointed
Vice President
Corporate
Communications
for the Sagicor
Group in January
2002. Prior
to joining Sagicor, she was the General
Manager of the Caribbean Broadcasting
Corporation. During her 7-year tenure,
she managed television, radio and cable
services. She was also a Board member
of the Caribbean Broadcasting Union
and became that Institution’s first female
President in 2000. She was elected
Caribbean Representative on the Board
of the Commonwealth Broadcasters
Association. Mrs. Smith, a graduate of the
University of the West Indies, holds a BA
(Hons), and a Post Graduate diploma in
Mass Communications, and is a member
of the International Association of Business
Communications. Over the last 25 years,
Mrs. Smith has worked in all areas of mass
communication and in addition, has gained
valuable experience and expertise in the
areas of communication, public relations
and management.
Sagicor
Financial
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61
2005 – Present
International Expansion
Sagicor’s international strategy allowed the Group to diversify
and expand its presence in the US and European Financial
Markets. In 2005 this expansion began with the acquisition
of American Founders Life, a US-based insurance entity.
Rebranded Sagicor Life Insurance Company Limited, it is
licensed to operate in 44 states and the District of Columbia.
In 2007, SFC listed on the London Stock Exchange, the first
Caribbean company to be admitted to the LSE’s main market.
That same year, Sagicor acquired Gerling at Lloyd’s Group in
the UK, which was rebranded Sagicor at Lloyd’s. The second
acquisition in Europe was Byrne and Stacey Underwriting.
In late 2008 Sagicor at Lloyd’s expanded its operations by
acquiring a Life Syndicate.
Opportunities multiply as they are seized.
INDEX TO THE FINANCIAL STATEMENTS AND NOTES
Page
Consolidated Statement of Financial Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
12. Miscellaneous Assets and Receivables
Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
13. Actuarial Liabilities
Consolidated Statement of Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . . . . . . 70
14. Other Insurance Liabilities
Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
15. Investment Contract Liabilities
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
16. Notes and Loans Payable
1. Incorporation and Principal Activities
73
17. Deposit and Security Liabilities
2. Accounting Policies
73
18. Provisions
3. Critical Accounting Estimates and Judgements
92
19. Income Tax Liabilities
4. Segments
5. Investment Property
6. Property, Plant and Equipment
94
20. Accounts Payable and Accrued Liabilities
106
21. Share Capital
107
22. Reserves
7. Investment In Associated Companies
108
23. Participating Accounts
8. Intangible Assets
9. Financial Investments
10. Reinsurance Assets
11. Income Tax Assets
64 Sagicor Financial Corporation
109
24. Premium Revenue
111
25. Net Investment Income
113
26. Fees And Other Revenue
113
27. Policy Benefits and Change in Actuarial Liabilities
Page
113
114
117
118
119
119
120
120
120
120
121
122
122
123
124
124
Page
171
174
177
178
178
Page
28. Interest Expense
29. Employee Costs
124
44. Analysis of Property and Casualty Claim Liabilities
125
45. Capital Management
30. Employee Share Based Compensation
125
46. Statutory Restrictions on Assets
31. Employee Retirement Benefits
129
47. Fiduciary Risk
32. Income Taxes
33. Deferred Income Taxes
34. Earnings and Dividends per Common Share
35. Other Comprehensive Income
36. Cash Flows
37. Divestiture, Acquisitions and Ownership Changes
38. Restatements
39. Commitments and Contingent Liabilities
40. Related Party Transactions
41. Financial Risk
42. Insurance Risk
43. Sensitivity Analysis of Actuarial Liabilities
131
48. Events after December 31, 2010
132
133
134
135
136
137
138
139
140
163
169
Sagicor Financial Corporation 65
AUDITORS’ REPORT
66
ACTUARY’S REPORT
67
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As of December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
(cid:1)
(cid:1)
Note
2010
2009
(restated)
ASSETS
Investment property
Property, plant and equipment
Investment in associated companies
Intangible assets
Financial investments
Reinsurance assets
Income tax assets
Miscellaneous assets and receivables
Cash resources
Total assets
5
6
7
8
9
10
11
12
119,169
131,407
116,845
128,883
32,929
32,674
123,379
129,428
3,636,832
3,274,442
281,848
294,879
27,764
31,790
295,288
218,635
255,011
196,020
4,867,251
4,459,972
(cid:1)
(cid:1)
These financial statements have been approved for issue by the Board of Directors
on March 31, 2011(cid:1)
(cid:1)
Director
(cid:1)
(cid:1)
(cid:1)
Director
68 Sagicor Financial Corporation
(cid:1)
(cid:1)
LIABILITIES
Actuarial liabilities
Note
2010
2009
(restated)
13
1,753,712
1,612,531
Other insurance liabilities
14
664,881
501,769
Investment contract liabilities
15
294,338
304,397
Total policy liabilities
2,712,931
2,418,697
Notes and loans payable
16
181,885
200,844
Deposit and security liabilities
17
983,551
907,487
Provisions
18
38,834
39,359
Income tax liabilities
19
23,800
16,490
Accounts payable and accrued liabilities
20
187,409
195,667
Total liabilities
4,128,410
3,778,544
EQUITY
Share capital
Reserves
21
277,172
278,252
22
(14,406)
(42,609)
Retained earnings
302,786
302,431
Total shareholders’ equity
565,552
538,074
Participating accounts
23
4,347
5,851
Minority interest in subsidiaries
168,942
137,503
Total equity
738,841
681,428
Total equity and liabilities
4,867,251
4,459,972
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
24
24
25
26
27
27
28
(cid:1)
REVENUE
Premium revenue
Reinsurance premium expense
Net premium revenue
Net investment income
Fees and other revenue
Total revenue
BENEFITS
Policy benefits and change in actuarial liabilities
Policy benefits and change in actuarial liabilities
reinsured
Net policy benefits and change in actuarial liabilities
Interest expense
Total benefits
EXPENSES
Administrative expenses
Commissions and related compensation
Premium taxes
Finance costs
Depreciation and amortisation
Total expenses
INCOME BEFORE TAXES
Income taxes
NET INCOME FOR THE YEAR
Note
2010
2009
(restated)
Note
2010
NET INCOME ATTRIBUTABLE TO:
1,047,021
1,007,526
Shareholders
(146,071)
(164,584)
Participating policyholders
900,950
842,942
Minority interest
293,280
294,216
61,867
68,176
1,256,097
1,205,334
Net income attributable to shareholders - EPS
16,560
(1,265)
26,340
41,635
2009
(restated)
66,846
(4,351)
25,062
87,557
Basic earnings per common share
Fully diluted earnings per common share
34.1
34.1
5.7 cents(cid:1)
5.7 cents(cid:1)
24.0 cents
23.9 cents
(cid:1)
(cid:1)
745,079
(53,370)
691,709
77,997
769,706
657,731
(51,389)
606,342
101,899
708,241
212,092
198,362
174,116
149,685
8,600
8,123
16,369
18,269
15,375
18,659
429,446
390,204
32
56,945
(15,310)
41,635
106,889
(19,332)
87,557
Sagicor Financial Corporation 69
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
Note
2010
2009
(restated)
NET INCOME FOR THE YEAR
41,635
87,557
OTHER COMPREHENSIVE INCOME
35
Changes in fair value reserves:
Owner occupied property
Available for sale financial assets
Actuarial liabilities
Cash flow hedges
Retranslation of foreign currency operations
Other items
Other comprehensive income for the year, net of tax
770
1,331
43,097
43,890
(10,576)
-
(17,106)
(1,701)
33,291
26,414
6,007
(309)
38,989
(12,996)
(129)
13,289
TOTAL COMPREHENSIVE INCOME, NET OF TAX
80,624
100,846
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Shareholders
Participating policyholders
Minority interest
38,208
83,053
(1,247)
(4,533)
43,663
80,624
22,326
100,846
Total comprehensive income attributable to shareholders:
Total comprehensive income per common share
Total comprehensive income per common share on a fully diluted basis
34.1
34.1
13.2 cents
13.1 cents
29.8 cents
29.7 cents
70 Sagicor Financial Corporation
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Year ended December 31, 2010
Balance, beginning of year, as restated (note 38)
Total comprehensive income
Issue of shares
Dividends declared (note 34.2)
Disposal of interest in subsidiary
Other movements
Balance, end of year
Year ended December 31, 2009 (restated)
Share Capital
(note 21)
Reserves
(note 22)
Retained
Earnings
Total
(cid:54)hareholders
(cid:40)quity
Participating
Accounts
(note 23)
Minority
Interest
Total
(cid:40)quity
278,252
-
(42,609)
21,648
302,431
16,560
659
-
-
538,074
38,208
659
-
-
(1,739)
277,172
-
(11,591)
(11,591)
64 -
6,491
(4,614)
64
138
(14,406)
302,786
565,552
5,851
(1,247)
-
-
-
(257)
4,347
137,503
43,663
264
(8,988)
(3,722)
222
168,942
681,428
80,624
923
(20,579)
(3,658)
103
738,841
Balance, beginning of year (note 38)
258,153
(72,577)
264,030
449,606
10,644
121,397
581,647
Total comprehensive income
-
16,336
66,717
83,053
(4,533)
22,326
100,846
Issue of shares
20,981
-
-
20,981
-
630
21,611
Dividends declared (note 34.2)
-
-
Changes in the ownership interest of subsidiaries
(note 37.2)
Other movements
Balance, end of year
-
6,756
(882)
6,876
(11,117)
(11,363)
(5,836)
(11,117)
-
(11,333)
(22,450)
(4,607)
-
4,332
(275)
158
(260)
151
49
278,252
(42,609)
302,431
538,074
5,851
137,503
681,428
Sagicor Financial Corporation 71
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
Note
2010
2009
(restated)
-
19,562
(1,739)
(11,441)
(882)
(10,606)
114
762
(8,988)
(11,248)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Note
2010
56,945
36.1
(13,736)
2009
(restated)
106,889
38,576
244,164
246,714
(95,283)
(17,506)
(113,345)
(16,436)
FINANCING ACTIVITIES
Common shares issued
Net purchase of treasury shares
Dividends paid to shareholders
Shares issued to minority interest
Dividends paid to minority interest
OPERATING ACTIVITIES
Income before taxes
Adjustments for non-cash items, interest and
dividends
Interest and dividends received
Interest paid
Income taxes paid
Changes in operating assets
Changes in operating liabilities
Net cash flows (used in) / from operating
activities
36.1
36.1
(355,140)
(347,772)
Notes and loans payable, net
36.3
(14,452)
36,833
168,348
164,081
(12,208)
78,707
Net cash flows (used in) / from financing
activities
(36,506)
34,421
Effects of exchange rate changes
582
2,735
INVESTING ACTIVITIES
Property, plant and equipment, net
36.2
Investment in associated companies, net
Intangible assets, net
Divestiture and acquisition of subsidiaries and
insurance businesses, net of cash and cash
equivalents
(10,252)
1,357
(5,066)
11,543
(9,634)
(337)
(2,684)
(442)
Net cash flows used in investing activities
(2,418)
(13,097)
NET CHANGE IN CASH AND CASH
EQUIVALENTS
(50,550)
102,766
Cash and cash equivalents, beginning of year
329,618
226,852
CASH AND CASH EQUIVALENTS, END OF YEAR
36.4
279,068
329,618
72 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
1. INCORPORATION AND PRINCIPAL ACTIVITIES
Sagicor Financial Corporation was incorporated on December 6, 2002 under the Companies Act of
Barbados as a public limited liability holding company. On December 6, 2002, Sagicor Life Inc was
formed following its conversion from The Barbados Mutual Life Assurance Society (The Society). On
December 30, 2002, Sagicor Financial Corporation allotted common shares to the eligible
policyholders of The Society and became the holding company of Sagicor Life Inc.
Sagicor and its subsidiaries ‘the Group’ operate across the Caribbean, in the United States of America
(USA) and in the United Kingdom (UK). Details of the Sagicor’s holdings and operations are set out in
note 4.
The principal activities of the Sagicor Group are as follows:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Life and health insurance
Annuities and pension administration services
Property and casualty insurance
Banking, investment management and other financial services
For ease of reference, when the term “insurer” is used in the following notes, it refers to either one
or more Group subsidiaries that engages in insurance business.
2. ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these consolidated financial
statements are set out below. These policies have been consistently applied to the years presented,
unless otherwise stated.
(cid:1)
2.1 Basis of preparation
These consolidated financial statements are prepared in accordance with and comply with
International Financial Reporting Standards (IFRS).
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2.1 Basis of preparation (continued)
The Group has adopted accounting policies for the computation of actuarial liabilities on life insurance
and annuity contracts which comply with the Canadian Asset Liability Method (CALM). As no specific
guidance is provided by IFRS for computing actuarial liabilities, management has judged that CALM
should continue to be applied. The adoption of IFRS 4 – Insurance Contracts, permits the Group to
continue with this accounting policy, with the modification required by IFRS 4 that rights under
reinsurance contracts are measured separately.
The consolidated financial statements are prepared under the historical cost convention except as
modified by the revaluation of investment property, owner-occupied property, available for sale
investment securities, financial assets and liabilities held at fair value through income, actuarial
liabilities and associated reinsurance assets.
The preparation of financial statements in conformity with IFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of
applying the Company’s accounting policies. The areas involving a higher degree of judgement or
complexity, or areas when assumptions and estimates are significant to the consolidated financial
statements, are disclosed in note 3.
All amounts in these financial statements are shown in thousands of United States dollars, unless
otherwise stated. (cid:1)
(a)
Amendments to IFRS
There are no new or amended standards which are effective for the 2010 financial year which have a
significant impact on the presentation, measurement or disclosure in the Group’s financial statements.
Amended standards which are effective for the 2010 financial year that have no significant impact on
the Group’s financial statements are listed in the following table.
Sagicor Financial Corporation 73
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.1 Basis of preparation (continued)
2.1 Basis of preparation (continued)
IFRS
Subject of amendment
IFRS 5 – Non-current Assets
Held
for Sale and
Discontinued Operations
Disclosures of non-current assets (or disposal groups) classified
as held for sale or discontinued operations
IFRS 8 – Operating Segments
Disclosure of information about segment assets
IAS 1 – Presentation of
Financial Statements
IAS 7 – Statement of Cash
Flows
Current/non-current classification of convertible instruments
Classification of expenditures on unrecognised assets
(cid:1)
IFRIC
IFRIC 17
IFRIC 18
IFRIC 9
IFRIC 16
Subject / subject of amendment
Distribution of non-cash Assets to Owners
Transfers of Assets from Customers
Reassessment of Embedded Derivatives
Hedges of a Net Investment in a Foreign
Operation
(c) New and amended standards and interpretations which are not yet effective
Certain new standards and amendments have been issued which were not effective at the date of the
financial statements. The Group has adopted the amendments to IAS 12 Income Taxes – Deferred
Tax: Recovery of Underlying Assets. The amendments provide a practical approach for measuring
deferred tax liabilities and deferred tax assets in respect of investment property. The adoption of this
amended standard clarifies the treatment of deferred tax on the fair value appreciation of investment
property and has had no impact on the financial statements.
The Group has not adopted any other amended standard or interpretation. The only change in
standards and
future presentation,
measurement or disclosure of the Group’s financial statements is IFRS 9 – Financial Instruments.
This standard has an effective date of January 1, 2013. Comments on the standard are as follows:
interpretations which may have a significant effect on
IAS 17 - Leases
Classification of leases of land and buildings
IAS 18 - Revenue
Determining whether an entity is acting as a principal or as an
agent
IAS 36 – Impairment of Assets
Unit of accounting for goodwill impairment test
IAS 39 – Financial Instruments –
Recognition and
Measurement
Treating loan repayment penalties as closely related embedded
derivatives
Scope exemption for business combination contracts
Cash flow and hedge accounting
(b) Amendments to International Financial Reporting Interpretations
The International Financial Reporting Interpretations Committee (IFRIC) has issued new or amended
interpretations which are effective from 2010. These interpretations, which do not impact significantly
the presentation, measurement or in disclosure in these financial statements, are as follows:
(cid:1)
74 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.1 Basis of preparation (continued)
IFRS 9 - Comments
2.2 Basis of consolidation
(a) Subsidiaries
This standard deals with the classification and measurement of financial instruments, and replaces
sections of IAS 39 – Financial Instruments: Recognition and Measurement.
IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised
cost or fair value. The determination is based on how an entity manages its financial instruments
and the contractual cash flow characteristics of the financial assets.
IFRS 9 has amended the treatment, applicable to financial liabilities designated at fair value, of
changes in own credit risk. Such changes are to be recorded in other comprehensive income
unless part of a hedging relationship.
This standard does not address changes contemplated by the International Accounting Standards
Board with respect to the following related items:
(cid:1)
(cid:1)
impairment methodology for financial assets
hedge accounting
(cid:1)
(cid:1)
(d) Changes in accounting policies
The Group has changed its accounting policies for insurance contracts as follows:
(cid:1)
(cid:1)
Changes in actuarial liabilities arising from fair value movements in available for sale
debt securities. This change is further described and disclosed in notes 2.13(a), 13.2,
22, 23, 32, 33, 34, 35 and 38.
Change in the computation of property and casualty claim liabilities to include
discounting by reserving class. This change is further described and disclosed in notes
2.12(b) (i) and 14.2(a).
Subsidiaries are entities over which the Group has the power to govern the financial and operating
policies generally accompanying a majority voting interest. Subsidiaries are consolidated from the
date on which control is transferred to the Group, and are de-consolidated from the date on which
control ceases.
All material intra-group balances, transactions and gains are eliminated on consolidation. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency with the
accounting policies adopted by the Group. Minority interest balances represent the interest of
minority shareholders in subsidiaries not wholly owned by the Group.
(cid:1)
The Group uses the acquisition method of accounting when control over entities and insurance
businesses is obtained by the Group. The cost of an acquisition is measured as the fair value of the
identifiable assets given, the equity instruments issued and the liabilities incurred or assumed at the
date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at the acquisition date irrespective of
the extent of any minority interest. On an acquisition by acquisition basis, the Group recognises any
minority interest in the acquiree either at fair value or at the minority’s proportionate(cid:1) share of the
acquiree’s net identifiable assets.
The excess of the cost of the acquisition, the minority interest recognised and the fair value of any
previously held equity interest in the acquiree, over the fair value of the of the net identifiable assets
acquired is recorded as goodwill. If there is no excess and there is a shortfall, the Group reassesses
the net identifiable assets acquired. If after reassessment, a shortfall remains, the acquisition is
deemed to be a bargain purchase and the shortfall is recognised in income as a gain on acquisition.
Subsequent ownership changes in a subsidiary, without loss of control, are accounted for as
transactions between owners in the statement of changes in equity.
Sagicor Financial Corporation 75
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.2 Basis of consolidation (continued)
2.2 Basis of consolidation (continued)
(b) Investment in associated companies
(e) Pension and investment funds
The investments in associated companies, which are not majority-owned or controlled but where
significant influence exists, are included in these consolidated financial statements under the equity
method of accounting. Investments in associated companies are originally recorded at cost and
include intangible assets identified on acquisition.
Accounting policies of associates have been changed where necessary to ensure consistency with
the accounting policies adopted by the Group.
The Group recognises in income its share of associated companies’ post acquisition income and its
share of the amortisation and impairment of intangible assets which were identified on acquisition.
Unrealised gains or losses on transactions between the Group and its associates are eliminated to
the extent of the Group’s interest in the associates. The Group recognises in other comprehensive
income, its share of associated companies’ post acquisition other comprehensive income.
(c) Joint Ventures
Interests in the assets, liabilities and earnings of jointly controlled ventures are included in these
consolidated financial statements using the proportionate consolidation method, eliminating all
material related party balances.
Insurers have issued deposit administration and unit linked contracts in which the full return of the
assets supporting these contracts accrue directly to the contract-holders. As these contracts are not
operated under separate legal trusts, they have been consolidated in these financial statements.
The Group manages a number of segregated pension funds, mutual funds and unit trusts. These
funds are segregated and investment returns on these funds accrue directly to unit-holders.
Consequently the assets, liabilities and activity of these funds are not included in these consolidated
financial statements unless the Group has a significant holding in the fund. Where a significant
holding exists, the Group consolidates the assets, liabilities and activity of the fund and accounts for
any non-controlling interest as a financial liability.
(f) Employees share ownership plan (ESOP)
The Company has established an ESOP Trust which either acquires Company shares on the open
market, or is allotted new shares by the Company. The Trust holds the shares on behalf of
employees until the employees’ retirement or termination from the Group. Until distribution to
employees, shares held by the Trust are accounted for as treasury shares. All dividends received by
the(cid:1)Trust shall be applied towards the purchase of additional Company shares.
(cid:1)
2.3 Foreign currency translation
(d) Divestitures
(a) Functional and presentational currency
On the disposal of or loss of control of a subsidiary, the Group de-recognises the related assets,
liabilities, minority interest and associated goodwill of the subsidiary. The Group reclassifies its share
of balances of the subsidiary previously recognised in other comprehensive income either to income
or to retained earnings as appropriate. The gain (or loss) on divestiture recorded in income is the
excess (or shortfall) of the fair value of the consideration received over the de-recognised and
reclassified balances.
Items included in the financial statements of each reporting unit of the Group are measured using the
currency of the primary economic environment in which the entity operates (the functional currency).
A reporting unit may be an individual subsidiary, a branch of a subsidiary or an intermediate holding
company group of subsidiaries.
The consolidated financial statements are presented in thousands of United States dollars, which is
the Group’s presentational currency.
76 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.3 Foreign currency translation (continued)
2.3 Foreign currency translation (continued)
(b) Reporting units
The results and financial position of reporting units that have a functional currency other than the
Group’s presentational currency are translated as follows:
(i)
Income, other comprehensive income, movements in equity and cash flows are translated
at average exchange rates for the year.
On consolidation, exchange differences arising from the translation of the net investment in foreign
entities are recorded in other comprehensive income. On the disposal or loss of control of a foreign
entity, such exchange differences are transferred to income.
Goodwill and other intangible assets recognised on the acquisition of a foreign entity are treated as
assets and liabilities of the foreign entity, and are translated at the rate ruling on December 31.
(ii)
(iii)
Assets and liabilities are translated at the exchange rates ruling on December 31.
Resulting exchange differences are recognised in other comprehensive income.
(c) Transactions and balances
Currencies which are pegged to the United States dollar are converted at the pegged rates.
Currencies which float are converted to the United States dollar by reference to the average of buying
and selling rates quoted by the respective central banks or in the case of pounds sterling, according to
prevailing market rates.
Exchange rates of the other principal operating currencies to the United States dollar were as follows:
December
2010
closing rate
2010
average rate
December
2009
closing rate
2009
average rate
Barbados dollar
2.0000
2.0000
2.0000
2.0000
Jamaica dollar
85.6606
87.4076
89.3088
87.8012
Foreign currency transactions are translated into the functional currency at the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses, which result from the
settlement of foreign currency transactions and from the re-translation of monetary assets and
liabilities denominated in foreign currencies, are recognised in the income statement. Non-monetary
assets and liabilities, primarily deferred acquisition costs and unearned premiums, are maintained at
the transaction rates of exchange.
The foregoing exchange gains and losses which are recognised in the income statement are included
in other revenue.
(cid:1)
Exchange differences on the re-translation of the fair value of non-monetary items such as equities
held at fair value through income are reported as part of the fair value gain or loss. Exchange
differences on the re-translation of the fair value of non-monetary items such as equities held as
available for sale are reported as part of the fair value gain or loss in other comprehensive income.
Trinidad & Tobago dollar
6.3766
6.3424
6.3574
6.2996
2.4 Segments
Pound sterling
0.6388
0.64716
0.6193
0.6457
The Group adopted IFRS 8 Operating segments for the 2009 financial statements. Reportable operating
segments have been accordingly defined on the basis of performance and resource allocation
decisions of the Group’s Chief Executive Officer.
Sagicor Financial Corporation 77
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.5 Investment property
Investment property consists of freehold lands and freehold properties which are held for rental
income and/or capital appreciation.
Investment property is recorded initially at cost. In subsequent financial years, investment property is
recorded at fair values determined by independent valuers, with the appreciation or depreciation in
value being taken to investment income. Investment property includes property held under
partnership and joint venture arrangements with third parties which are accounted for under the
proportionate consolidation basis.
Transfers to or from investment property are recorded when there is a change in use of the property.
Transfers to owner-occupied property or to real estate developed for resale are recorded at the fair
value at the date of change in use. Transfers from owner-occupied property are recorded at their fair
value and any difference with carrying value at the date of change in use is dealt with in accordance
with note 2.6.
Investment property may include property of which a portion is held for rental to third parties and the
other portion is occupied by the Group. In such circumstances, the property is accounted for as an
investment property if the Group’s occupancy level is not significant in relation to the total available
occupancy. Otherwise, it is accounted for as an owner-occupied.
Rental income is recognised on an accruals basis.
2.6 Property, plant and equipment
2.6 Property, plant and equipment (continued)
(cid:1)
On disposal of owner-occupied property, the amount included in the fair value reserve is transferred to
retained earnings. Owner-occupied property includes property held under partnership and joint venture
arrangements with third parties which are accounted for under the proportionate consolidation basis.
The Group, as lessor, enters into operating leases with third parties to lease assets. Operating leases
are leases in which the Group maintains substantially the risks of ownership and the associated assets
are recorded as property, plant and equipment. Income from operating leases is recognised on the
straight-line basis over the term of the lease.
Depreciation is calculated on the straight-line method to write down the cost or fair value of property,
plant and equipment to residual value over the estimated useful life. Estimated useful lives are
reviewed annually and are as follows.
Asset
Buildings
Estimated useful life
40 to 50 years
Furnishings and leasehold improvements
10 years or lease term
Computer and office equipment
Vehicles
Leased equipment and vehicles
3 to 10 years
4 to 5 years
5 to 6 years
Property, plant and equipment are recorded initially at cost. Subsequent expenditure is capitalised
when it will result in future economic benefits to the Group.
Lands are not depreciated.
Owner-occupied property is re-valued at least every three years to its fair value as determined by
independent valuers. Revaluation of a property may be conducted more frequently if circumstances
indicate that a significant change in fair value has occurred. Movements in fair value are reported in
other comprehensive income, unless there is a cumulative depreciation in respect of an individual
property, which is then recorded in income. Accumulated depreciation at the date of revaluation is
eliminated against the gross carrying amount of the asset.
The carrying amount of an asset is written down immediately through the depreciation account if the
carrying amount is greater than its estimated recoverable amount.
Gains or losses recognised in income on the disposal of property, plant and equipment are
determined by comparing the net sale proceeds to the carrying value.
78 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
2. ACCOUNTING POLICIES (continued)
2.7 Intangible assets
(a) Goodwill
Goodwill (defined in note 2.2(a)) arising from an acquisition of a subsidiary or insurance business is
allocated to appropriate cash generating units which are defined by the Group’s operating segments.
Goodwill arising in a reportable operating segment is allocated to that segment. Goodwill arising in a
Group entity, which is not within a reportable operating segment, is allocated to that entity’s own
operations, or, if that entity is managed in conjunction with another Group entity, to their combined
operations.
Goodwill arising from an investment in an associate is included in the carrying value of the investment.
Goodwill is tested annually for impairment and is carried at cost less accumulated impairment.
On disposal of a subsidiary or insurance business, the associated goodwill is de-recognised and is
included in the gain or loss on disposal. On the disposal of a subsidiary or insurance business forming
part of a reportable operating segment, the proportion of goodwill disposed is the proportion of the fair
value of the asset disposed to the total fair value of the operating segment.
(b) Other intangible assets
Other intangible assets identified on acquisition are recognised only if future economic benefits
attributable to the asset will flow to the Group and if the fair value of the asset can be measured
reliably. In addition, for the purposes of recognition, the intangible asset must be separable from the
business being acquired or must arise from contractual or legal rights. Intangible assets acquired in a
business combination are initially recognised at their fair value.
Other intangible assets, which have been acquired directly, are recorded initially at cost.
On acquisition, the useful life of the asset is estimated. If the estimated useful life is definite, then the
cost of the asset is amortised over its life, and is tested for impairment when there is evidence of
same. If the estimated useful life is indefinite, the asset is tested annually for impairment.
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2.7 Intangible assets (continued)
The estimated useful lives of recognised intangible assets are as follows:
Class of intangible asset Asset
Estimated useful life
Customer related
Customer relationships
4 - 20 years
Broker relationships
10 years
4 – 10 years
Indefinite
15 years
2 – 10 years
Marketing related
Trade names
Contract based
Technology based
Syndicate capacity
Licences
Software
2.8
Financial assets
a) Classification
The Group classifies its financial assets into four categories:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
held to maturity financial assets;
available for sale financial assets;
financial assets at fair value through income;
loans and receivables.
Management determines the appropriate classification of these assets on initial recognition.
(cid:1)
Held to maturity financial assets are non-derivative financial instruments with fixed or determinable
payments and fixed maturities that management has both the intent and ability to hold to maturity.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market.
Sagicor Financial Corporation 79
Notes to the Financial Statements
Year ended December 31, 2010
2. ACCOUNTING POLICIES (continued)
2.8 Financial Assets (continued)
Financial assets in the category at fair value through income comprise designated assets or held for
trading assets. These are set out below.
Assets designated by management on acquisition form part of managed portfolios
(cid:1)
whose performance is evaluated on a fair value basis in accordance with documented
investment strategies. They comprise investment portfolios backing deposit
administration and unit linked policy contracts for which the full return on the portfolios
accrue to the contract-holders.
Held for trading securities are acquired principally for the purpose of selling in the
(cid:1)
short-term or if they form part of a portfolio of financial assets in which there is
evidence of short-term profit taking. Derivatives are also classified as held for trading
unless designated as hedges.
Available for sale financial assets are non-derivative financial instruments intended to be held for an
indefinite period of time and which may be sold in response to liquidity needs or changes in interest
rates, exchange rates and equity prices.
(b) Recognition and measurement
Purchases and sales of financial investments are recognised on the trade date. Interest income
arising on investments is accrued using the effective yield method. Dividends are recorded in revenue
when due.
Held to maturity assets, loans and receivables are carried at amortised cost less provision for
impairment.
(cid:1)
Financial assets in the category at fair value through income are measured initially at fair value and
are subsequently re-measured at their fair value based on quoted prices or internal valuation
techniques. Realised and unrealised gains and losses are recorded as net gains in investment
income. Interest and dividend income are recorded under their respective heads in investment
income.
80 Sagicor Financial Corporation
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2.8 Financial Assets (continued)
(cid:1)
Financial assets in the available for sale category are measured initially at fair value and are
subsequently re-measured at their fair value based on quoted prices or internal valuation techniques.
Unrealised gains and losses, net of deferred income taxes, are reported in other comprehensive
income. Either on the disposal of the asset or if the asset is determined to be impaired, the
previously recorded unrealised gain or loss is transferred to investment income. Discounts and
premiums on available for sale securities are amortised using the effective yield method.
(c) Fair value
Fair value amounts represent estimates of the consideration that would be agreed upon between
knowledgeable, willing parties who are under no compulsion to act and is best evidenced by a quoted
market value, if one exists.
The estimated fair values of financial assets are based on quoted bid prices of securities as at
December 31 where available. In estimating the fair value of non-traded financial assets, the Group
uses a variety of methods such as obtaining dealer quotes and using discounted cash flow
techniques. Where discounted cash flow techniques are used, estimated future cash flows are
discounted at market derived rates for government securities in the same country of issue as the
security; for non-government securities, an interest spread is added to the derived rate for a similar
government security rate according to the perceived additional risk of the non-government security.
(d) Impaired financial assets
A financial asset is considered impaired if its carrying amount exceeds its estimated recoverable
amount.
An impairment loss for assets carried at amortised cost is calculated as the difference between the
carrying amount and the present value of expected future cash flows discounted at the original
effective interest rate. The carrying value of impaired financial assets is reduced by impairment
losses.
The recoverable amount for an available for sale security is its fair value.
Notes to the Financial Statements
Year ended December 31, 2010
2. ACCOUNTING POLICIES (continued)
2.8 Financial Assets (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2.8 Financial Assets (continued)
For an available for sale equity security, an impairment loss is recognised in income if there has been
a significant or prolonged decline in its fair value below its cost. Determination of what is significant or
prolonged requires judgement which includes consideration of the volatility of the fair value, and the
financial condition and financial viability of the investee. In this context, management considers a 40%
decline in fair value below cost to be significant. Any subsequent increase in fair value occurring after
the recognition of an impairment loss is reported in other comprehensive income.
Derivative financial instruments are initially recognised at fair value on the date a derivative contract is
entered into, and subsequently are re-measured at their fair value at each financial statement date.
The method of recognising the resulting gain or loss depends on whether the derivative is designated
as a hedging instrument, and if so, the nature of the item being hedged. The Group designates its
interest rate swaps as cash flow hedges. Fair values are obtained from quoted market prices,
discounted cash flow models and option pricing models as appropriate.
For an available for sale security other than an equity security, if the Group assesses that there is
objective evidence that the security is impaired, an impairment loss is recognised for the amount by
which the instrument’s amortised cost exceeds its fair value. If in a subsequent period the impairment
loss decreases and the decrease can be related objectively to an event occurring after the impairment
was recognised, the previously recognised impairment loss is reversed, and the amount of the
reversal is recognised in revenue.
The Group documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as risk management objectives and strategies for undertaking
various hedging transactions. The Group also documents its assessments, both at hedge inception
and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
(cid:1)
(e) Securities purchased under agreements to resell
Securities purchased under agreements to resell are recognised initially at fair value and are
subsequently stated at amortised cost. Securities purchased under agreements to resell are treated
as collateralised financing transactions. The difference between the purchase and resale price is
treated as interest and is accrued over the life of the agreements using the effective yield method.
(f) Finance leases
The Group, as lessor, enters into finance leases with third parties to lease assets. Finance leases are
leases in which the Group has transferred substantially the risks of ownership to the lessee. The
finance lease, net of unearned finance income, is recorded as a receivable and the finance income is
recognised over the term of the lease using the effective yield method.
(cid:1)
(g) Derivative financial instruments and hedging activities
Derivatives are financial instruments that derive their value from the price of underlying items such as
equities, bonds, interest rates, foreign exchange, credit spreads, commodities or other indices.
Derivatives enable users to increase, reduce or alter exposure to credit or market risk. The Group
transacts derivatives for three primary purposes: to create risk management solutions for customers,
for proprietary trading purposes, and to manage its own exposure to credit and market risk.
For cash flow hedges, gains and losses relating to the effective portion of changes in the fair value of
derivatives are initially recognised in other comprehensive income, and are transferred to the
statement of income when the forecast cash flows affect income. The gain or loss relating to the
ineffective portion is recognised immediately in the statement of income.
Gains and losses from changes in the fair value of derivatives that do not qualify for hedge accounting
are included in income.
(h) Embedded derivatives
The Group holds certain bonds and preferred equity securities that contain options to convert into
common shares of the issuer. These options are considered embedded derivatives.
If the measurement of an embedded derivative can be separated from its host contract, the embedded
derivative is carried at current market value and is presented with its related host contract. Unrealised
gains and losses are recorded as investment income.
If the measurement of an embedded derivative cannot be separated from its host contract, the full
contract is accounted for as a financial asset at fair value through income.
Sagicor Financial Corporation 81
Notes to the Financial Statements
Year ended December 31, 2010
2. ACCOUNTING POLICIES (continued)
2.8 Financial Assets (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2.11 Cash and cash equivalents
(i) Financial assets held in trust under modified coinsurance arrangements
For the purposes of the cash flow statement, cash and cash equivalents comprise:
These assets are held in trust for a reinsurer and are in respect of policy liabilities ceded to the
reinsurer. The assets are recognised in the financial statements along with a corresponding account
payable to the reinsurer. The income statement includes the interest income from these assets and a
corresponding interest expense due to the reinsurer.
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
cash balances,
call deposits,
other liquid balances with maturities of three months or less from the acquisition date,
less bank overdrafts which are repayable on demand,
less other borrowings from financial institutions made for the purpose of meeting cash
2.9 Real estate developed or held for resale
commitments and which have maturities of three months or less from origination.
Lands being made ready for resale along with the cost of infrastructural works are classified as real
estate held for resale and are stated at the lower of carrying value and fair value less costs to sell.
Cash equivalents are subject to an insignificant risk of change in value.
Real estate acquired through foreclosure is classified as real estate held for resale and is stated at the
lower of carrying value and fair value less costs to sell.
2.12 Policy contracts
(a) Classification
Gains and losses realised on the sale of real estate are included in revenue at the time of sale.
2.10 Impairment of non-financial assets
The Group’s policy for the potential impairment of property, plant, equipment, intangible assets and
investments in associated companies is set out below.
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. An impairment
loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value
in use.
The Group issues policy contracts that transfer insurance risk and / or financial risk from the
policyholder.
The Group defines insurance risk as an insured event that could cause an insurer to pay significant
additional benefits in a scenario that has a discernable effect on the economics of the transaction.
Insurance contracts transfer insurance risk and may also transfer financial risk. Once a contract has
been classified as an insurance contract, it remains an insurance contract for its duration, even if the
insurance risk reduces significantly over time. Investment contracts transfer financial risk and no
significant insurance risk. Financial risk includes credit risk, liquidity risk and market risk.
A reinsurance contract is an insurance contract in which an insurance entity cedes assumed risks to
another insurance entity.
(cid:1)
82 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.12 Policy contracts (continued)
2.12 Policy contracts (continued)
A number of insurance contracts contain a discretionary participation feature. A discretionary
participation feature entitles the holder to receive, supplementary to the main benefit, additional
benefits or bonuses:(cid:1)
Casualty insurance contracts provide coverage for the risk of causing physical harm or financial loss
to third parties. Personal accident, employers’ liability, public liability, product liability and professional
indemnity are common types of casualty insurance.
(cid:1)
(cid:1)
(cid:1)
that are likely to be a significant portion of the total contractual benefits;
whose amount or timing is contractually at the discretion of management; and
that are contractually based on
o
o
o
the performance of a specified pool of contracts;
investment returns on a specified pool of assets held by the insurer; or
the profit or loss of a fund or insurer issuing the contract.
Policy bonuses and policy dividends constitute discretionary participation features which the Group
classifies as liabilities.
Residual gains in the participating accounts constitute discretionary participation features which the
Group classifies as equity (see also note 2.20).
(b) Recognition and measurement
Policy contracts issued by the Group are summarised below.
(i) Property and casualty insurance contracts
Property and casualty insurance contracts are generally one year renewable contracts issued by the
insurer covering insurance risks over property, motor, accident, liability and marine.
(cid:1)
Property insurance contracts provide coverage for the risk of property damage or of loss of property.
Commercial property, homeowners’ property, motor and certain marine property are common types of
risks covered. For(cid:1) commercial policyholders insurance may include coverage for loss of earnings
arising from the(cid:1)inability to use property which has been damaged or lost.
(cid:1)
Premium revenue is recognised as earned on a pro-rated basis over the term of the respective policy
coverage. If alternative insurance risk exposure patterns have been established over the term of the
policy coverage, then premium revenue is recognised in accordance with the risk exposure. The
provision for unearned premiums represents the portion of premiums written relating to the unexpired
terms of coverage.
(cid:1)
Claims and loss adjustment expenses are recorded as incurred. Claim reserves are established for
both reported and un-reported claims. Claim reserves represent estimates of future payments of
claims and related expenses less anticipated recoveries with respect to insured events that have
occurred up to the date of the financial statements.
Reserving involves uncertainty and the use of statistical techniques of estimation. These techniques
generally involve projecting from past experience, the development of claims over time to form a
view of the likely ultimate claims to be experienced, having regard to variations in business written
and the underlying terms and conditions. The claim reserve is discounted for separate reserving
classes of insurance where the expected average interval between the dates of incurral and
settlement is at least 4 years (defined as long-tail claims). The claim reserve is not discounted for
other classes of insurance.
The accounting policy for discounting claims has been refined during 2010 to define the criteria for
discounting by reserving class. A reserving class constitutes a class or sub-class of insurance for
which claims data is aggregated separately, to which is applied a particular statistical technique and
common estimation factors. For example, direct motor is divided into sub-classes, injury and
property damage. Appropriate statistical techniques are applied to each sub-class; injury claims are
discounted because they satisfy the criteria of being long-tail claims, while property damage claims
are not discounted because these are relatively short-tail. The change has been adopted in order to
present a more consistent approach to reserving for long-tail claims. There was no material effect
on the prior year claim liabilities in adopting this change.
Sagicor Financial Corporation 83
Notes to the Financial Statements
Year ended December 31, 2010
2. ACCOUNTING POLICIES (continued)
2.12 Policy contracts (continued)
An insurer may obtain reinsurance coverage for its property and casualty insurance risks. The
reinsurance ceded premium is expensed on a pro-rata basis over the term of the respective policy
coverage or of the reinsurance contract as appropriate. Reinsurance claim recoveries are established
at the time of the recording of the claim liability and are computed on a basis which is consistent with
the computation of the claim liability. Profit sharing commission due to the Group is accrued as
commission income when there is reasonable certainty of earned profit.
(cid:1)
Commissions and premium taxes payable are recognised on the same basis as premiums earned. At
the date of the financial statements, commissions and premium taxes arising on unearned premiums
are recorded as deferred policy acquisition costs. Profit sharing commission payable by the Group
arises from contracts between an insurer and a broker; it is accrued on an aggregate basis and it is
adjusted to actual in respect of each individual contract when due.
(ii) Health insurance contracts
Health insurance contracts are generally one year renewable contracts issued by the insurer covering
insurance risks for medical expenses of insured persons.
Premium revenue is recognised when due for contracts where the premium is billed monthly. For
contracts where the premium is billed annually or semi-annually, premium revenue is recognised as
earned on a pro-rata basis over the term of the respective policy coverage. The provision for
unearned premiums represents the portion of premiums written relating to the unexpired terms of
coverage.
Claims are recorded on settlement. Reserves are recorded as described in note 2.13.
An insurer may obtain reinsurance coverage for its health insurance risks. The reinsurance ceded
premium is expensed on a pro-rata basis over the term of the respective policy coverage or of the
reinsurance contract as appropriate.
Commissions and premium taxes payable are recognised on the same basis as premiums earned. At
the date of the financial statements, commissions and premium taxes arising on unearned premiums
are recorded as deferred policy acquisition costs.
84 Sagicor Financial Corporation
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2.12 Policy contracts (continued)
(iii) Long-term traditional insurance contracts
Long-term traditional insurance contracts are generally issued for fixed terms of five years or more, or
for the remaining life of the insured. Benefits are typically a death, disability or critical illness benefit, a
cash value on termination and/or a monthly annuity. Annuities are generally payable until the death of
the beneficiaries with a proviso for a minimum number of payments. Some of these contracts have a
discretionary participation feature in the form of regular bonuses or dividends. Other benefits such as
disability and waiver of premium on disability may also be included in these contracts. Some contracts
may allow for the advance of policy loans to the policyholder and may also allow for dividend
withdrawals by the policyholder during the life of the contract.
Premium revenue is recognised when due. Typically, premiums are fixed and are required to be paid
within the due period for payment. If premiums are unpaid, either the contract may terminate, an(cid:1)
automatic premium loan may settle the premium, or the contract may continue at a reduced value.
Policy benefits are recognised on the notification of death, disability or critical illness, on the
termination or maturity date of the contract, on the declaration of a cash bonus or dividend or on the
annuity payment date. Policy loans advanced are recorded as loans and receivables in the financial
statements and are secured by the cash values of the respective policies. Policy bonuses may be
“non-cash” and utilised to purchase additional amounts of insurance coverage. Accumulated cash
bonuses and dividends are recorded as interest bearing policy balances.
Reserves for future policy liabilities are recorded as described in note 2.13.
An insurer may obtain reinsurance coverage for death benefit insurance risks. Typically, coverage is
obtained for individual coverage exceeding prescribed limits. The reinsurance premium is expensed
when due, which generally coincides with when the policy premium is due. Reinsurance claim
recoveries are established at the time of claim notification.
Commissions and premium taxes payable are recognised on the same basis as earned premiums.
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.12 Policy contracts (continued)
2.12 Policy contracts (continued)
(iv)
Long-term universal life and unit linked insurance contracts
Universal life and unit linked insurance contracts are generally issued for fixed terms or for the
remaining life of the insured. Benefits are typically a death, disability or critical illness benefit, a cash
value on termination and/or a monthly annuity. Annuities are generally payable until the death of the
beneficiaries with a proviso for a minimum number of payments. Benefits may include amounts for
disability or waiver of premium on disability.
Universal life and unit linked contracts have either an interest bearing investment account or unit
linked investment accounts. Either gross premiums or gross premiums net of allowances are
deposited to the investment accounts. Investment returns are credited to the investment accounts
and expenses, not included in the aforementioned allowances, are debited to the investment
accounts. Interest bearing investment accounts may include provisions for minimum guaranteed
returns or returns based on specified investment indices. Allowances and expense charges are in
respect of applicable commissions, cost of insurance, administrative expenses and premium taxes.
Fund withdrawals may be permitted.
Premium revenue is recognised when received and consists of all monies received from the
policyholders. Typically, premiums are fixed at the inception of the contract or periodically thereafter
but additional non-recurring premiums may be paid.
Policy benefits are recognised on the notification of death, disability or critical illness, on the receipt of
a withdrawal request, on the termination of maturity of the contract or on the annuity payment date.
Reserves for future policy liabilities are recorded as described in note 2.13.
An insurer may obtain reinsurance coverage for death benefit insurance risks. Typically, coverage is
obtained for individual coverage exceeding prescribed limits. The reinsurance premium is expensed
when due, which generally coincides with when the policy premium is due. Reinsurance claims
recoveries are established at the time of claim notification.
Commissions and premium taxes payable are generally recognised only on settlement of premiums.
(cid:1)
(cid:1)(cid:1)(v)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)Reinsurance contracts assumed
(cid:1)
Reinsurance contracts assumed by an insurer are accounted for in a similar manner as if the insurer
has assumed the risk direct from a policyholder.
Reinsurance contracts assumed include blocks of life and annuity policies assumed from third party
insurers. In some instances, the Group also administers these policies.
(vi)
Reinsurance contracts held
As noted in sections (i) to (iv) above, an insurer may obtain reinsurance coverage for insurance risks
underwritten. The Group cedes insurance premiums and risk in the normal course of business in order
to limit the potential for losses arising from its exposures. Reinsurance does not relieve the originating
insurer of its liability.
Reinsurance contracts held by an insurer are recognised and measured in a similar manner to the
originating insurance contracts and in accordance with the contract terms. Reinsurance premium
ceded and reinsurance recoveries on claims are offset against premium revenue and policy benefits
in the income statement.
The benefits to which an insurer is entitled under its reinsurance contracts held are recognised as
reinsurance assets or receivables. Reinsurance assets and receivables are assessed for impairment.
If there is evidence that the asset or receivable is impaired, the impairment is recorded in the
statement of income. The obligations of an insurer(cid:1) under reinsurance contracts held are included
under accounts payable and accrued liabilities or actuarial liabilities.
Policy liabilities include blocks of life and annuity policies ceded to reinsurers on coinsurance or
modified coinsurance bases. The Group records as a receivable the reinsurer’s share of the insurer’s
liabilities on these policies.
Reinsurance balances are measured consistently with the insurance liabilities to which they relate.
Sagicor Financial Corporation 85
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.12 Policy contracts (continued)
(vii)
Deposit administration and other investment contracts
(cid:1)
Deposit administration contracts are issued by an insurer to registered pension schemes for the
deposit of pension plan assets with the insurer.
Deposit administration liabilities are recognised initially at fair value and are subsequently stated at:
(cid:1)
amortised cost where the insurer is obligated to provide investment returns to the pension
scheme in the form of interest;
2.12 Policy contracts (continued)
(cid:1)
(d)
Liability adequacy tests
At the date of the financial statements, liability adequacy tests are performed by each insurer to
ensure the adequacy of insurance contract liabilities, using current estimates of the related expected
future cash flows. If a test indicates that the carrying value of insurance contract liabilities is
inadequate, then the liabilities are adjusted to correct the deficiency. The deficiency is included in the
income statement under benefits.
(cid:1)
fair value through income where the insurer is obligated to provide investment returns to the
2.13 Actuarial liabilities
pension scheme in direct proportion to the investment returns on specified blocks of assets.
(a) Life insurance and annuity contracts
Deposit administration contributions are recorded directly as liabilities. Withdrawals are deducted
directly from the liability. The interest or investment return provided is recorded as an interest
expense.
In addition, the Group may provide pension administration services to the pension schemes. The
Group earns fee income for both pension administration and investment services.
Other investment contracts are recognised initially at fair value and are subsequently stated at
amortised cost and are accounted for in the same manner as deposit administration contracts which
are similarly classified.
(c) Embedded derivatives
Certain insurance contracts contain embedded derivatives which are options whose value may vary in
response to changes in interest rates or other market variables.
The Group does not separately measure embedded derivatives that are closely related to the host
insurance contract or that meet the definition of an insurance contract. Options to surrender an
insurance contract for a fixed amount are also not measured separately. In(cid:1) these cases, the entire
contract liability is measured as set out in note 2.13.
86 Sagicor Financial Corporation
The Canadian Asset Liability Method (CALM) is used for the determination of actuarial liabilities of
long-term insurance contracts. These liabilities consist of amounts that, together with future premiums
and investment income, are required to provide for future policy benefits, expenses and taxes on
insurance and annuity contracts.
The process of calculating life insurance and annuity actuarial liabilities for future policy benefits
necessarily involves the use of estimates concerning such factors as mortality and morbidity rates,
future investment yields, future expense levels and persistency, including reasonable margins for
adverse deviations. As experience unfolds, these provisions for adverse deviations will be included in
future income to the extent they are no longer required to cover adverse experience. Assumptions
used to project benefits, expenses and taxes are based on Group and industry experience and are
updated annually.
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.13 Actuarial liabilities (continued)
(cid:1)
CALM is based on an explicit projection of cash flows using best estimate assumptions for each
material cash flow item and contingency. Investment returns are based on projected investment
income using the current asset portfolios and projected re-investment strategies. Each assumption is
adjusted by a margin for adverse deviation.
Under CALM, assets of each insurer are selected to back the actuarial liabilities of each insurer.
Changes in the carrying value of these assets may generate corresponding changes in the carrying
amount of the associated actuarial liabilities. These assets include available for sale securities, whose
changes in carrying value are recorded in other comprehensive income. The Group has changed its
accounting policy for recording the changes in actuarial liabilities which result directly from the
changes in the carrying value of backing assets which are recorded in other comprehensive income.
The adopted policy is to reflect also in other comprehensive income the resulting changes in the
carrying amount of the actuarial liabilities. In prior years, the Group recorded these changes to the
actuarial liabilities in income. With the adoption of this change, the income and other comprehensive
income results provide more consistent measures of performance. The change in accounting policy
has been applied retroactively to January 1, 2009, and consequently the income and other
comprehensive income for 2009 have been restated. In addition, a fair value reserve for actuarial
liabilities has been established in the statement of equity for the accumulation of the amounts
recorded in other comprehensive income. The impact of the change in accounting policy is
summarised in note 38.
Certain life insurance policies issued by the insurer contain equity linked policy side funds. The
investment returns on these unitised funds accrue directly to the policies with the insurer assuming no
credit risk. Investments held in these side funds are accounted for as financial assets at fair value
through income and unit values of each fund are determined by dividing the value of the assets in the
fund at the date of the financial statements by the number of units in the fund. The resulting liability is
included in actuarial liabilities.
(cid:1)
(b) Health insurance contracts
The actuarial liabilities of health insurance policies are estimated in respect of claims that have been
incurred but not yet reported or settled.
(cid:1)
2.14 Financial liabilities
During the ordinary course of business, the Group issues investment contracts or otherwise assumes
financial liabilities that expose the Group to financial risk. The recognition and measurement of the
Group’s principal types of financial liabilities are disclosed in note 2.12(b) (vii) and in the following
paragraphs.
(a) Securities sold under agreements to repurchase
Securities sold under agreements to repurchase are recognised initially at fair value and are
subsequently stated at amortised cost. Securities sold under agreements to repurchase are treated as
collateralised financing transactions. The difference between the sale and repurchase price is treated
as interest and is accrued over the life of the agreements using the effective yield method.
(b) Deposit liabilities
Deposits are recognised initially at fair value and are subsequently stated at amortised cost using the
effective yield method.
(c) Loan obligations
Loan obligations are recognised initially at fair value, being their issue proceeds, net of transaction
costs incurred. Subsequently, loan obligations are stated at amortised cost and any difference
between net proceeds and the redemption value is recognised in the income statement over the
period of the loan obligations using the effective yield method.
Loan obligations undertaken for the purposes of financing operations and capital support are classified
as notes or loans payable and the associated cost is classified as finance costs. Loan obligations
undertaken for the purposes of providing funds for on-lending,(cid:1) leasing or portfolio investments are
classified as deposit and security liabilities and the associated cost is included in interest expense.
(cid:1)
Sagicor Financial Corporation 87
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.14 Financial liabilities (continued)
2.17 Fees and other revenue
(d) Fair value
Fair value amounts represent estimates of the consideration that would currently be agreed upon
between knowledgeable, willing parties who are under no compulsion to act and is best evidenced by
a quoted market value, if one exists.
The estimated fair values of financial liabilities are based on market values of quoted securities as at
December 31 where available. In assessing the fair value of non-traded financial liabilities, the Group
uses a variety of methods including obtaining dealer quotes for specific or similar instruments and the
use of internally developed pricing models, such as the use of discounted cash flows. If the non-
traded liability is backed by a pool of assets, then its value is equivalent to the value of the underlying
assets.
2.15 Provisions
Provisions are recognised when the Group has a legal or constructive obligation, as a result of past
events, if it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate of the amount can be made.
2.16 Interest income and expenses
Interest income and expenses are recognised in the income statement for all interest bearing
instruments on an accrual basis using the effective yield method based on the initial transaction price.
Interest includes coupon interest and accrued discount and premium on financial instruments.(cid:1)(cid:1)
(cid:1)
Fees and non-insurance commission income are recognised on an accrual basis when the service
has been provided. Fees and commissions arising from negotiating or participating in the negotiation
of a transaction for a third party are recognised on completion of the underlying transaction. Portfolio
and other management advisory and service fees are recognised based on the applicable service
contracts, usually on a time-apportionate basis. Asset management fees related to investment funds
are recognised rateably over the period in which the service is provided. Performance linked fees or
fee components are recognised when the performance criteria are fulfilled. Other revenue is
recognised on an accrual basis when the related service has been provided.
2.18 Employee benefits
(cid:1)
(a) Pension benefits
Group companies have various pension schemes in place for their employees. Some schemes are
defined benefit plans and others are defined contribution plans.
The liability in respect of defined benefit plans is the present value of the defined benefit obligation at
December 31 minus the fair value of plan assets, together with adjustments for unrecognised actuarial
gains or losses and past service costs. The defined benefit obligation is computed using the projected
unit credit method. The present value of the defined benefit obligation is determined by the estimated
future cash outflows using appropriate interest rates for the maturity dates and location of the related
liability.
Actuarial gains and losses arising from experience adjustments, changes in actuarial assumptions,
and amendments to pension plans are charged or credited to the income statement over the average
service lives of the related employees. Past service costs are charged to the income statement on a
straight line basis over the average period until the benefits become vested. Past service costs are
recognised immediately if the benefits vest immediately.
(cid:1)
88 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.18 Employee benefits (continued)
2.18 Employee benefits (continued)
For defined contribution plans, the Group pays contributions to the pension schemes on a mandatory
or contractual basis. Once paid, the Group has no further payment obligations. The regular
contributions constitute net periodic costs for the year in which they are due and as such are included
in expenses in the income statement.
If the equity instruments granted vest immediately and the individual is not required to complete a
further period of service before becoming entitled to those instruments, the services received are
recognised in full on grant date in the income statement for the period, with a corresponding increase
in equity.
(cid:1)
(b) Other retirement benefits
Certain Group subsidiaries provide supplementary health, dental and life insurance benefits to
qualifying employees upon retirement. The entitlement to these benefits is usually based on the
employee remaining in service up to retirement age and the completion of a minimum service period.
The expected costs of these benefits are accrued over the period of employment, using an accounting
methodology similar to that for defined benefit pension plans.
(c) Profit sharing and bonus plans
The Group recognises a liability and an expense for bonuses and profit sharing, based on various
profit and other objectives of the Group as a whole or of individual subsidiaries. An accrual is
recognised where there are contractual obligations or where past practice has created a constructive
obligation.
(cid:1)
(d) Equity compensation benefits
The Group has a number of share-based compensation plans in place for administrative, sales and
managerial staff.
(cid:1)
(i) Equity-settled share-based transactions with staff
(cid:1)
The services received in an equity-settled transaction with staff are measured at the fair value of the
equity instruments granted. The fair value of those equity instruments is measured at grant date.
(cid:1)
Where the equity instruments do not vest until the individual has completed a further period of service,
the services received are expensed in the income statement during the vesting period, with a
corresponding increase in the share based payment reserve or in minority interest.
Non-market vesting conditions are included in assumptions about the number of instruments that are
expected to vest. At each reporting financial statement date, the Group revises its estimates of the
number of instruments that are expected to vest based on the non-marketing vesting conditions and
adjusts the expense accordingly.
Amounts held in the share based payment reserve are transferred to share capital or minority interest
either on the distribution of share grants or on the exercise of share options.
The grant by the Company of its equity instruments to employees of Group subsidiaries is treated as a
capital contribution in the financial statements of the subsidiary. The full expense relating to the grant
is recorded in the subsidiary’s income statement.
(ii) Cash-settled share-based transactions with staff
The services received in a cash-settled transaction with staff and the liability to pay for those services,
are recognised at fair value as the individual renders services. Until the liability is settled, the fair value
of the liability is re-measured at the date of the financial statements and at the date of settlement, with
any changes in fair(cid:1)value recognised in income during that period.
Sagicor Financial Corporation 89
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.18 Employee benefits (continued)
(iii) Measurement of the fair value of equity instruments granted
2.19 Taxes
(a) Premium taxes
The equity instruments granted consist either of grants of, or options to purchase, common shares of
listed entities within the Group. For common shares granted, the listed price prevailing on the grant
date determines the fair value. For options granted, the fair value is determined by reference to the
Black-Scholes valuation model, which incorporates factors and assumptions that knowledgeable,
willing market participants would consider in setting the price of the equity instruments.
(e) Termination benefits
Termination benefits are payable whenever an employee’s employment is terminated before the
normal retirement date or whenever an employee accepts voluntary redundancy in exchange for
these benefits. The Group recognises termination benefits when it is demonstrably committed to
either terminate the employment of current employees according to a detailed formal plan without the
possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage
voluntary redundancy. Benefits falling due more than twelve months after the date of the financial
statements are discounted to present value.
Insurers are subject to tax on premium revenues generated in certain jurisdictions. The principal rates
of premium tax are as follows:
Barbados
Jamaica
Trinidad and Tobago
Life insurance and
non-registered
annuities
3% - 6%
3%
Nil
United States of America
0.75% - 3.5%
(b)
Income taxes
Health
insurance
4%
Nil
Nil
Nil
Property and
casualty
insurance
4.0% - 4.75%
Nil
6%
Nil
The Group is subject to taxes on income in the jurisdictions in which business operations are
conducted. Rates of taxation in the principal jurisdictions for income year 2010 are as follows:
Life insurance
and
non-registered
annuities
5% of gross
investment income
15% of
investment income
15% of
investment income
Barbados
Jamaica
Trinidad and Tobago
United Kingdom
28% of net income
Registered
annuities
Other lines of
business
Nil
Nil
Nil
n/a
25% of
net income
15% - 33.33%
of net income
25%
of net income
28%
of net income
35%
of net income
United States of America
35%
of net income
35%
of net income
90 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.19 Taxes (continued)
(i) Current income taxes
Current tax is the expected tax payable on the taxable income for the year, using the tax rates in effect
for the year. Adjustments to tax payable from prior years are also included in current tax.
(ii) Deferred income taxes
Deferred income tax is recognised, using the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred
income taxes are computed at tax rates that are expected to apply to the period when the asset is
realised or the liability settled. Deferred tax assets are only recognised when it is probable that taxable
profits will be available against which the asset may be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to do so.
Deferred tax, related to fair value re-measurement of available for sale investments and cash flow
hedges which are recorded in other comprehensive income, is recorded in other comprehensive
income and is subsequently recognised in income together with the deferred gain or loss.
2.20 Participating accounts
(a) “Closed” participating account
For participating policies of Sagicor Life Inc in force at de-mutualisation, Sagicor Life Inc established a
closed participating account in order to protect the guaranteed benefits and future policy dividends,
bonuses and other non-guaranteed benefits of the afore-mentioned policies. The rules of this account
require that premiums, benefits, actuarial reserve movements, investment returns, expenses and taxes,
attributable to the said policies, are recorded in a closed participating fund. Policy dividends and
bonuses of the said policies are paid from the participating fund on a basis substantially the same as
prior to de-mutualisation.
2.20 Participating accounts (continued)
Distributable profits of the closed participating account are distributed to the participating policies in
the form of declared bonuses and dividends. Undistributed profits remain in the participating account
for the benefit of participating policyholders.
The participating account also includes an ancillary fund comprising the required provisions for
adverse deviations as determined in the computation of actuarial liabilities of the said policies.
Changes in the ancillary fund are not recorded in the participating account, but are borne by the
general operations of Sagicor Life Inc.
(b) “Open” participating account
Sagicor Life Inc also established an open participating account for participating policies it issues after
de-mutualisation. The rules of this account require that premiums, benefits, actuarial reserve
movements, investment returns, expenses and taxes, attributable to the said policies are recorded in
an open participating account.
The open participating account was established at de-mutualisation. On February 1, 2005, Sagicor
Life Inc amalgamated with Life of Barbados Limited, and participating policies of the latter were
transferred to the open participating account. Accordingly, the liabilities of these participating policies
and matching assets were transferred to the open participating account. The liabilities transferred
included an ancillary fund comprising the provisions for adverse deviations on the transferred policies.
Changes in the ancillary fund are not recorded in the participating account, but are borne by the
general operations of Sagicor Life Inc.
Additional assets to support the profit distribution to shareholders (see below) were also transferred to
the account.
Distributable profits of the open participating account are shared between participating policies and
shareholders in a ratio of 90:10. Profits are distributed to the participating policies in the form of
declared bonuses and dividends. Profits which are distributed to shareholders(cid:1) are included in the
allocation of Group net income to shareholders. Undistributed profits / (losses) remain in the
participating account in equity.(cid:1)(cid:1)
Sagicor Financial Corporation 91
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
2. ACCOUNTING POLICIES (continued)
2. ACCOUNTING POLICIES (continued)
2.20 Participating accounts (continued)
2.23 Statutory reserves
(c) Financial statement presentation
The assets and liabilities of the participating accounts are included but not presented separately in the
financial statements. The revenues, benefits and expenses of the participating accounts are also
included but not presented separately in the financial statements. However, the overall surplus of
assets held in the participating funds over the associated liabilities is presented in equity as the
participating accounts. The overall net income and other comprehensive income that are attributable
to the participating funds are disclosed as allocations.
The initial allocation of additional assets to the participating funds is recognised in equity as a transfer
from retained earnings to the participating accounts. Returns of additional assets from the
participating funds are accounted for similarly.
2.21 Share capital
In exchange for consideration received, the Company has issued common shares that are classified
as equity. Incremental costs directly attributable to the issue of common shares are recorded in share
capital as a deduction from the share issue proceeds.
Where a Group entity purchases the Company’s common shares, the consideration paid, including
any directly attributable cost, is deducted from share capital and is recorded as treasury shares.
Where such shares are subsequently sold to a third party, the deduction from share capital is
reversed, and any difference with net consideration received is recorded in retained earnings.
2.22 Dividend distributions
Dividend distributions on the Company’s common shares are recorded in the period during which the
dividend declaration has been approved by the Directors.
(cid:1)
92 Sagicor Financial Corporation
Statutory reserves are established when regulatory accounting requirements result in lower
distributable profits or when an appropriation of retained earnings is required or permitted by law to
protect policyholders, insureds or depositors.
2.24 Presentation of current and non-current assets and liabilities
In note 41.2, the maturity profiles of financial and insurance assets and liabilities are identified. For
other assets and liabilities, balances presented in notes 5 to 8, 10 to 12, 14, 18, 19, 31 and 33 are
non-current unless otherwise stated in those notes.
(cid:1)
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The development of estimates and the exercise of judgment in applying accounting policies may have
a material impact on the Group’s reported assets, liabilities, income and other comprehensive income.
The items which may have the most effect on the Group’s financial statements are set out below.(cid:1)
(cid:1)
3.1 Impairment of financial assets
An available for sale debt security, a loan or a receivable is considered impaired when management
determines that it is probable that all amounts due according to the original contract terms will not be
collected. This determination is made after considering the payment history of the borrower, the
discounted value of collateral and guarantees, and the financial condition and financial viability of the
borrower.
The determination of impairment may either be considered by individual asset or by a grouping of
assets with similar relevant characteristics.
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
3.2 Recognition and measurement of intangible assets
The recognition and measurement of intangible assets, other than goodwill, in a business combination
involve the utilisation of valuation techniques which may be very sensitive to the underlying
assumptions utilised. These intangibles may be marketing related, customer related, contract based
or technology based.
For significant amounts of intangibles arising from a business combination, the Group utilises
independent professional advisors to assist management in determining the recognition and
measurement of these assets.
3.3 Impairment of intangible assets
(a) Goodwill
The assessment of goodwill impairment involves the determination of the fair value of the cash
generating business units to which the goodwill has been allocated. Determination of fair value
involves the estimation of future cash flows or of income before taxes of these business units and the
expected returns to providers of capital to the business units and / or to the Group as a whole.
The Group updates its business unit financial projections annually and applies discounted cash flow or
earnings multiple models to these projections to determine if there is any impairment of goodwill.
(b) Other intangible assets
The assessment of impairment of other intangible assets involves the determination of the intangible’s
fair value or value in use. In the absence of an active market for an intangible, its fair value may need
to be estimated. In determining an intangible’s value in use, estimates are required of future cash
flows generated as a result of holding the asset.
(cid:1)
3.4 Actuarial liabilities
(a) Canadian asset liability method (CALM)
The objective of the valuation of policy liabilities is to determine the amount of the insurer’s assets
that, in the opinion of the Appointed Actuary (AA) and taking into account the other pertinent items in
the financial statements, will be sufficient without being excessive to provide for the policy liabilities
over their respective terms. The amounts set aside for future benefits are dependent on the timing of
future asset and liability cash flows.
The actuarial liabilities are determined by the amount of assets required to ensure that sufficient
monies are available to mature the policy liabilities as they become due, even under adverse
economic circumstances.
The AA identifies the current economic scenario and the existing investment portfolio as at the date of
the actuarial valuation. The investments required to support the policy liabilities are then determined
under a variety of future interest rate environments using scenario testing. The total policy liability is
determined as the amount of assets required to ensure that sufficient monies are available to meet the
liabilities as they become due under the “worst case” economic scenario, that is, the scenario that
produces the highest investment requirement.
The CALM methodology produces the total reserve requirement for each CALM fund. In general, the
CALM methodology is used to determine the net overall actuarial liabilities required by the insurer.
Policy premium method (PPM) equivalents are used to determine the amount of reinsurance balances
in the reserve, the distribution of the total reserve by country (for statutory reporting), and the
distribution of the reserve by policy. PPM equivalents and other approximations to CALM have also
been used in calculating certain components in the actuarial liabilities.
(b) Best estimate reserve assumptions & provisions for adverse deviations
Actuarial liabilities include two major components: a best estimate reserve and a provision for adverse
deviations. The latter provision is established in recognition of the uncertainty in computing best
estimate reserves, to allow for possible deterioration in experience and to provide greater comfort that
reserves are adequate to pay future benefits.
Sagicor Financial Corporation 93
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
3.4 Actuarial liabilities (continued)
3.5 Property and casualty insurance contracts (continued)
For the respective reserve assumptions for mortality and morbidity, lapse, future investment yields,
operating expenses and taxes, best estimate reserve assumptions are determined where appropriate.
The assumption for operating expenses and taxes is in some instances split by participating, non-
participating and universal life / unit linked business.
Provisions for adverse deviations are established in accordance with the risk profiles of the business,
and are, as far as is practicable, standardised across geographical areas. Provisions are determined
within a specific range established by the Canadian Standards of Practice.
The principal assumptions and margins used in the determination of actuarial liabilities are
summarised in note 13.3. However, the liability resulting from the application of these assumptions
can never be definitive as to the ultimate timing or the amount of benefits payable and is therefore
subject to future re-assessment.
3.5 Property and casualty insurance contracts
(a) Policy benefits payable
The estimation of the ultimate liability arising from claims incurred under property and casualty
insurance contracts is subject to several sources of uncertainty that need to be considered in
determining the amount that the insurer will ultimately pay for such claims.
Claim liabilities are based on estimates due to the fact that the ultimate disposition of claims incurred
prior to the date of the financial statements, whether reported or not, is subject to the outcome of
events that may not yet have occurred. Significant delays are experienced in the notification and
settlement of certain types of claims, particularly in respect of casualty contracts. Events which may
affect the ultimate outcome of claims include inter alia, jury decisions, court interpretations, legislative
changes and changes in the medical condition of claimants.
Any estimate of future losses is subject to the inherent uncertainties in predicting the course of future
events. The two most critical assumptions made to determine claim liabilities are that the past is a
reasonable predictor of the likely level of claims development and that the statistical estimation
models used are fair reflections of the likely level of ultimate claims to be incurred. Consequently, the
amounts recorded in respect of unpaid losses may change significantly in the short term.
Management engages independent actuaries, either to assist in making or to confirm the estimate of
claim liabilities. The ultimate liability arising from claims incurred under property and casualty
insurance contracts may be mitigated by recovery arising from reinsurance contracts held.
(b) Premium income
Sagicor at Lloyd’s insurance syndicate 1206 writes a significant proportion of its premium by
delegated authority to insurance intermediaries. Due to delays in the notification of complete and
accurate premium income written, the premium income earned and the associated reinsurance and
commission balances may have to be estimated. Accordingly, premium income written has to be re-
assessed in future periods and adjustments made to earned premium, reinsurance and commissions.
4. SEGMENTS
The management structure of Sagicor consists of the parent company Board of Directors, the Group
Chief Executive Officer (CEO), subsidiary company Boards of Directors and subsidiary company
CEOs. For the parent company and principal subsidiaries, there are executive management
committees made up of senior management who advise the respective CEOs. The principal
subsidiaries have a full management governance structure, a consequence of their being regulated
insurance and financial services entities and of the range and diversity of their products and services.
94 Sagicor Financial Corporation
(cid:1)
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
4. SEGMENTS (continued)
(cid:1)
The Group CEO serves as Board Chairman or as a Board Member of the principal subsidiaries and is
the Group’s Chief Operating decision maker. Through subsidiary company reporting, the Group CEO
obtains details of company performance and of resource allocation needs. Summarisation of planning
and results and prioritisation of resource allocation is done at the parent company level where strategic
decisions are taken.
(cid:1)
In accordance with the relevant financial reporting standard, the Group has determined that there are
four principal subsidiary Groups which represent the reportable operating segments of Sagicor. These
segments and other Group companies are set out in the following sections.
(a) Sagicor Life Inc
(cid:1)
This segment comprises Group subsidiaries conducting life, health and annuity insurance business, and
pension administration services in the Caribbean region, excluding Jamaica and Cayman Islands. The
companies comprising this segment are set out in the following two tables.
4. SEGMENTS (continued)
Sagicor Life Inc
Segment Associated
Companies
RGM Limited
Principal Activities
Property ownership and
management
Country of
Incorporation
Effective
Shareholders’
Interest
Trinidad & Tobago
33%
FamGuard Corporation
Limited
Investment holding
company
Bahamas
20%
Family Guardian
Insurance Company
Limited
Life and health insurance
and annuities
Bahamas
20%
Family Guardian General
Insurance Agency Limited
General insurance
brokerage
Bahamas
20%
Effective
Shareholders’
Interest
BahamaHealth Insurance
Brokers and Benefit
Consultants Limited
Insurance brokers and
benefit consultants
Bahamas
20%
Primo Holding Limited
Property investment
Barbados
38%
Barbados
100%
The Bahamas
100%
Aruba
100%
(b) Sagicor Life Jamaica
This segment comprises Group subsidiaries conducting life, health, annuity, property and casualty
insurance business, and pension administration services and financial services in Jamaica and Cayman
Islands. The companies comprising this segment are as follows.
Sagicor Life Inc
Segment Companies
Principal Activities
Country of
Incorporation
Life and health insurance,
annuities and pension
administration services
Life and health insurance,
annuities and pension
administration services
Life and health insurance,
annuities and pension
administration services
Sagicor Life Inc
Sagicor Capital Life
Insurance Company Limited
Sagicor Life Aruba NV
Capital Life Insurance
Company Bahamas Limited
Life insurance
The Bahamas
100%
Sagicor Panamá, SA
Life and health insurance
Panamá
100%
Nationwide Insurance
Company Limited
Life insurance
Trinidad & Tobago
100%
(cid:1)
.
Sagicor Financial Corporation 95
Sagicor Financial Corporation
Amounts expressed in US $000
4. SEGMENTS (continued)
Sagicor Life Jamaica
Segment Companies
(continued)
Manufacturers Investments
Limited
Sagicor Property Services
Limited
LOJ Holdings Limited
Principal Activities
Country of
Incorporation
Effective
Shareholders’
Interest
Investment management
Jamaica
51% (3)
Property management
Jamaica
59%
Insurance holding
company
Jamaica
100%
(1) Divested effective January 1, 2010
(3) 64% until November 2009
(2) 45% prior to January 1, 2010
(4) Commenced operations in 2009
(cid:1)
.
Notes to the Financial Statements
Year ended December 31, 2010
4. SEGMENTS (continued)
Sagicor Life Jamaica
Segment Companies
Principal Activities
Country of
Incorporation
Effective
Shareholders’
Interest
Sagicor Life Jamaica
Limited
Life and health insurance and
annuities
Sagicor Life of the
Cayman Islands Limited
Sagicor Pooled
Investment Funds Limited
Life insurance
Jamaica
The Cayman
Islands
Pension fund management
Jamaica
Employee Benefits
Administrator Limited
Pension administration
services
Sagicor Re Insurance
Limited
Property and casualty
insurance
Jamaica
The Cayman
Islands
Sagicor General
Insurance (Cayman)
Limited
Sagicor Insurance
Brokers Limited
Sagicor International
Administrators Limited (4)
Property, casualty and health
insurance
The Cayman
Islands
Insurance brokerage
Jamaica
Insurance brokerage
Jamaica
Sagicor Insurance
Managers Limited
Captive insurance
management services
The Cayman
Islands
Pan Caribbean Financial
Services Limited
Development banking and
investment management
59%
59%
59%
59%
59%
- (1) (2)
59%
59%
59% (2)
PanCaribbeanBank
Limited
Pan Caribbean Asset
Management Limited
Commercial and merchant
banking
Investment management
Jamaica
51% (3)
Jamaica
51% (3)
Jamaica
51% (3)
96 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
4. SEGMENTS (continued)
(c) Sagicor Europe
Sagicor Financial Corporation
Amounts expressed in US $000
4. SEGMENTS (continued)
(d)
Sagicor Life USA
This segment comprises the Sagicor at Lloyd’s insurance operations in the UK and comprises the
following.
This segment comprises Sagicor’s life insurance operations in the USA and comprises the following.
Sagicor USA
Segment Companies
Principal Activities
Sagicor Life Insurance
Company
Life insurance and
annuities
Country of
Incorporation
Effective
Shareholders’
Interest
Texas, USA
100%
Laurel Life Insurance
Company
Sagicor USA Inc
Life insurance
Texas, USA
100%(cid:1)
Insurance holding
company
Delaware, USA
100%(cid:1)
Sagicor Europe
Segment Companies
Principal Activities
Country of
Incorporation
Effective
Shareholders’
Interest
Sagicor at Lloyd’s Limited
Managing agent of Lloyd’s of
London insurance syndicates
Sagicor Corporate Capital
Limited (6)
Property and casualty
insurance
UK
UK
Sagicor Cayman Reinsurance
Company Limited (4)
Property and casualty
reinsurance
The Cayman
Islands
Sagicor Corporate Capital
Two Limited (7)
Life insurance
Sagicor Syndicate Services
Limited
Property and casualty
insurance agency
Sagicor Underwriting Limited
Sagicor Syndicate Holdings
Limited
Property and casualty
insurance agency
Service company
UK
UK
UK
UK
Sagicor Claims
Management Inc
Property and casualty
insurance claims management
California,
USA
Sagicor Europe Limited
Insurance holding company
The Cayman
Islands
100% (5)
100% (5)
100% (5)
100% (5)
100% (5)
100% (5)
100% (5)
100% (5)
100% (5)
(4) Commenced operations in 2009
(5) Effective voting interest is 86% (see note 30.4)
(6) Lloyd’s of London corporate underwriting member participating in Syndicate 1206
(7) Lloyd’s of London corporate underwriting member participating in Syndicate 44
(cid:1)
Sagicor Financial Corporation 97
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
4. SEGMENTS (continued)
4. SEGMENTS (continued)
(e) Head office function and other operating companies
These comprise the following:
(cid:1)
Other Group Companies Principal Activities
Country of
Incorporation
Effective
Shareholders’
Interest
A statement of income by segment is set in the following table. Total comprehensive income by
segment is also shown.
Sagicor Financial
Corporation
Sagicor General
Insurance Inc
Sagicor Finance Inc
Sagicor Asset
Management (T&T)
Limited, formerly Sagicor
Merchant Limited
Sagicor Asset
Management Inc
Barbados Farms Limited
Sagicor Funds
Incorporated
Globe Finance Inc
The Mutual Financial
Services Inc
Sagicor Allnation
Insurance Company
Group parent company
Barbados
100%
.
Property and casualty
insurance
Loan and lease financing, and
deposit taking
Barbados
St. Lucia
53%
70%
Investment management
Trinidad & Tobago
100%
Investment management
Barbados
100%
Farming and real estate
development
Barbados
77%
Mutual fund holding company
Barbados
100%
Loan and lease financing, and
deposit taking
Financial services holding
company
Barbados
Barbados
51%
73%
Health insurance
Delaware, USA
100%
Sagicor Finance Limited
Group financing vehicle
The Cayman
Islands
100%
98 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
4. SEGMENTS (continued)
4.1
Statement of income by segment
Sagicor Financial Corporation
Amounts expressed in US $000
2010
Net premium revenue
Interest income
Other investment income
Fees and other revenues
Loss on disposal of interest in subsidiary
Inter-segment revenues
Net policy benefits
Net change in actuarial liabilities
Interest expense
Administrative expenses
Commissions and premium taxes
Finance costs
Depreciation & amortisation
Inter-segment expenses
Segment income / (loss) before taxes
Income taxes
Segment income before undernoted items
Foreign exchange unwinding (1)
Group finance costs (2)
Net income / (loss) for the year
Net income attributable to shareholders
Total comprehensive income / (loss) by
segment attributable to shareholders
Sagicor Life Inc
Sagicor Life
Jamaica
Sagicor Europe
Sagicor USA
Head office
and other
Adjustments
Total
Summary statement of income by segment
215,510
66,412
13,855
10,986
-
4,348
311,111
137,342
33,747
14,153
50,878
34,571
-
5,931
335
276,957
34,154
(5,183)
28,971
-
-
28,971
30,236
29,977
212,609
128,935
28,517
19,055
-
762
389,878
121,106
39,793
52,562
67,860
34,975
1,577
5,309
1,627
324,809
65,069
(8,789)
56,280
-
-
56,280
31,960
53,992
345,275
3,219
(320)
6,884
-
-
355,058
235,705
221
-
38,561
95,216
221
1,531
97
371,552
(16,494)
2,545
(13,949)
825
-
(13,124)
(13,124)
(15,052)
120,044
36,273
4,521
1,900
-
-
162,738
44,269
71,823
5,927
22,006
11,776
-
1,566
535
157,902
4,836
(1,692)
3,144
-
-
3,144
3,144
7,435
14,708
10,054
1,949
18,146
(498)
14,117
58,476
7,703
-
5,355
32,866
7,074
100
3,932
6,867
63,897
(5,421)
(1,885)
(7,306)
-
(18,835)
(26,141)
(28,161)
(29,039)
(7,196)
-
(135)
4,896
498
(19,227)
(21,164)
-
-
-
(79)
(896)
14,471
-
(9,461)
4,035
(25,199)
(306)
(25,505)
(825)
18,835
(7,495)
(7,495)
(9,105)
900,950
244,893
48,387
61,867
-
-
1,256,097
546,125
145,584
77,997
212,092
182,716
16,369
18,269
-
1,199,152
56,945
(15,310)
41,635
-
-
41,635
16,560
38,208
Sagicor Financial Corporation 99
Notes to the Financial Statements
Year ended December 31, 2010
4. SEGMENTS (continued)
4.1 Statement of income by segment (continued)
Statement of income by segment
A statement of income by segment is set out below. Total comprehensive income by segment is also shown.
Summary statement of income by segment
Sagicor Financial Corporation
Amounts expressed in US $000
Sagicor Life Inc
Sagicor Life
Jamaica
Sagicor Europe
Summary statement of income by segment
Sagicor USA
Head office
and other
Adjustments
Total
Sagicor Life Inc
Sagicor Life Jamaica
Sagicor Europe
Sagicor USA
Head office & other
Adjustments
Total
208,588
231,516
251,009
2009
2009
Net premium revenue
Interest income
Net premium revenue
Other investment income
Interest income
Fees and other revenues
Other investment income
Loss on disposal of interest in subsidiary
Fees and other revenues
Inter-segment revenues
Loss on disposal of interest in subsidiary
Inter-segment revenues
Net policy benefits
Net change in actuarial liabilities
Net policy benefits
Interest expense
65,788
208,588
11,625
65,788
11,062
11,625
-
11,062
3,344
-
300,407
3,344
136,096
300,407
20,718
136,096
16,224
Net change in actuarial liabilities
Administrative expenses
Interest expense
Commissions and premium taxes
Administrative expenses
Finance costs
Commissions and premium taxes
Depreciation & amortisation
Finance costs
Inter-segment expenses
Depreciation & amortisation
Inter-segment expenses
Segment income / (loss) before taxes
Income taxes
Segment income / (loss) before taxes
Segment income before undernoted items
Income taxes
Foreign exchange unwinding (1)
Segment income before undernoted items
Group finance costs (2)
Foreign exchange unwinding (1)
Net income / (loss) for the year
Group finance costs (2)
Net income attributable to shareholders
Net income for the year
Total comprehensive income / (loss) by
Net income attributable to shareholders
segment attributable to shareholders
24,550
48,539
16,224
31,490
48,539
-
31,490
5,477
-
364
5,477
258,908
364
41,499
262,740
(5,413)
37,667
36,086
(5,413)
-
32,254
-
-
36,086
40,437
32,254
43,812
37,367
100 Sagicor Financial Corporation
149,534
231,516
17,354
149,535
32,345
17,353
-
32,345
714
-
431,463
714
131,657
431,463
46,901
131,657
73,375
46,901
68,705
73,375
35,737
68,705
2,209
35,737
6,087
2,209
2,022
6,087
366,693
2,022
64,770
366,693
(9,182)
64,770
55,588
(9,182)
-
55,588
-
-
55,588
34,155
55,588
31,172
34,155
2,230
248,776
(401)
2,230
2,801
(401)
-
2,801
-
-
255,639
-
129,583
253,406
(2,895)
129,583
-
(2,895)
26,665
-
73,845
26,665
13
73,845
1,386
13
638
1,386
229,235
5,015
26,404
233,612
(3,431)
19,794
22,973
(3,430)
(9,280)
16,364
-
(9,280)
13,693
13,693
7,084
17,840
7,084
152,848
29,859
152,848
4,765
29,859
2,224
4,765
-
2,224
-
-
189,696
-
39,344
189,696
99,257
39,344
6,309
119,679
20,312
6,309
13,616
20,312
-
13,616
1,632
-
824
1,632
181,294
824
8,402
201,716
(2,941)
(12,020)
5,461
4,207
-
(7,813)
-
-
5,461
5,461
(7,813)
10,085
(7,813)
14,299
(15,318)
842,942
10,853
14,299
2,732
10,854
29,121
2,608
(9,493)
29,121
28,708
(9,493)
76,220
33,055
5,881
80,444
(200)
5,881
5,991
(200)
31,640
5,991
6,659
31,640
176
6,659
4,077
13,153
4,630
4,077
58,854
4,630
17,366
71,831
(1,974)
8,613
15,392
(1,974)
-
6,639
(15,105)
-
287
(3,342)
6,639
(1,595)
3,010
-
(13,085)
(123)
-
(9,377)
-
9,493
(9,377)
(32,766)
9,493
(48,091)
(37,113)
-
(50,082)
-
-
-
-
2,501
-
(3,539)
2,501
12,977
(3,539)
-
-
(8,478)
-
3,461
(12,855)
(51,552)
(13,893)
3,609
(36,189)
(47,943)
3,608
9,280
(32,581)
15,105
9,280
(23,558)
(23,558)
(23,301)
(18,261)
(23,301)
258,264
842,942
35,952
258,266
68,176
35,950
68,176
-
-
-
1,205,334
-
442,561
1,205,334
163,781
442,561
101,899
188,035
198,362
101,899
157,808
198,362
15,375
157,808
18,659
15,375
-
18,659
1,098,445
-
106,889
1,122,699
(19,332)
82,635
87,557
(12,184)
-
70,451
-
-
87,557
66,846
70,451
83,053
50,502
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
4. SEGMENTS (continued)
4. SEGMENTS (continued)
4.1 Statement of income by segment (continued)
4.1 Statement of income by segment (continued)
(1) Foreign exchange unwinding represents the impact to segment income of translating unearned
premium and deferred acquisition costs at historic rates of exchange instead of at current rates of
exchange. This basis of foreign exchange translation within the segment is reported for management
purposes. The Group’s accounting policy is explained in note 2.3(c) and the difference in
measurement basis is further discussed in note 41.4 (a). The unwinding comprises the items in the
following table which have also been added back in the adjustments column.
Net premium revenue
Commissions
Exchange gains / losses
Income tax
Foreign exchange unwinding
2010
2009
(2,942)
896
3,177
(306)
825
(13,085)
3,539
(3,342)
3,608
(9,280)
(2) Group finance costs represent costs of borrowings and facilities initiated at Group level. These
include costs relating to the Sagicor 2016 senior notes, a bank loan from the Royal Bank of Canada,
the letter of credit facilities from the Bank of Nova Scotia and the reinsurance financing costs relating
to Sagicor at Lloyd’s. Where material, these costs have been removed from the individual segment
which benefits from these borrowings and facilities. This change in presentation was made this year
to conform to the format of information provided by the subsidiary company. Comparative figures have
also been restated.
(i) Investment gains
Fair value investment gains are recognised on:
the revaluation of investment property;
the revaluation of debt and equity securities classified as at fair value through income;
the disposal of debt and equity securities classified as available(cid:1)for sale or loans and
-
-
-
receivables.
Therefore, significant gains and losses may be triggered by changes(cid:1) in market prices and / or by
decisions to dispose of investments.
(cid:1)
(ii) Allowances for impairment of financial investments
Significant impairment losses may be triggered by changes in market prices and economic conditions.
(iii) Foreign exchange gains and losses
Movements in foreign exchange rates may generate significant exchange gains or losses when the
foreign currency denominated monetary assets and liabilities are re-translated at the date of the
financial statements.
(iv) Gains arising on acquisitions
Gains arising on acquisitions may be significant and are non-recurring.
Variations in segment income may arise from non-recurring or other significant factors. The most
common factors contributing to variations in segment income are as follows.
(v) Movements in actuarial liabilities arising from changes in assumptions
The change in actuarial liabilities for the year includes the effects arising from changes in
assumptions. The principal assumptions in computing the actuarial liabilities on life and annuity
contracts relate to mortality and morbidity, lapse, investment yields and operating expenses and
taxes. Because the process of changes in assumptions is applied to all affected insurance contracts,
changes in assumptions may have a significant effect in the period in which they are recorded.
Sagicor Financial Corporation 101
Notes to the Financial Statements
Year ended December 31, 2010
4. SEGMENTS (continued)
4.1
Statement of income by segments (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
The table below summarises by segment the individual line items in the statement of income impacted by the foregoing factors.
Sagicor Life Inc
Sagicor Life
Jamaica
Sagicor Europe
Sagicor USA
Head office
and other
Adjustments
Total
Variations in income by segment
2010
Investment gains / (losses)
Allowances for impairment of financial investments
Foreign exchange gains / (losses)
Gains on acquisitions
7,512
139
251
27,229
1,561
(5,809)
(320)
-
5,843
1,248
1,908
-
238
-
7,142
-
(2,301)
1,837
42,172
3,186
1,120
-
-
-
-
-
-
-
Decrease in policy liabilities from actuarial assumptions
(3,337)
(7,515)
557
3,157
-
-
(7,138)
2009
Investment gains / (losses)
8,084
12,997
(401)
Allowances for impairment of financial investments
2,572
1,449
-
Foreign exchange gains / (losses)
629
6,289
(3,396)
Gains on acquisitions
Decrease in policy liabilities from actuarial assumptions
-
(32,734)
-
(9,734)
-
-
9,357
4,741
-
-
2,309
-
222
-
7,106
(6,105)
32,346
8,984
4,523
-
-
-
5,282
-
-
(37,186)
4.2
Other comprehensive income
Variations in other comprehensive income may arise also from non-recurring or other significant factors.
The most common are as follows.
(ii) Changes in actuarial liabilities
Changes in unrealised investment gains identified in (i) above may also generate significant changes in
actuarial liabilities as a result of the use of asset liability matching in the liability estimation process.
(i) Unrealised investment gains
Fair value investment gains are recognised on the revaluation of debt and equity securities classified as
available for sale. Therefore, significant gains and losses may be triggered by changes in market prices.
(iii) Foreign exchange gains and losses
Movements in foreign exchange rates may generate significant exchange gains or losses on the re-
translation of the financial statements of foreign currency reporting units.
102 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
4. SEGMENTS (continued)
4.2
Other comprehensive income (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
The table below summarises by segment the individual line items in the other comprehensive income impacted by the foregoing factors.
Variations in other comprehensive income by segment
Sagicor Life Inc Sagicor Life Jamaica
Sagicor Europe
Sagicor USA
Head office
and other
Adjustments
Total
2010
Unrealised investment gains / losses
8,042
Changes in actuarial liabilities
Retranslation of foreign currency operations
(2,282)
(369)
2009
Unrealised investment gains / (losses)
12,618
Changes in actuarial liabilities
Retranslation of foreign currency operations
(3,832)
(1,150)
28,363
-
9,672
21,364
-
(268)
11,536
(131)
-
47,542
-
(8,294)
-
-
(10,576)
(1,660)
-
(20)
(1,616)
6,007
(257)
11,573
2,423
-
47,721
-
(13,274)
-
-
(17,106)
(12,996)
(21,580)
4,404
-
(87)
5,417
Sagicor Financial Corporation 103
Notes to the Financial Statements
Year ended December 31, 2010
4. SEGMENTS (continued)
4.3
Statement of financial position by segment
A summary statement of financial position by segment is set out below. Eliminations on consideration comprise adjustments to arrive at the Group financial position
Sagicor Financial Corporation
Amounts expressed in US $000
2010
Financial investments
Other investments & assets
Inter-segment assets
Total assets
Policy liabilities
Other operating liabilities
Inter-segment liabilities
Total liabilities
Net assets
2009
Financial investments
Other investments & assets
Inter-segment assets
Total assets
Policy liabilities
Other liabilities
Inter-segment liabilities
Total liabilities
Sagicor Life Inc
Sagicor Life
Jamaica
Sagicor Europe
Sagicor USA
Head office
and other
Adjustments
Total
Summary statement of financial position by segment
1,010,885
1,444,391
293,750
111,546
199,239
24,315
235,360
374,208
-
796,043
207,372
339
1,416,181
1,667,945
609,568
1,003,754
1,023,969
66,938
8,766
494,767
858,490
5,127
1,099,673
1,358,384
490,882
26,456
72,939
590,277
654,675
182,459
23,613
860,747
150,153
-
155,850
-
126,657
432,660
(262,857)
(262,857)
48,638
-
281,136
-
152,412
482,186
(262,857)
(262,857)
3,636,832
1,230,419
-
4,867,251
2,712,931
1,415,479
-
4,128,410
316,508
309,561
19,291
143,007
(49,526)
-
738,841
979,805
286,949
64,684
1,248,706
240,015
17,833
192,596
269,785
-
685,454
225,696
167,881
-
163,085
-
1,256
122,704
1,331,438
1,506,554
462,381
912,406
453,670
(206,477)
(206,477)
971,288
65,450
8,443
488,264
777,683
4,830
1,045,181
1,270,777
323,200
24,975
69,855
418,030
594,882
177,601
22,669
795,152
41,063
-
314,138
-
100,680
455,881
(206,477)
(206,477)
3,274,442
1,185,530
-
4,459,972
2,418,697
1,359,847
-
3,778,544
Net assets
286,257
235,777
44,351
117,254
(2,211)
-
681,428
104 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
4. SEGMENTS (continued)
4.4 Additions to non-current assets by segment
Segment operations include certain non-current assets comprising investment property, property,
plant and equipment, investment in associated companies and intangible assets. Additions to these
categories for the year are as follows:
Additions to non-current assets by segment
Sagicor
Life Inc
Sagicor Life
Jamaica
Sagicor
Europe
Sagicor
USA
Head
office
and other
2010
2009
7,103
7,054
16,131
3,094
1,444
1,134
1,125
705
3,802
4,713
Total
29,605
16,700
Sagicor Financial Corporation
Amounts expressed in US $000
4. SEGMENTS (continued)
4.6 Geographical areas
The Group operates in certain geographical areas which are determined by the location of the
subsidiary or branch initiating the business. Except for the Sagicor at Lloyd’s Syndicate 1206 business
which underwrites risks inside and outside of the UK, the location of the subsidiary or branch is not
materially different from the location of customers.
Group operations in geographical areas include certain non-current assets comprising investment
property, property, plant and equipment, investment in associated companies and intangible assets.
Total external revenues and non-current assets (as defined in the foregoing paragraph) by
geographical area are summarised in the following table.
4.5 Products and services
Total external revenues relating to the Group’s products and services are summarised in the following
table.
2010
2009
Barbados
Jamaica
Trinidad & Tobago
Other Caribbean
United Kingdom
Life, health and annuity insurance contracts issued to individuals
535,724
537,684
USA
Life, health and annuity insurance and pension administration
contracts issued to groups
Property and casualty insurance
Banking, investment management and other financial services
Farming and unallocated revenues
221,187
251,615
377,925
98,040
23,221
265,517
128,047
22,471
1,256,097
1,205,334
(cid:1)
External Revenue
Non-current assets
2010
2009
2010
2009
128,727
357,786
112,283
141,686
352,874
162,741
135,699
376,102
109,940
163,020
230,875
189,698
178,869
181,305
91,863
60,562
39,926
32,726
2,938
84,690
60,797
43,805
33,862
3,371
1,256,097
1,205,334
406,884
407,830
Sagicor Financial Corporation 105
Sagicor Financial Corporation
Amounts expressed in US $000
Notes to the Financial Statements
Year ended December 31, 2010
5. INVESTMENT PROPERTY
Investment property is carried at fair value as determined by independent valuers using internationally
recognised valuation techniques. Direct sales comparisons, when such data is available, and income
capitalisation methods, when appropriate, are included in the assessment of fair values. For some
tracts of land which are currently un-developed or which are leased to third parties, the fair value may
reflect the potential for development within a reasonable period of time.
The movement in investment property for the year is as follows:
(cid:1)
2010
2009
Balance, beginning of year
Additions at cost
116,845
11,233
Transfers to real estate developed for resale
-
107,390
806
(2,642)
Transfers from / (to) property, plant and equipment
(1,087)
13,231
Disposals and divestitures
(Depreciation) / Appreciation in fair values
Effects of exchange rate changes
(7,341)
(3,875)
(1,399)
3,077
918
(1,142)
Balance, end of year
(cid:1)
Investment property includes $16,527 (2009 - $17,273) which represents the Group’s proportionate
interest in joint ventures summarised in the following table.
116,845
119,169
Description of property
Percentage ownership
Country
Barbados
Freehold lands
Freehold office buildings
Trinidad & Tobago
Freehold office building
50%
10%, 33%
60%
Pension Funds managed by the Group own the remaining 50% interests of freehold lands in
Barbados, and a 33% interest in a freehold office building in Barbados.
106 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
6. PROPERTY, PLANT AND EQUIPMENT
Sagicor Financial Corporation
Amounts expressed in US $000
2010
2009
Owner-occupied properties
Land
Land &
buildings
Office
furnishings,
equipment &
vehicles
Operating
lease
vehicles &
equipment
Total
Owner-occupied properties
Land
Land &
buildings
Office
furnishings,
equipment &
vehicles
Operating
lease
vehicles &
equipment
Total
Net book value, beginning of year
35,694
Additions at cost
Transfers from / (to) investment
property
Transfers to intangible assets
Transfers (to) / from real estate
developed or held for sale
Other transfers
Disposals and divestitures
(Depreciation) / appreciation in
fair values
Depreciation charge
Effects of exchange rate changes
-
-
-
-
-
-
-
-
-
60,443
529
22,694
10,052
128,883
40,079
73,282
23,492
11,426
148,279
10,394
2,383
13,306
-
91
9,001
2,512
11,604
1,087
-
-
1,087
(1,581)
(11,650)
-
-
(13,231)
-
-
-
-
-
-
169
(169)
-
-
-
-
-
-
(1,914)
-
(2,676)
109
-
-
(1,914)
(2,567)
-
270
(270)
-
-
(16)
(2,356)
(1,160)
(3,532)
-
-
(384)
(1,364)
(1,748)
770
-
-
770
(128)
1,304
-
-
1,176
(809)
(6,462)
(2,360)
(9,631)
-
286
238
-
524
-
(917)
(2,046)
(6,608)
(2,524)
(623)
2
(10,049)
(2,667)
Net book value, end of year
35,694
62,459
24,339
8,915
131,407
35,694
60,443
22,694
10,052
128,883
Represented by:
Cost or valuation
35,694
64,252
81,360
15,151
Accumulated depreciation
-
(1,793)
(57,021)
(6,236)
196,457
(65,050)
35,694
62,069
76,060
15,903
189,726
-
(1,626)
(53,366)
(5,851)
(60,843)
35,694
62,459
24,339
8,915
131,407
35,694
60,443
22,694
10,052
128,883
(cid:1)
Owner occupied property is carried at fair value as determined by independent valuers using
internationally recognised valuation techniques. Direct sales comparisons, when such data is
available, and income capitalisation methods, when appropriate, are included in the assessment
of fair values.
Lands are largely utilised for farming operations. In determining the fair value of lands, their potential
for development within a reasonable period is assessed, and if such potential exists, the fair value
reflects that potential.
Land and buildings consist largely of properties containing occupied office buildings and includes
$625 (2009 – $622) which represents the Group’s proportionate interest in office buildings in Belize
and Grenada.
Sagicor Financial Corporation 107
Sagicor Financial Corporation
Amounts expressed in US $000
Notes to the Financial Statements
Year ended December 31, 2010
7. INVESTMENT IN ASSOCIATED COMPANIES
2010
2009
Investment, beginning of year
32,674
31,893
Additions
Dividends received
Share of
Income before taxes
-
1,606
(1,357)
(1,269)
2,478
2,125
Amortisation of
intangible assets
identified on
acquisition
Income taxes
Other comprehensive income / (loss)
Effects of exchange rate changes
(557)
(216)
(28)
(65)
(557)
(621)
(217)
(286)
Investment, end of year
32,929
32,674
The aggregate balances and results in respect of associated companies for the period are set out
below.
Total assets
Total liabilities
Total revenue
Net income for the year
2010
2009
360,028
234,592
122,296
8,786
351,511
230,444
115,128
5,518
108 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
8. INTANGIBLE ASSETS
(a) Analysis and changes for the year
Sagicor Financial Corporation
Amounts expressed in US $000
2010
Goodwill
Customer &
broker
relationships
Syndicate
capacity &
licences
Software
Total
Goodwill
2009
Customer &
broker
relationships
Syndicate
capacity &
licences
Software
Total
Net book value, beginning of year
58,289
36,978
21,021
13,140
129,428
59,703
43,293
18,758
13,168
134,922
Additions at cost
Identified on acquisitions
Transfer from property, plant and
equipment (note 6)
-
-
-
Amortisation and impairment
-
Disposals and divestitures
(896)
Effects of exchange rate changes
555
-
-
-
(3,080)
(2,353)
1,024
-
5,066
5,066
-
-
-
2,684
2,684
-
-
-
-
-
-
7
-
-
-
7
-
-
-
1,914
1,914
(47)
-
(4,954)
(739)
(8,081)
-
(3,441)
(47)
(4,565)
(8,053)
(3,988)
-
-
-
-
-
(643)
18
954
(1,421)
(2,874)
2,310
(61)
(2,046)
Net book value, end of year
57,948
32,569
20,331
12,531
123,379
58,289
36,978
21,021
13,140
129,428
Represented by:
Cost or valuation
59,761
46,962
20,484
31,997
159,204
60,102
49,439
21,129
28,325
158,995
Accumulated depreciation
(1,813)
(14,393)
(153)
(19,466)
(35,825)
(1,813)
(12,461)
(108)
(15,185)
(29,567)
57,948
32,569
20,331
12,531
123,379
58,289
36,978
21,021
13,140
129,428
(cid:1)
Sagicor Financial Corporation 109
Notes to the Financial Statements
Year ended December 31, 2010
(cid:1)
(cid:1)
8. INTANGIBLE ASSETS (continued)
(cid:1)(cid:1)
(b)
Impairment of intangible assets
Goodwill arises from past acquisitions and is allocated to cash generating units (CGUs). Goodwill and
intangible assets with an indefinite useful life are tested annually for impairment. CGUs and intangible
assets with an indefinite useful life by segment are as follows:
Operating Segment
2010
2009
Goodwill
Intangible assets with
indefinite useful life
2009
2010
Sagicor Life Inc
Sagicor Life Jamaica
Sagicor Europe
Other operating companies
27,102
21,688
4,290
4,868
57,948
27,116
21,880
4,425
4,868
58,289
-
-
-
-
19,783
20,406
-
-
19,783
20,406
(cid:1)
The recoverable amount of a CGU is determined as the higher of its value in use or its fair value less
costs to sell. A CGU’s value in use is estimated using cash flow projections prepared by management.
Detailed cash flow projections are prepared for three years and are extrapolated for subsequent years.
The fair value of a CGU is estimated by capitalising its expected earnings over time. Syndicate capacity,
which has an indefinite useful life, is also tested for impairment by its value in use.
Cash flow discount factors, residual growth rates and earnings multiples utilised in the assessment of
recoverable amounts as of December 31, 2010 were as follows:
Sagicor Financial Corporation
Amounts expressed in US $000
8. INTANGIBLE ASSETS (continued)
2009
Cash flow
discount factors
Sagicor Life Inc
Sagicor Life Jamaica
Sagicor Europe
Other operating companies
n/a
n/a
12.9%, 12.2%
14.8%, 12.8%
Cash flow
residual
growth rates
n/a
n/a
1.9%, 2.5%
4.6%, 4.2%
Earnings
multiples
9.9
5.7
n/a
n/a
Sensitivity
Applying adjusted earnings multiples to the Sagicor Life Inc and Sagicor Life Jamaica segments,
would produce the following results.
Earnings multiples
Sagicor Life Inc segment
9.9
8.58
8.42
Excess of recoverable amount over carrying amount /
(impairment)
49,525
-
(6,112)
Earnings multiples
Excess of recoverable amount over carrying amount /
(impairment) – representing Sagicor’s 59% interest in the
segment
Sagicor Life Jamaica segment
6.4
4.55
4.35
73,549
-
(7,901)
2010
Sagicor Life Inc
Sagicor Life Jamaica
Sagicor Europe
Other operating companies
Cash flow
discount factors
Cash flow
residual
growth rates
Earnings
multiples
The assessment of the Sagicor Europe segment goodwill and intangible assets with indefinite useful
life is most sensitive to future net claims ratios. Increasing claims ratios from underwriting year 2012
in the model would produce the following results:
n/a
n/a
11.5%
14.8%
n/a
n/a
1.5%
4.1%
9.9
6.4
n/a
n/a
Net claims ratio
Excess of recoverable amount over carrying amount /
(impairment)
Sagicor Europe segment
55%
57.46%
58.00%
61,920
-
(13,481)
110 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
(cid:1)
9. FINANCIAL INVESTMENTS
9.1 Analysis of financial investments
(cid:1)
Sagicor Financial Corporation
Amounts expressed in US $000
9. FINANCIAL INVESTMENTS (continued)
9.1 Analysis of financial investments (continued)
2010
2009
2010
2009
Carrying
value
Fair
value
Carrying
value
Fair
value
Non-derivative financial assets at fair value through
income comprise:
Held to maturity securities:
Debt securities
Available for sale securities:
Debt securities
Equity securities
19,691
20,396
19,547
16,682
1,742,835
1,742,835
1,458,765
1,458,765
87,713
87,713
99,788
99,788
(cid:1)
1,830,548
1,830,548
1,558,553
1,558,553
Financial assets at fair value through
income:
Debt securities
Equity securities
Derivative financial instruments (note 41.6)
Mortgage loans
Securities purchased under agreements to
resell
96,333
23,839
12,070
46,876
96,333
23,839
12,070
46,876
71,314
17,058
4,105
48,180
71,314
17,058
4,105
48,180
Assets designated at fair value upon initial recognition
170,030
146,572
Debt securities comprise:
Government and government-guaranteed debt securities
1,497,082
1,350,052
Collateralised mortgage obligations
Corporate debt securities
Other securities
159,574
898,452
53,444
193,487
632,867
47,883
2,608,552
2,224,289
Debt securities include $4,559 (2009 - $3,042) that contain options to convert to common shares of
the issuer.
2,982
2,982
10,020
10,020
Corporate debt securities include:
(cid:1)
182,100
182,100
150,677
150,677
Loans and receivables:
Debt securities
Mortgage loans
Policy loans
Finance loans and finance leases
Securities purchased under agreements to
resell
Deposits
749,693
250,206
123,250
144,065
798,626
674,663
251,461
265,096
130,092
124,017
172,397
135,078
696,966
262,726
129,676
144,918
25,585
25,585
72,295
72,295
311,694
311,694
274,516
274,516
1,604,493
1,689,855
1,545,665
1,581,097
Total financial investments
3,636,832
3,722,899
3,274,442
3,307,009
(i) convertible loans totalling $nil (2009 - $5,199) issued to the Group by an associated company.
These loans can be converted into equity or bonds issued by the associated company.
(ii) $21,745 (2009 - $14,741) in bonds issued by an associated company.
Equity securities include $6,559 (2009 - $6,333) in mutual funds managed by the Group.
Sagicor Financial Corporation 111
Notes to the Financial Statements
Year ended December 31, 2010
9. FINANCIAL INVESTMENTS (continued)
9. FINANCIAL INVESTMENTS (continued)
9.2 Pledge assets
9.2 Pledged assets
Debt securities include $20,894 (2009 - $21,268) and policy loans include $22,461 (2009 - $25,153) in
assets held in trust for a reinsurer (note 20). The income from these assets accrues to the reinsurer.
Debt and equity securities include $162,100 (2009 - $229,450) as collateral for loans payable and
other funding instruments.
Collateral for the obligation to the Federal Home Loan Bank of Dallas (FHLB) which is included in
other funding instruments (note 17), consists of an equity holding in the FHLB with a market value of
$5,294 (2009 - $5,442), and mortgages and mortgage backed securities having a total market value of
$123,312 (2009 - $124,715).
Debt securities are pledged as collateral under repurchase agreements with customers and other
financial institutions and for security relating to overdraft and other facilities with other financial
institutions. As of December 31, 2010, these pledged assets totalled $581,911 (2009 - $526,273). Of
these assets pledged as security, $94,761 (2009 – $204,027) represents collateral for securities sold
under agreements to repurchase in instances when the transferee has the right by contract or by
custom to sell or re-pledge the collateral.
Deposits include $47,029 (2009 – $48,352) pledged as collateral for a letter of credit facility obtained
by the Group.
9.3 Returns accruing to the benefit of contract-holders
Financial investments include the following amounts for which the full income and capital returns
accrue to the holders of unit linked policy and deposit administration contracts.
Sagicor Financial Corporation
Amounts expressed in US $000
9. FINANCIAL INVESTMENTS (continued)
9.4 Reclassification of financial investments
In 2008, the Group reclassified certain securities from the available for sale classification to the loans
and receivables classification. The assets reclassified were primarily:
(cid:37)
(cid:37)
Government of Jamaica debt securities with a maturity date of 2018 and after, which are
held to back long-term insurance liabilities; and
Non-agency collateralised mortgage obligations in the USA.
The reclassifications were made because the markets for these securities were considered by
management to have become inactive.
The following disclosures are in respect of these reclassified assets.
2010
2009
Carrying
value
Fair
value
Carrying
value
Fair
value
Government debt securities maturing after
September 2018
76,095
79,049
134,387
114,233
Other debt securities
15,089
15,968
27,059
25,234
91,184
95,017
161,446
139,467
2010
2009
Cumulative net fair value loss, beginning of year
(41,805)
(71,210)
2010
2009
Net fair value gains subsequent to restatement
Disposals
Effect of exchange rate changes
23,835
12,869
216
25,623
2,209
1,573
Cumulative net fair value loss, end of year
(4,885)
(41,805)
Debt securities
Equity securities
Mortgage loans
Securities purchased under agreements to resell
95,156
19,517
46,876
2,982
70,690
12,208
48,180
10,020
164,531
141,098
112 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
9. FINANCIAL INVESTMENTS (continued)
9.4 Reclassification of financial investments (continued)
The net fair value gains subsequent to restatement approximate the fair value gains that would have
been recorded in total comprehensive income had the reclassification not been made. The disposal
amount represents the net loss that would have been reclassified from other comprehensive income
to income on disposal.
10.
REINSURANCE ASSETS
Reinsurers’ share of:
Actuarial liabilities (note 13.1)
Policy benefits payable (note 14.2)
Provision for unearned premiums (note 14.3)
Other items
2010
2009
178,078
207,696
57,907
40,909
4,954
35,900
45,766
5,517
281,848
294,879
The provision for unearned premiums and other items disclosed above are expected to mature within
one year of the financial statements date.
Sagicor Financial Corporation
Amounts expressed in US $000
12. MISCELLANEOUS ASSETS AND RECEIVABLES
Pension plan assets (note 31)
Real estate developed or held for resale
Deferred policy acquisition costs
Premiums receivable
Other accounts receivable
2010
2009
3,826
12,322
60,486
145,175
73,479
295,288
5,087
11,869
46,525
128,794
62,736
255,011
Other accounts receivable include $ 3,097 (2009 – $2,814) due from managed funds.
(a) Real estate developed or held for resale
Real estate developed for resale includes $2,990 (2009 - $6,290) which is expected to be realised
within one year of the financial statements date. These balances also include $231 (2009 - $417)(cid:1)
which represents the Group’s proportionate interest in joint ventures.
(b) Deferred policy acquisition costs
Deferred policy acquisitions costs are expected to mature within one year of the financial statements
date. The movement in these balances for the year was as follows:
11.
INCOME TAX ASSETS
Deferred income tax assets (note 33)
Income and withholding taxes recoverable
2010
2009
9,209
18,555
27,764
15,272
16,518
31,790
Gross amount(cid:1)
Balance, beginning of year
Expensed
Additions
De-recognised on divestiture
Effect of exchange rate changes
Balance, end of year
2010
46,525
(102,150)
118,381
(1,238)
(1,032)
60,486
2009
28,227
(81,322)
97,007
-
2,613
46,525
Income and withholding taxes recoverable are expected to be recovered within one year of the
financial statements date.
Sagicor Financial Corporation 113
Notes to the Financial Statements
Year ended December 31, 2010
13. ACTUARIAL LIABILITIES
13.1 Analysis of actuarial liabilities
Sagicor Financial Corporation
Amounts expressed in US $000
13. ACTUARIAL LIABILITIES
(continued)
13.2 Movement in actuarial liabilities
Gross liability
Reinsurers’ share
2010
2009
2010
2009
The movement in actuarial liabilities for the year is as follows:
Contracts issued to individuals:
Life insurance - participating policies
316,100
306,015
1,497
1,992
Life insurance and annuity
- non-participating policies
Health insurance
Unit linked funds
Reinsurance contracts held
Contracts issued to groups:
Life insurance
Annuities
Health insurance
995,371
911,860
143,545
169,442
1,981
110,386
13,995
1,456
88,492
12,010
739
696
-
-
-
-
1,437,833
1,319,833
145,781
172,130
30,914
28,183
3,625
3,220
248,111
228,763
28,549
31,754
36,854
35,752
123
592
315,879
292,698
32,297
35,566
Total actuarial liabilities
1,753,712
1,612,531
178,078
207,696
The following notes are in respect of the foregoing table:
(cid:1)
(cid:1)
(cid:1)
Life insurance includes coverage for disability and critical illness.
Actuarial liabilities include $117,341 (2009 - $121,163) in assumed reinsurance.
Liabilities for reinsurance contracts held occur because the reinsurance premium costs
exceed the mortality costs assumed in determining the gross liability of the policy.
Gross liability
Reinsurers’ share
2010
2009
(restated)
2010
2009
Balance, beginning of year
1,612,531
1,450,219
207,696
215,240
Assumed on acquisitions
2,409
1,549
1,345
-
Change in actuarial liabilities
recorded in income (note 27)
Change in actuarial liabilities
recorded in other
comprehensive
income (notes 35 and 38)
117,889
156,285
(27,695)
(7,496)
15,041
24,254
-
-
De-recognised on divestiture
(3,489)
-
(3,260)
-
Effect of exchange rate
changes
9,331
(19,776)
(8)
(48)
Balance, end of year
1,753,712
1,612,531
178,078
207,696
As set out in note 2.13 (a), the changes in actuarial liabilities which arise from asset fair value gains or
losses in other comprehensive income (OCI) are now also recorded in OCI. In prior years, this change
in actuarial liabilities was recorded in income. The effect of the change in accounting policy in 2009 is
summarised in note 38.
114 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
13. ACTUARIAL LIABILITIES (continued)
13. ACTUARIAL LIABILITIES
13.2 Movement in actuarial liabilities (continued)
13.3 Assumptions – life insurance and annuity contracts
The changes in actuarial liabilities recorded in income and other comprehensive income are further
analysed as follows:
(a)
Process used to set actuarial assumptions and margins for adverse deviations
Gross liability
Reinsurers’ share
2010
2009
2010
2009
At each date for valuation of actuarial liabilities, the Appointed Actuary (AA) of each insurer reviews
the assumptions made at the last valuation date. The AA tests the validity of each assumption by
reference to current data, and where appropriate, changes the assumptions for the current valuation.
A similar process of review and assessment is conducted in the determination of margins for adverse
deviations.
144,559
214,746
(27,927)
(7,496)
Any recent changes in actuarial standards and practice are also incorporated in the current valuation.
(7,138)
(37,186)
232
(8,288)
(2,406)
368
63
3,429
5,322
-
-
-
(b)
Assumptions for mortality and morbidity
Mortality rates are related to the incidence of death in the insured population. Morbidity rates are
related to the incidence of sickness and disability in the insured population.
For the 2010 valuation, insurers updated studies of recent mortality experience. The resulting
experience was compared to external mortality studies including the Canadian Institute of Actuaries
(CIA) 1986 - 1992 tables. Appropriate modification factors were selected and applied to underwritten(cid:1)
and non-underwritten business respectively. Annuitant mortality was determined by reference to CIA
tables or to other established scales.
Assumptions for morbidity are determined after taking into account insurer and industry experience
and established guidelines from Actuarial Institutes.
(c)
Assumptions for lapse
-
-
-
-
132,930
180,539
(27,695)
(7,496)
Lapses relate to the forced termination of policies due to non-payment of premium or to the voluntary
termination of policies by policyholders.
Normal changes in actuarial
liabilities arising from increments
and decrements of inforce
policies and from the issuance
of new policies
Effect of changes in actuarial
assumptions for mortality,
morbidity, lapse, investment
yields, and operating expenses
and taxes
Other changes:
Actuarial modelling,
refinements, improvements
and corrections
Changes in margins for
adverse deviations
Other
(cid:1)
Lapse studies were updated by insurers for the 2010 valuation, to determine the most recent
experience of persistency. Appropriate rates of termination by policy duration were determined and
applied in the actuarial valuations.
Sagicor Financial Corporation 115
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
13. ACTUARIAL LIABILITIES (continued)
13. ACTUARIAL LIABILITIES (continued)
13.3 Assumptions – life insurance and annuity contracts (continued)
13.3 Assumptions – life insurance and annuity contracts (continued)
(d)
Assumptions for investment yields
(e)
Assumptions for operating expenses and taxes
Returns on existing variable rate securities, shares, investment property and policy loans are linked to
the current economic scenario. Yields on reinvested assets are also tied to the current economic
scenario. Returns are however assumed to decrease and it is assumed that at the end of twenty years
from the valuation date, all investments, except policy loans, are reinvested in long-term, default free
government bonds.
The ultimate rate of return is the assumed rate that will ultimately be earned on government bonds. It
is established for each geographic area and is summarised in the following table.
Policy acquisition and policy maintenance expense costs for long-term business of each insurer are
measured and monitored using internal expense studies. Policy maintenance expense costs are
reflected in the actuarial valuation after adjusting for expected inflation. Costs were updated for the
2010 valuations and were applied on a per policy basis.
Taxes reflect assumptions for future premium taxes and income taxes levied directly on investment
income (see note 32.2). For income taxes levied on net income, actuarial liabilities are adjusted for
policy related recognised deferred tax assets and liabilities.
Ultimate rate of return:
2010
2009
(f)
Asset defaults
Barbados
Jamaica
Trinidad & Tobago
Other Caribbean
USA
5.0%
7.0%
5.5%
5.0%
7.0%
5.5%
5.0 – 5.5%
5.0 – 5.5%
4.0%
4.0%
116 Sagicor Financial Corporation
The AA of each insurer includes a provision for asset default in the modelling of the cash flows. The
provision is based on industry and Group experience and includes specific margins for equity
securities, debt securities, mortgage loans and deposits.
(g)
Margins for adverse deviations
Margins for adverse deviations are determined for the assumptions in the actuarial valuations. The
application of these margins resulted in the following provisions for adverse deviations being included
in the actuarial liabilities:
Provisions for adverse deviations:
2010
2009
Mortality and morbidity
Lapse
Investment yields and asset default
Operating expenses and taxes
50,155
39,209
67,620
18,561
41,813
32,203
67,023
16,969
175,545
158,008
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
13. ACTUARIAL LIABILITIES (continued)
14. OTHER INSURANCE LIABILITIES (continued)
13.4 Assumptions – health insurance contracts
14.2 Policy benefits payable
The outstanding liabilities for health insurance claims incurred but not yet reported and for claims
reported but not yet paid are determined by statistical methods using expected loss ratios which have
been derived from recent historical data. No material claim settlements are anticipated after one year
from the date of the financial statements.
(a) Analysis of policy benefits payable
Gross liability
Reinsurers’ share
2010
2009
2010
2009
14. OTHER INSURANCE LIABILITIES
14.1 Analysis of other insurance liabilities
Dividends on deposit and other policy balances
Policy benefits payable
Provision for unearned premiums
2010
2009
70,101
355,395
239,385
664,881
67,784
232,406
201,579
501,769
The provision for unearned premiums is expected to mature within one year of the financial
statements date.
.
Life insurance and annuity benefits
54,969
45,884
10,565
11,134
Health claims
2,647
3,636
2,643
2,633
Property and casualty claims:
Notified outstanding claims
174,640
92,216
31,035
12,303
Provision for claims incurred but
not reported
123,139
90,670
13,664
9,830
355,395
232,406
57,907
35,900
Property and casualty claims payable contain total discounted amounts of $14,440 in respect of the
gross liability and $1,645 in respect of the reinsurers’ share (2009 – $4,826 and $388 respectively).
Included within the total discounted amounts are $5,537 (2009 – nil) in the gross liability and $383
(2009 – nil) in the reinsurers’ share representing sub-classes of insurance. These amounts result
from the discounting at rates which reflect the achievable yield over 10 years of the insurer’s
investment portfolio. The discount rates varied from 0.27% to 3.40% (2009 – 0.31% to 3.48%).
(cid:1)
(cid:1)
(cid:1)
Sagicor Financial Corporation 117
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
14. OTHER INSURANCE LIABILITIES (continued)
14. OTHER INSURANCE LIABILITIES (continued)
14.2 Policy benefits payable (continued)
(b) Movement in policy benefits payable
14.3 Provision for unearned premiums (continued)
(b) Movement in provision for unearned premiums
Gross amount
Reinsurers’ share
2010
2009
2010
2009
Gross amount
Reinsurers’ share
2010
2009
2010
2009
Balance, beginning of year
Policy benefits incurred
232,406
626,071
183,971
500,416
35,900
50,861
77,419
58,703
Policy benefits paid
(496,884)
(458,092)
(49,607)
(71,964)
De-recognised on divestiture
(7,014)
-
(5,701) -
Effect of exchange rate
changes
816
6,111
(104)
(1,700)
Balance, end of year
355,395
232,406
57,907
35,900
Balance, beginning of year
201,579
135,543
45,766
36,271
Premiums written
510,217
444,835
111,087
130,107
Premium revenue
De-recognised on
divestiture
Effect of exchange rate
changes
(454,202)
(389,078)
(103,984)
(121,773)
(14,348)
-
(11,811)
-
(3,861)
10,279
(149)
1,161
Balance, end of year
239,385
201,579
40,909
45,766
(cid:1)
15. INVESTMENT CONTRACT LIABILITIES
14.3 Provision for unearned premiums
(a) Analysis of provision for unearned premiums
Property and casualty
insurance
Health insurance
Gross liability
Reinsurers’ share
2010
2009
2010
2009
239,385
201,571
40,909
45,766
-
8
-
-
239,385
201,579
40,909
45,766
At amortised cost:
Deposit administration
liabilities
Other investment contracts
At fair value through
income:
Unit linked deposit
administration liabilities
118 Sagicor Financial Corporation
2010
2009
Carrying
value
Fair
value
Carrying
value
Fair
value
109,739
109,739
95,581
95,581
100,752
210,491
101,537
211,276
132,229
227,810
132,416
227,997
83,847
83,847
76,587
76,587
294,338
295,123
304,397
304,584
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
16. NOTES AND LOANS PAYABLE
17. DEPOSIT AND SECURITY LIABILITIES
2010
2009
Carrying
value
Fair
value
Carrying
value
Fair
value
7.5% senior notes due 2016
144,028
154,696
144,520
149,771
Other funding instruments
At amortised cost:
12.5% cumulative redeemable
preference shares due 2013
Bank loans and other funding
instruments
7,191
7,191
14,235
14,235
30,666
30,666
42,089
42,089
181,885
192,553
200,844
206,095
Customer deposits
Securities sold under agreements to
repurchase
(cid:1)
The Group issued ten year $150,000 senior notes which are repayable in 2016. The notes carry a
7.5% rate of interest fixed for the period and interest is payable semi-annually. The notes are traded
and are listed on the Luxembourg Euro MTF Market.
At fair value through income:
Structured products
Derivative financial instruments (note
41.6)
2010
2009
Carrying
value
Fair
value
Carrying
value
Fair
value
229,617
168,134
240,875
202,620
233,443
162,989
240,379
146,174
575,716
644,094
501,128
456,825
5,655
1,849
7,504
5,655
1,849
7,504
5,299
2,248
7,547
5,299
2,248
7,547
983,551
1,097,673
907,487
853,305
Bank overdrafts
2,580
2,580
2,380
2,380
976,047
1,090,169
899,940
845,758
The 12.5% cumulative redeemable preference shares were issued by Pan Caribbean Financial
Services Limited in February 2008. The shares are denominated in Jamaican dollars. 51.5% of the
shares issued in 2008 were redeemed in 2010.
In December 2009, the Group received a bank loan of $25,000. Interest is variable at 5.25% above
LIBOR at the date of the financial statements (2009 – 3.5% above LIBOR). The initial term of the loan
was 6 months, but was extended to March 31, 2011. Other bank loans and funding instruments carry
interest rates between 4.75% and 7.5% and are repayable by June 2011. The security for bank loans
and other funding instruments are disclosed in note 9.2.
Financial covenants in respect of the above liabilities are summarised in note 45.3.
.
Other funding instruments consist of loans from banks and other financial institutions and include
balances of $120,402 (2009 - $122,990) due to the Federal Home Loan Bank of Dallas (FHLB). The
Group participates in the FHLB program in which funds received from the Bank are invested in
mortgages and mortgage backed securities.
Structured products are offered by a banking subsidiary. A structured product is a pre-packaged
investment strategy created to meet specific needs that cannot be met from the standardised financial
instruments available in the market. Structured products can be used as an alternative to a direct
investment, as part of the asset allocation process to reduce risk exposure of a portfolio, or to
capitalise on current market trends.
Collateral for other funding instruments and securities sold under agreements to resell is set out in
note 9.2.
Sagicor Financial Corporation 119
Notes to the Financial Statements
Year ended December 31, 2010
18. PROVISIONS
Pension plans and other retirement benefits (note 31)
Other
19. INCOME TAX LIABILITIES
Deferred income tax liabilities (note 33)
Income taxes payable
2010
2009
32,006
6,828
38,834
27,303
12,056
39,359
2010
2009
16,089
7,711
23,800
7,933
8,557
16,490
Income taxes payable are expected to be settled within one year of the financial statements
date.
20. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Sagicor Financial Corporation
Amounts expressed in US $000
21. SHARE CAPITAL
The Company is authorised to issue an unlimited number of common shares issuable in series, and
an unlimited number of preference shares issuable in series.
2010
2009
Number of
shares
‘000
$000
Number of
shares
‘000
$000
Issued and fully paid
common shares of no par
value:
Balance, beginning of year
290,903
281,142
278,355
260,161
Allotments
438
659
12,548
20,981
Balance, end of year
291,341
281,801
290,903
281,142
Treasury shares:
Balance, beginning of year
Net shares acquired
Balance, end of year
(1,201)
(1,180)
(2,381)
(2,890)
(1,739)
(4,629)
(725)
(476)
(2,008)
(882)
(1,201)
(2,890)
2010
2009
Total share capital
288,960
277,172
289,702
278,252
The Company’s shares are listed on the Barbados, Trinidad & Tobago and London stock exchanges.
From June 2008 to September 2009, the Company’s shares were listed on the Jamaica stock
exchange.
Amounts due to policyholders
Amounts due to reinsurers
Amounts due to managed funds
Other accounts payable and accrued liabilities
18,893
60,714
3,046
104,756
35,119
73,132
4,346
83,070
187,409
195,667
Amounts due to reinsurers include $43,355 (2009 – $46,421) due to a reinsurer in respect of
assets held in trust by the Group (see note 9.2).
120 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
22.
RESERVES
Sagicor Financial Corporation
Amounts expressed in US $000
<<<< Fair value reserves >>>>
Owner
occupied
property
Available for
sale
assets
Actuarial
liabilities
Cash flow
hedges
Currency
translation
reserves
Other reserves
Total
reserves
594
(73,762)
20,794
(42,609)
2010
Balance, beginning of year, as restated (note 38)
20,444
(5,255)
Other comprehensive income
693
28,834
(5,424)
(9,844)
Value of employee services rendered (net)
-
-
-
Disposal interest in subsidiaries
-
64
-
-
-
-
1,965
-
-
Other movements
Balance, end of year
2009 (restated)
-
594
-
(594)
-
21,137
24,237
(15,268)
-
(71,797)
Balance, beginning of year (note 38)
Other comprehensive income
Value of employee services rendered (net)
Changes in the ownership interest of subsidiaries
(note 37.2)
Other movements
Balance, end of year
19,214
1,230
(45,155)
37,935
10,840
(16,264)
1,462
(1,011)
(73,851)
(5,554)
-
-
-
-
-
-
-
2,022
-
143
5,643
(57)
-
-
-
20,444
(5,255)
(5,424)
594
(73,762)
Other reserves comprise share based payment reserves of $7,984 (2009 - $5,663) and statutory reserves of $19,301 (2009 - $15,131).
-
2,321
-
4,170
27,285
14,913
-
972
(1,052)
5,961
20,794
21,648
2,321
64
4,170
(14,406)
(72,577)
16,336
972
6,756
5,904
(42,609)
Sagicor Financial Corporation 121
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
(cid:1)
23. PARTICIPATING ACCOUNTS
(cid:1)
The movements in the participating accounts during the year were as follows:
24. PREMIUM REVENUE
Closed participating
account
Open participating
account
2010
2009
2010
2009
(restated)
Life insurance
Annuities
Health insurance
9,158
10,311
(3,307)
333
Property and casualty insurance
Gross revenue
Reinsurance expense
2010
2009
331,776
128,295
132,748
454,202
318,379
172,763
146,513
369,871
2010
37,109
622
4,356
2009
38,034
326
5,849
103,984
120,375
1,047,021
1,007,526
146,071
164,584
(2,573)
(1,153)
1,326
(3,380)
-
-
(257)
(260)
Gross revenue includes $92,844 (2009 - $84,504) in reinsurance assumed.
Balance, beginning of year, as
restated (note 38)
Total comprehensive income /
(loss)
Return of transfer to support profit
distribution to shareholders
Balance, end of year
6,585
9,158
(2,238)
(3,307)
The amounts in the financial statements relating to participating accounts are as follows:
Closed participating
account
Open participating
account
2010
2009
2010
2009
101,498
97,715
248,922
94,913
10,602
11,392
1,623
211
88,557
251,160
10,202
9,242
1,656
352
33,472
24,704
6,536
873
242,216
245,523
35,223
31,113
6,350
1,063
Assets
Liabilities
Revenues
Benefits
Expenses
Income taxes
(cid:1)
(cid:1)
(cid:1)
(cid:1)
122 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
25. NET INVESTMENT INCOME
25. NET INVESTMENT INCOME (continued)
2010
2009
(a)
Interest income
Investment income:
Interest income
Dividend income
Rental income from investment property
Net investment gains
Share of operating income of associated companies
Other investment income
Investment expenses:
Allowances for impairment losses
Direct operating expenses of investment property
Other direct investment expenses
244,893
258,266
3,988
4,934
4,623
5,618
42,172
32,346
2,478
1,302
2,125
3,608
299,767
306,586
3,186
1,662
1,639
6,487
8,984
1,623
1,763
12,370
Debt securities
Mortgage loans
Policy loans
Finance loans and finance leases
Securities purchased under agreements to resell
Deposits
Other balances
2010
2009
187,055
189,702
24,214
8,268
15,058
3,034
7,115
149
25,954
8,068
17,103
10,246
6,753
440
244,893
258,266
Interest from debt securities includes $2,172 (2009 - $2,078) from an associated company.
Net investment income
293,280
294,216
(b) Net investment gains / (losses)
The Group operates across both active and inactive financial markets. The financial investments
placed in both types of market support the insurance and operating financial liabilities of the Group.
Because the type of financial market is incidental and not by choice, the Group manages its financial
investments by the type of financial instrument (i.e. debt securities, equity securities, mortgage loans
etc). Therefore, the income from financial instruments is presented consistently with management
practice, rather than by accounting class.
The capital and income returns of most investments designated at fair value through income accrue to
the holders of unit linked policy and deposit administration contracts which do not affect net income of
the Group.
(cid:1)
Debt securities
Equity securities
Investment property
Other financial instruments
2010
2009
27,744
22,083
11,168
7,722
(1,399)
3,077
4,659
(536)
42,172
32,346
Sagicor Financial Corporation 123
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
26. FEES AND OTHER REVENUE
28. INTEREST EXPENSE
2010
2009
2010
2009
Fee income – assets under administration
Fee income – deposit administration and policy funds
Commission income on insurance and reinsurance
contracts
Other fees and commission income
Foreign exchange gains / (losses)
Other operating and miscellaneous income
15,587
1,050
16,102
11,559
1,120
16,449
61,867
12,843
1,117
17,351
13,624
4,523
18,718
68,176
Insurance contracts
Investment contracts
Other funding instruments
Deposits
Securities
Other Items
2,980
20,433
4,535
8,617
38,286
3,146
77,997
3,010
24,015
5,045
10,397
56,750
2,682
101,899
The Group manages its interest-bearing obligations by the type of obligation (i.e. investment contracts,
securities etc). Therefore, the interest expense is presented consistently with management practice,
rather than by accounting class.
The capital and income returns of most financial liabilities designated at fair value through income
accrue directly from the capital and income returns of specific assets. Therefore, the interest expense
of these financial liabilities does not affect the net income of the Group.
(cid:1)
(cid:1)
(cid:1)
27. POLICY BENEFITS AND CHANGE IN ACTUARIAL LIABILITIES
Policy benefits:
Life insurance benefits
Annuity benefits
Health insurance claims
Property & casualty insurance
claims
Gross amount
Reinsurers’ share
2010
2009
2010
2009
154,950
89,629
97,932
144,225
88,230
119,371
23,574
25,695
12,279
15,058
3,827
4,317
284,679
149,620
41,385
13,815
Total policy benefits
627,190
501,446
81,065
58,885
Change in actuarial liabilities
(note 13.2)
Total policy benefits and change in
actuarial liabilities
117,889
156,285
(27,695)
(7,496)
745,079
657,731
53,370
51,389
Gross policy benefits include $84,578 (2009 - $86,644) arising from reinsurance assumed.
124 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
29. EMPLOYEE COSTS
30. EMPLOYEE SHARE BASED COMPENSATION (continued)
Included in administrative expenses, commissions and related compensation are the following:
30.1 The Company (continued)
2010
2009
(a)
LTI plan – restricted share grants
Administrative staff salaries, directors’ fees and other short-
term benefits
86,293
91,627
Employer contributions to social security schemes
Expense arising from equity-settled share plans
(note 30.1 to 30.3)
(Credit) / expense arising from cash-settled share plans
(note 30.4)
Employer contribution to defined contribution pension
schemes
Costs – defined retirement benefits (note 31 (b))
7,381
3,862
(1,799)
1,522
8,506
105,765
6,949
2,618
672
1,128
4,721
107,715
30. EMPLOYEE SHARE BASED COMPENSATION
30.1 The Company
Effective December 31, 2005, the Company introduced a Long Term Incentive (LTI) plan for
designated executives of the Sagicor Group and an Employee Share Ownership Plan (ESOP) for
permanent administrative employees and sales agents of the Group. A total of 26,555,274 common
shares of the Company (or 10% of shares then in issue) have been set aside for the purposes of the
LTI plan and the ESOP.
Restricted share grants have been granted to designated key management of the Group. Share
grants may vest over a four year period beginning at the grant date. The vesting of share grants is
conditional upon the relative profitability of the Group as compared to a number of peer companies.
Relative profitability is measured with reference to the financial year preceding the vesting date.
The movement in restricted share grants during the year is as follows:
2010
2009
Number of
grants
‘000
Weighted
average
price
Number of
grants
‘000
Weighted
Average
price
Balance, beginning of year
Grants issued
Grants vested
Grants forfeited
353
1,023
US$1.59
374
US$2.35
US$1.43
675
US$1.57
(624)
US$1.50
(683)
US$1.97
-
-
(13)
US$2.34
Balance, end of year
752
US$1.45
353
US$1.59
(b) LTI plan – share options
Share options have been granted to designated key management of the Group during the year. Up to
2008, options were granted at the fair market price of the Company shares at the time that the option
is granted. From 2009, options are granted at the fair market price of the Company shares prevailing
one year before the option is granted. 25% of the options each vest on the first, second, third and
fourth anniversaries of the grant date. Options are exercisable up to 10 years from the grant date.
(cid:1)
Sagicor Financial Corporation 125
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
30. EMPLOYEE SHARE BASED COMPENSATION (continued)
30. EMPLOYEE SHARE BASED COMPENSATION (continued)
30.1 The Company (continued)
30.1 The Company (continued)
The movement in share options during the year is as follows.
(c) ESOP
(cid:1)
2010
2009
Number of
options
‘000
Weighted
average
exercise
price
Number of
options
‘000
Weighted
average
exercise
price
During each of the years 2006 to 2010, the Company approved awards under the ESOP in respect of
permanent administrative employees and sales agents of the Company and certain subsidiaries. The
ESOP is administered by Trustees under a discretionary trust. The amount awarded is used by the
Trustees to acquire company shares. Administrative employees and sales agents are required to
serve a qualifying period of five years from the award date in order to qualify as a beneficiary. Shares
are distributed to beneficiaries upon their retirement or termination of employment.
Balance, beginning of year
Options granted
5,807
1,749
US $2.26
US $1.60
4,211
US $2.17
1,596
US $2.50
Options lapsed/forfeited
(214)
US $2.09
-
-
Balance, end of year
Exercisable at the end of the year
7,342
2,966
US $2.07
US $2.17
5,807
US $2.26
1,887
US $2.09
Further details of share options and the assumptions used in determining their pricing are as follows:
Share price at grant date
US $1.60 – 2.50
Fair value of options at grant date
US $0.41 – 0.69
2010
2009
US $1.60 – 2.50
US $0.41 – 0.69
Expected volatility
Expected life
Expected dividend yield
Risk-free interest rate
19.3% - 35.8%
19.3% - 35.8%
7.0 years
2.8% - 3.1%
4.8% – 6.8%
7.0 years
2.8% - 3.1%
4.8% – 6.5%
The expected volatility is based on statistical analysis of monthly share prices over the 7 years
(2009 – 4 years) prior to grant date.
During the year, 1,179,500 common shares were acquired by the Trustees (2009 – 476,000 common
shares).
30.2
Sagicor Life Jamaica Limited (SLJ)
(a) Long-term incentive plan
Effective May 1, 2003, SLJ instituted a share based long-term incentive plan for senior executives.
150,000,000 ordinary shares (or 5% of the authorised share capital at that date) have been set aside
for the plan.
SLJ introduced a new Long Term Incentive (LTI) plan effective January 2007. This plan replaced the
previous Stock Option plan. Under the LTI plan executives are entitled but not obliged, to purchase
the company stock at a pre-specified price at some future date, once a pre-determined performance
objective is met. The options are granted each year on the date of the SLJ Board of Directors Human
Resources Committee meeting, following the performance year, at which the stock option awards are
approved.
Stock options vest in 4 equal installments beginning the first December 31 following the grant date
and for the next three December 31 dates thereafter (25% per year). Options are not exercisable after
the expiration of 7 years from the date of grant. The number of stock options in each stock option
award is calculated based on the LTI opportunity via stock options (percentage of applicable salary)
divided by the Black-Scholes value of a stock option on SLJ stock on March 31 of the measurement
year. The exercise price of the options is the closing bid price on March 31 of the measurement year.
126 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
30. EMPLOYEE SHARE BASED COMPENSATION (continued)
30. EMPLOYEE SHARE BASED COMPENSATION (continued)
30.2 Sagicor Life Jamaica Limited (SLJ) (continued)
30.2 Sagicor Life Jamaica Limited (SLJ) (continued)
Under the previous Stock Option plan, options were granted on December 31 of each year. The strike
price was the closing bid price on the grant date. The number of stock options in each stock option
award was calculated based on a percentage of applicable salary divided by the strike price. Options
were exercisable beginning one year from the date of grant and had a contractual term of six years
from the date of grant.
Details of the share options outstanding are set out in the following table. J$ represents Jamaica $.
Further details of share options and the assumptions used in determining their pricing are as follows:
2010
2009
Fair value of options outstanding
J$78,489,000
J$37,274,000
Share price at grant date
J$4.20 – 9.86
J$6.80 – 11.30
Exercise price
J$4.20 – 9.86
J$7.92 – 11.30
2010
2009
Standard deviation of expected share price returns
39.0%
34.0%
Number of
options
‘000
Weighted
average
exercise
price
Number of
options
‘000
Weighted
average
exercise
price
Remaining contractual term
Risk-free interest rate
1 - 6 years
1 - 5 years
9.4% - 17.5%
16.8% - 17.5%
The expected volatility is based on statistical analysis of daily share prices over three years.
Balance, beginning of year
Options granted
Options exercised
Options lapsed/forfeited
Balance, end of year
Exercisable at the end of the year
26,539
20,564
(1,044)
(5,142)
40,917
20,040
J$8.04
16,194
J$4.20
26,496
J$5.19
(2,982)
J$9.20
(13,169)
J$7.42
J$7.92
J$3.90
J$7.98
J$6.04
26,539
J$8.04
J$7.30
14,536
J$8.94
(b) Employee share purchase plan
SLJ has in place a share purchase plan which enables its administrative and sales staff to purchase
shares at a discount. The proceeds from shares issued under this plan totalled $459 (2009 – 205).
30.3 Pan Caribbean Financial Services Limited (PCFS)
PCFS offers share options to employees who have completed the minimum eligibility period of
employment. Options are conditional on the employee completing a minimum service period of one
year. Options are forfeited if the employee leaves PCFS before the options vest. Options vest over four
years, 25% each anniversary date of the grant.
(cid:1)
Sagicor Financial Corporation 127
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
30. EMPLOYEE SHARE BASED COMPENSATION (continued)
30.3 Pan Caribbean Financial Services Limited (PCFS) (continued)
30. EMPLOYEE SHARE BASED COMPENSATION (continued)
(cid:1)
30.4 Sagicor Europe Limited (SEL)
The movement in share options are set out in the following table. J$ represents Jamaica $.
2010
2009
Number of
options
‘000
Weighted
average
exercise
price
Number of
options
‘000
Weighted
average
exercise
price
4,799
8,886
J$18.53
5,457
J$18.91
J$15.10
-
-
(192)
J$12.20
-
-
Balance, beginning of year
Options granted
Options exercised
Options lapsed / forfeited
(2,100)
J$17.91
(658)
J$21.82
Balance, end of year
Exercisable at the end of the year
11,393
4,410
J$16.01
4,799
J$18.53
J$17.77
2,312
J$18.66
Further details of share options and the assumptions used in determining their pricing are as follows:
2010
2009
Fair value of options outstanding
J$ 53,767,000
J$ 52,604,000
Share price at grant date
J$ 12.20 – 21.75
J$ 16.84
Exercise price
J$ 12.20 – 21.75
J$ 18.00 – 21.75
Standard deviation of expected share price returns
10.0% - 21.7%
Weighted average remaining contractual term
3 years
Risk-free interest rate
11.6% - 21.79%
10.0%
3 years
13.3%
The expected volatility is based on statistical analysis of daily share prices over one year.
128 Sagicor Financial Corporation
The minority shareholders of Sagicor Europe Limited are participating employees who have
subscribed in cash for shares of SEL. As of December 31, the total minority shareholding was 14% of
issued shares. SEL intends to issue additional shares to future participating employees until the
minority holdings total 15% of issued shares.
Each participating employee has contracted with SEL and the Company under a share subscription
agreement. Under the provisions of these agreements, participating employees can exercise a put
option to the Company to acquire their shares at the prevailing fair value. The put option may be
exercised over the period beginning from the 5th anniversary of the agreement, with a maximum of
50% of the employee’s shareholding being put on the 5th anniversary, a further maximum of 10% on
the 6th anniversary, a further maximum of 10% on the 7th anniversary, and a further maximum of 30%
on the tenth anniversary. The shares subscribed by participating employees, and the relevant fair
values at the date of subscription are set out in the following table.
2010
2009
Number of
Shares
‘000
Fair value at
Subscription
(in £ 000)
Number of
Shares
‘000
Fair value at
Subscription
(in £ 000)
Balance, beginning of year
Shares subscribed
Shares redeemed
Balance, end of year
337
-
-
337
2,489
344
2,488
-
-
2
63
(9)
(62)
2,489
337
2,489
The fair values of SEL shares at subscription dates were established by determining the value in use
of Syndicate 1206 from 5 year internal cash flow projections.
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
30. EMPLOYEE SHARE BASED COMPENSATION (continued)
(cid:1)
30.4 Sagicor Europe Limited (SEL) (continued)
31. EMPLOYEE RETIREMENT BENEFITS (continued)
(a)
Amounts recognised in the financial statements
The put options described above have been accounted for as cash settled share based payment
arrangements. As such the valuation of the put options at December 31, 2010 of $4,448 (2009 –
$6,467) is recognised in the financial statements. The valuation of the put options have been derived
from:
(cid:1)
(cid:1)
Valuation of SEL using a variety of methods;
Discounting the expected cash outflows from the put options, assuming the options are
exercised at the earliest possible dates. The discount rate used was 11.5% (2009 – 12.5%).
The shares issued meet the definition of a financial liability in accordance with IAS 32 Financial
Instruments: Presentation. Consequently, SEL is consolidated as a 100% subsidiary, with the change
in liability recorded as an expense (see note 29).
31. EMPLOYEE RETIREMENT BENEFITS
Certain Group subsidiaries have contributory defined benefit pension schemes in place for eligible
administrative staff. Some subsidiaries also offer medical and life insurance benefits that contribute to
the health care and life insurance coverage of retirees and beneficiaries.
2010
2009
Fair value of retirement plan assets
94,059
Present value of funded retirement obligations
Present value of unfunded retirement obligations
Unrecognised actuarial losses
Amounts recognised in the financial statements
Represented by:
Liabilities held on deposit with the Group as deposit
administration contracts
Other recognised liabilities
Total recognised liabilities (note 18)
Recognised assets (note 12)
(97,922)
(3,863)
(36,991)
12,674
(28,180)
(25,371)
(6,635)
(32,006)
3,826
(28,180)
81,062
(80,566)
496
(30,386)
7,674
(22,216)
(22,432)
(4,871)
(27,303)
5,087
(22,216)
The net benefit defined obligation and experience adjustments for the last 5 years are as follows:
(cid:1)
Present value of
retirement obligations
2010
2009
2008
2007
2006
(134,913)
(110,952)
(107,161)
(106,179)
(88,778)
Fair value of plan assets
94,059
81,062
75,880
75,870
66,059
Net obligation
(40,854)
(29,890)
(31,281)
(30,309)
(22,719)
Experience adjustment on:
Plan liabilities
Plan assets
2,362
(759)
(2,299)
(811)
(9,565)
(1,649)
9,952
849
7,525
1,006
Sagicor Financial Corporation 129
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
31. EMPLOYEE RETIREMENT BENEFITS (continued)
31. EMPLOYEE RETIREMENT BENEFITS (continued)
(b) Amounts recognised in the income statement
Distribution of the plan assets
2010
2009
Equity unit linked pension funds under management
Other assets
Total plan assets
91,887
2,172
94,059
78,354
2,708
81,062
(d) Movement in retirement obligations
Retirement obligations, beginning of year
110,952
107,161
2010
2009
Current service cost
Interest cost
Contributions made by employees
Actuarial gains and losses
Benefits paid
Past service cost
Other
Effects of exchange rate changes
6,149
5,566
10,979
10,816
2,563
2,587
5,987
(4,302)
(4,070)
(5,373)
65
278
(158)
2,678
(87)
(5,926)
Retirement obligations, end of year
134,913
110,952
Current service cost
Interest cost
Net actuarial (gains) / losses recognised during the year
Past service cost
Expected return on retirement plan assets
Total cost
2010
2009
4,858
10,979
1,282
65
(8,678)
3,961
10,816
(1,052)
278
(9,282)
8,506
4,721
The actual return on retirement plan assets was $9,572 (2009 – $9,920).
(c) Retirement plan assets
Movement in retirement plan assets
2010
2009
Plan assets, beginning of year
Expected return on plan assets
Actuarial gains and losses
Contributions made by the Group
Contributions made by plan participants
Benefits paid
Other
Effects of exchange rate changes
Plan assets, end of year
81,062
8,678
(203)
4,780
2,337
(3,560)
(1,482)
2,447
94,059
75,880
9,282
172
4,357
2,021
(4,015)
(1,331)
(5,304)
81,062
For the next financial year, the total employer contributions are estimated at $4,904 (2009-
$5,031).
130 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
31. EMPLOYEE RETIREMENT BENEFITS (continued)
(e) Principal assumptions
32. INCOME TAXES
32.1 Income tax expense
The principal actuarial assumptions by geographic area used for 2010 were as follows:
(cid:1)
Sagicor Financial Corporation
Amounts expressed in US $000
Pension benefits
Barbados
Jamaica
Trinidad
Discount rate
7.0%-7.8%
11.0%
Expected return on plan assets
7.8%-8.0%
10.0%
Future salary increases
Future pension increases
3.0%-6.5%
2.0%-2.5%
8.5%
2.0%
Portion of employees opting for early
retirement
Future changes in National Insurance
Scheme Ceilings
15.0%
3.5%
-
-
Other retirement benefits
Barbados
Jamaica
Discount rate
Expected return on plan assets
Future salary increases
7.0%
-
-
Long term increase in health costs
4.5%
11.0%
10.0%
8.5%
10.5%
Other
Caribbean
7.8%
7.8%
Current tax
Deferred tax
7.0%
6.5%
2.5%-5.5%
2.0%-3.0%
Share of tax of associated companies
1.0%
2.5%
-
-
2.0%
3.5%
32.2 Derivation of income tax expense
Income tax arises from the following sources of income:
Investment income subject to direct taxation
Net income subject to direct taxation
2010
2009
(restated)
14,816
15,652
278
3,059
216
621
15,310
19,332
2010
96,997
30,938
2009
(restated)
89,491
43,937
(cid:1)
The effect of a change of 1% in the assumption for long-term increase in health costs as of December
31, 2010 is estimated as follows:
(cid:1)
(cid:1)
Effect of 1% decrease
Effect of 1% increase
Revised service cost
Revised interest cost
Revised accumulated retirement benefit
430
1,037
9,562
667
1,418
13,437
Total income subject to taxation
127,935
133,428
Sagicor Financial Corporation 131
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
32. INCOME TAXES (continued)
33. DEFERRED INCOME TAXES
32.2 Derivation of income tax expense (continued)
The income tax on the total income subject to taxation differs from the theoretical amount that would
arise using applicable tax rates is set out in the following table.
2010
2009
(restated)
Analysis of deferred income tax assets:
Pensions and other retirement benefits
Unrealised losses on financial investments
Unused tax losses
Income subject to tax
127,935
133,428
Off-settable deferred income tax liabilities in respect of policy
liabilities timing differences and other items
Tax calculated at the applicable rates on income subject to tax
27,527
28,271
Adjustments to current tax for items not subject to tax or not
allowed for tax
(22,470)
(16,517)
Analysis of deferred income tax liabilities:
Other current tax adjustments
(26)
(178)
Accelerated tax depreciation
Adjustments for current tax of prior periods
(117)
17
Policy liabilities taxable in the future
Movement in unrecognised deferred tax asset
6,706
5,333
Pensions and other retirement benefits
Other items
Total (note 11)
Deferred tax (income) / expense relating to the origination of
temporary differences
Deferred tax (income) / expense relating to changes in tax
rates and the imposition of new taxes
Deferred tax expense that arises from the write down /
(income from the reversal of a write down) of a deferred tax
asset
1,349
(62)
Accrued interest
Unrealised gains on financial investments
97
8
Off-settable deferred income tax assets in respect of unused
tax losses and other items
(34,136)
(25,779)
465
(707)
Other items
Total (note 19)
Tax on distribution of profits from policyholder funds
-
796
Deferred income tax balances include the following:
Other taxes
(cid:1)
1,779
2,371
15,310
19,332
Assets to be recovered within one year
Liabilities to be settled within one year
Unrecognised balances:
Tax losses
Potential deferred income tax assets
132 Sagicor Financial Corporation
2010
2009
(restated)
694
261
7,579
1,132
8,610
4,487
-
(619)
675
9,209
2,184
29,245
11
2,554
13,812
1,662
15,272
2,242
25,564
645
1,032
2,771
2,419
16,089
2,438
9,222
1,458
7,933
8,890
6,124
127,212
32,673
110,968
28,588
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
34. EARNINGS AND DIVIDENDS PER COMMON SHARE
34. EARNINGS AND DIVIDENDS PER COMMON SHARE (continued)
34.1 Earnings per common share
34.1 Earnings per common share (continued)
The basic earnings per common share is computed by dividing the net income attributable to
shareholders by the weighted average number of shares in issue during the year, after deducting
treasury shares.
The computation of diluted earnings per common share recognises the dilutive impact of LTI share
grants and share options and of ESOP shares grants (see note 30.1). It is calculated by dividing the
net income attributable to shareholders by the adjusted weighted average number of shares in issue
during the year, after deducting treasury shares.
(cid:1)
By substituting net income with total comprehensive income, the computations of total comprehensive
income (TCI) per share are done similarly to earnings per share.
Weighted average number of shares in issue in
thousands
LTI restricted share grants
ESOP shares
Adjusted weighted average number of shares in
issue
2010
2009
(restated)
2009
(previously
stated)
290,037
278,386
278,386
605
815
412
467
412
467
291,457
279,265
279,265
The effect of the changes in accounting policies described in note 2.1 (d) is to increase basic earnings
per common share in 2010 by 5.2 cents (5.1 cents on a fully diluted basis).
34.2 Dividends per common share
2010
2009
US cents
per share
$000
US cents
per share
$000
2.0
2.0
4.0
5,794
5,797
11,591
2.0
2.0
4.0
5,553
5,564
11,117
2.0
5,779
2.0
5,794
Dividends declared and paid:
Final dividend in respect of the prior year
Interim dividend in respect of the current
year
Dividends declared after the date of the
financial statements:
Final dividend in respect of the current
year
Net income attributable to shareholders
16,560
66,846
50,502
Basic earnings per common share
5.7 cents
24.0 cents
18.1 cents
Fully diluted earnings per common share
5.7 cents
23.9 cents
18.1 cents
TCI attributable to shareholders
38,208
83,053
83,775
TCI per common share
13.2 cents
29.8 cents
30.1 cents
TCI per common share on a fully diluted basis
13.1 cents
29.7 cents
30.0 cents
(cid:1)
(cid:1)
Sagicor Financial Corporation 133
Notes to the Financial Statements
Year ended December 31, 2010
35. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income (OCI) and the related income tax effects are as follows:
Sagicor Financial Corporation
Amounts expressed in US $000
2010
2009 (restated)
Group
OCI
before tax
Tax
Group
OCI
after tax
OCI after tax
Attributable
to
shareholders
Group
OCI
before tax
Tax
Group
OCI
after tax
OCI after tax
Attributable
to
shareholders
770
-
770
65,122
(4,057)
61,065
-
-
-
(17,580)
(388)
(17,968)
770
-
770
47,542
(4,445)
43,097
693
-
693
33,514
(4,680)
28,834
1,176
155
1,331
53,409
(634)
52,775
-
-
-
(5,688)
(3,197)
(8,885)
1,176
155
1,331
47,721
(3,831)
43,890
1,176
54
1,230
38,788
(853)
37,935
Fair value reserves – owner occupied property:
Unrealised gains / (losses) arising on revaluation
(Gains) / losses transferred to income on disposal
Fair value reserves – available for sale assets:
Unrealised gains / (losses) arising on revaluation
(Gains) / losses transferred to income on disposal
Fair value reserves – actuarial liabilities:
Net change in actuarial liabilities
(15,041)
4,465
(10,576)
(9,844)
(24,254)
7,148
(17,106)
(16,264)
Fair value reserves – cash flow hedges:
Unrealised gains / (losses) arising on revaluation
-
-
-
(2,551)
850
(1,701)
(1,011)
Retranslation of foreign currency operations
Other items
OCI for the year
(cid:1)
6,007
(309)
6,007
(309)
1,965
-
52,492
(13,503)
38,989
21,648
(12,996)
(129)
14,176
-
-
(12,996)
(129)
(887)
13,289
(5,554)
(129)
16,207
-
-
-
134 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
36. CASH FLOWS
36.1 Operating activities
Adjustments for non-cash items, interest and
dividends:
Interest and dividend income
Net investment gains
Net increase in actuarial liabilities
Interest expense and finance costs
Depreciation and amortisation
Increase in provision for unearned premiums
Other items
Changes in operating assets:
Investment property
Debt securities
Equity securities
Mortgage loans
Policy loans
Finance loans and finance leases
Securities purchased under agreement to resell
Deposits
Other assets and receivables
Sagicor Financial Corporation
Amounts expressed in US $000
36. CASH FLOWS (continued
36.1 Operating activities (continued)
2010
2009
The gross changes in investment property, debt securities and equity securities are as follows.
Investment property:
Disbursements
Disposal proceeds
Debt securities:
Disbursements
Disposal proceeds
Equity securities:
Disbursements
Disposal proceeds
(cid:1)
(248,881)
(262,889)
(42,172)
145,584
94,366
18,269
46,377
(27,279)
(13,736)
(32,346)
163,781
117,710
18,659
44,351
(10,690)
38,576
(3,857)
3,058
(260,006)
(307,352)
(3,520)
16,512
795
(16,650)
(1,563)
(56,512)
(30,339)
18,079
(697)
(1,785)
7,158
1,963
(70,528)
2,332
(355,140)
(347,772)
2010
2009
(11,233)
(806)
7,376
3,864
(3,857)
3,058
(1,730,447)
(1,745,626)
1,470,441
1,438,274
(260,006)
(307,352)
(62,079)
(42,943)
58,559
61,022
(3,520)
18,079
Sagicor Financial Corporation 135
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
36. CASH FLOWS (continued)
36.1 Operating activities (continued)
Changes in operating liabilities:
Insurance liabilities
Investment contract liabilities
Other funding instruments
Deposits
Securities
Other liabilities and payables
36.2 Investing activities
Property, plant and equipment:
Purchases
Disposal proceeds
36.3 Financing activities
Notes and loans payable:
Proceeds
Repayments
36.4 Cash and cash equivalents
Cash resources
Call deposits and other liquid balances
Bank overdrafts
Other short-term borrowings
136 Sagicor Financial Corporation
37. DIVESTITURE, ACQUISITIONS AND OWNERSHIP CHANGES
2010
2009
37.1 Divestiture of interest in Sagicor General Insurance (Cayman) Limited (SGC)
109,600
41,425
(14,536)
50,503
(14,154)
41,501
11,925
85,005
(314)
(12,881)
(9,492)
43,847
168,348
164,081
2010
2009
(13,306)
(11,604)
3,054
1,970
(10,252)
(9,634)
2010
2009
-
36,833
(14,452)
-
(14,452)
36,833
2010
2009
218,635
196,020
80,085
141,412
(2,580)
(17,072)
(2,380)
(5,434)
279,068
329,618
Effective January 1, 2010, Sagicor Life of the Cayman Islands Limited (SLC) disposed of its 75%
shareholding in SGC. The divestiture has been accounted for as follows:
Goodwill attributable to SGC
75% share of net assets of SGC
Proceeds on divestiture
Gain on divestiture
The gain on divestiture is attributable to:
Shareholders
Minority interests
$000
933
9,726
10,659
11,597
938
555
383
At the time of divestiture, SLC purchased the 100% interest in Sagicor Insurance Managers Limited
from SGC. This transaction has been accounted for as follows:
Net assets of Sagicor Insurance Managers
Purchase consideration - cash
Balance on acquisition
The balance on acquisition is attributable to:
Shareholders
Minority interests
$000
270
307
37
22
15
The balance on acquisition has been net off the goodwill attributable to SGC.
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
37. DIVESTITURE, ACQUISITIONS AND OWNERSHIP CHANGES
38. RESTATEMENTS (continued)
37.2 Ownership changes – Pan Caribbean Financial Services (PCFS)
Effective November 11, 2009, the Company sold its direct 33% interest in PCFS to Sagicor Life
Jamaica (SLJ) for cash consideration. The net disposal proceeds received by the Company amounted
to $28,451 giving rise to a net loss to shareholders booked in retained earnings of $11,363. The net
loss and other movements in equity are disclosed in the consolidated statement of equity.
As a consequence of the transaction the Group reduced its total interest in PCFS from 64% to 51%
and SLJ increased its total interest in PCFS from 53% to 86%.
(cid:1)
38. RESTATEMENTS
As set out in notes 2.13(a) and 13.2, the Group has changed its accounting policy for the recording of
changes in actuarial liabilities arising from fair value movements of assets which are recorded in other
comprehensive income. The change in accounting policy has been applied retroactively. The effect of
the change to the statements of equity, income and comprehensive income for the year ended
December 31, 2009 are summarised in the following tables.
STATEMENT OF INCOME - 2009
Previously
stated
Prior year
adjustment
Restated
Income before taxes
Income taxes
Net income
Net income attributed to:
Shareholders
Participating accounts
Minority interest
82,635
(12,184)
70,451
50,502
(5,113)
25,062
70,451
24,254
(7,148)
17,106
16,344
762
-
17,106
106,889
(19,332)
87,557
66,846
(4,351)
25,062
87,557
Previously
stated
Prior year
adjustment
Restated
STATEMENT OF COMPREHENSIVE
INCOME - 2009
Previously
stated
Prior year
adjustment
Restated
STATEMENT OF EQUITY
Balance, January 1, 2009:
Shareholders’ equity - reserves
(85,272)
12,695
(72,577)
Shareholders’ equity - retained earnings
Participating account
Balance, December 31, 2009:
Shareholders’ equity - reserves
Shareholders’ equity - retained earnings
Participating account
274,870
12,499
202,097
(38,238)
296,927
6,984
265,673
(10,840)
264,030
(1,855)
10,644
-
202,097
(4,371)
5,504
(1,133)
(42,609)
302,431
5,851
-
265,673
Net income
Other comprehensive income
Total comprehensive income
70,451
30,395
100,846
17,106
(17,106)
87,557
13,289
-
100,846
Total comprehensive income attributed
to:
Shareholders
Participating accounts
Minority interest
83,775
(5,255)
22,326
100,846
(722)
722
-
-
83,053
(4,533)
22,326
100,846
Sagicor Financial Corporation 137
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
39. COMMITMENTS AND CONTINGENT LIABILITIES
39. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
39.1 Commitments
In the normal course of business, the Group enters into commitments at the date of the financial
statements for which no provision has been made in these financial statements. Non-cancellable
commitments for loan disbursements, operating lease and rental payments are disclosed in note
41.2(a).
39.2 Contingent liabilities
Guarantee and financial facilities at the date of the financial statements for which no provision has
been made in these financial statements include the following:
Customer guarantees and letters of credit
Letter of credit facility
2010
2009
12,594
81,559
94,153
13,107
84,127
97,234
There are equal and offsetting claims against customers in the event of a call on the above
commitments for customer guarantees and letters of credit.
(a) Legal proceedings
During the normal course of business, the Group is subject to legal actions which may affect the
reported amounts of liabilities, benefits and expenses. Management considers that any liability from
these actions, for which provision has not been already made, will not be material.
(b) Tax assessments
The Group is also subject to tax assessments during the normal course of business. Adequate
provision has been made for all assessments received to date and for tax liabilities accruing in
accordance with management’s understanding of tax regulations. Potential tax assessments may be
received by the Group which are in addition to accrued tax liabilities. No provisions have been made
in these financial statements for such potential tax assessments.
138 Sagicor Financial Corporation
39.2 Contingent liabilities (continued)
(c) Insurance contracts
The Group develops and markets insurance products under various types of insurance contracts. The
design of these products is consistent with international best practice and reflects the current thinking
at the time of development. The Group keeps its products under review to ensure that they meet both
policyholder and company expectations.
One such insurance product is the universal life product which was developed and launched in 1987
in Jamaica. The design of a Universal Life policy is such that on realistic assumptions, the fund value
built-up from premiums paid and from investment earnings is required in later years to pay the
administrative costs and mortality charges.
A review of the Universal Life portfolio revealed that approximately 17,000 policies were affected by
fund values which were insufficient to cover these costs through the life of the policies. Once the
issue was recognised, the Group initiated discussion with the Regulators, the Financial Services
Commission (FSC), as a result of which the affected policyholders were given the opportunity to
reduce their existing coverage under the policies or to increase the premiums at their expense.
Approximately 95% of these policyholders agreed to adjustments to their policies(cid:18)
The Group estimates that less than 1% of the affected policyholders have filed complaints with the
FSC, which carried out investigations and made a submission to the Group. The FSC suggested a
number of alternatives to remedy the issue. The Group is in discussions with the FSC on the matter.
The cost, if any, of resolving this issue cannot be quantified at this time.
(d) Hurricane Ivan claims
Effective November 30, 2005, Sagicor Life of the Cayman Islands (SLC), a subsidiary of the
Company, acquired a 51% stake in Sagicor General Insurance Cayman Ltd (SGC) (formerly Cayman
General Insurance Ltd) from Cayman National Corporation Ltd (CNC). On October 22, 2007, SLC
purchased an additional 24.2% interest in SGC
CNC. Under the terms of the initial Sale and
from
Purchase Agreement, CNC provided certain warranties to SLC including amounts in relation to
Hurricane Ivan claims, not finally settled.
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
39. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
40. RELATED PARTY TRANSACTIONS
39.2 Contingent liabilities (continued)
SGC filed suit in February 2006 against certain third parties to recover sums paid for work done in
respect of Hurricane Ivan (the "Windsor Village litigation"). The understanding of the parties (SLC and
CNC) based on discussions held was that CNC would be entitled to retain any benefits realised from
the Windsor Village litigation and as a consequence SLC’s position is that CNC would be responsible
for all liabilities that might arise from it. CNC has also been responsible for the conduct of the litigation.
In December 2008, SGC withdrew its claims against the third parties and the third parties lodged
counterclaims against SGC. Indemnity costs, unpaid invoices, damages and Court awards were paid.
In addition, counterclaims related to abuse of process were lodged by third parties against SGC.
It is the Group’s view, supported by legal advice received, that there is legal basis for relying on the
warranty under the agreement in respect of certain of the counterclaims in the “Windsor Village
litigation”. The Group also intends to rely on the understanding arrived at between the parties prior to
law suits being filed.
As part of the agreement for sale of SGI, SLC placed part of the sale proceeds in an escrow to
compensate for the possibility of court awards over and above the provision of $4,750 made by SGI at
December 31, 2009. In February 2011, SLC received communication from its legal advisors that
judgement had been handed down in respect of the case and recognised an additional liability of
$2,500 representing its share of the court awarded costs and interest.
Certain related party transactions and balances are included in notes 5, 9, 12, 20, 26, 30, 37 and 47 of
the financial statements.
(a) Key management transactions and balances
Key management comprises directors and senior management of the Company and of Group
subsidiaries. Key management includes those persons at or above the level of Vice President or its
equivalent. Compensation of, and loans to these individuals are summarised in the following tables:
Compensation
Salaries, directors’ fees and other short-term benefits
Equity-settled and cash settled compensation benefits
Pension and other retirement benefits
2010
17,412
1,619
832
19,863
2009
18,334
2,943
928
22,205
Balance, beginning of year
Advances
Repayments
Effects of exchange rate changes
Balance, end of year
Mortgage loans
Other loans
Total loans
4,528
305
(688)
(2)
4,143
209
286
(176)
5
324
4,737
591
(864)
3
4,467
Interest rates prevailing during the year
5% - 8.0%
5% - 17.95%
(cid:1)
(cid:1)
Sagicor Financial Corporation 139
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK
The Group’s activities of issuing insurance contracts, of accepting funds from depositors, of investing
insurance premium and deposit receipts in a variety of financial and other assets, banking and dealing
in securities, exposes the Group to various insurance and financial risks. Financial risks include
credit, liquidity and market risks. Market risks arise from changes in interest rates, equity prices,
currency exchange rates or other market factors.
The overriding objective of the Group’s risk management framework is to enhance its capital base
through competitive earnings growth and to protect capital against inherent business risks. This
means that the Group accepts certain levels of risk in order to generate returns, and the Group
manages the levels of risk assumed through enterprise wide risk management policies and
procedures. Identified risks are assessed as to their potential financial impact and as to their likelihood
of occurrence.
The effects of financial and insurance risks are disclosed in the sections below and in notes 42, 43
and 44.
41.1 Credit risk
Credit risk is the exposure that the counterparty to a financial instrument is unable to meet an
obligation, thereby causing a financial loss to the Group. Credit risks are primarily associated with
financial investments and reinsurance contracts held.
Credit risk from financial investments is minimised through holding a diversified portfolio of
investments, purchasing securities and advancing loans only after careful assessment of the
borrower, obtaining collateral before advancing loans, and placing deposits with financial institutions
with a strong capital base. Limits may be placed on the amount of risk accepted in relation to one
borrower.
The maximum exposures of the Group to credit risk without taking into account any collateral or any
credit enhancements are set out in the following table.
Sagicor Financial Corporation
Amounts expressed in US $000
41. FINANCIAL RISK (continued)
41.1 Credit risk (continued)
Government and government-guaranteed
securities
2010
2009
$000
%
$000
%
1,497,082
35.7%
1,350,052
35.2%
Collateralised mortgage obligations
159,574
3.8%
193,487
5.0%
Corporate debt securities
Other securities
Total debt securities
Mortgage loans
Policy loans
Finance loans and finance leases
Securities purchased under agreements to
resell
Derivative financial instruments
Deposits
Reinsurance assets
Premiums receivable
Other accounts receivable
Cash resources
898,452
21.4%
632,867
16.5%
53,444
1.3%
47,883
1.3%
2,608,552
62.2%
2,224,289
58.0%
297,082
123,250
144,065
7.1%
2.9%
3.4%
313,276
124,017
135,078
8.2%
3.2%
3.5%
28,567
0.7%
82,315
2.1%
12,070
311,694
240,939
145,175
39,708
218,635
0.3%
7.4%
5.7%
3.5%
0.9%
5.3%
4,105
274,516
249,113
128,794
62,736
196,020
0.1%
7.2%
6.5%
3.4%
1.6%
5.1%
Total financial statements exposures
4,169,737
99.4%
3,794,259
98.9%
Loan commitments
Customer guarantees and letters of credit
Total off financial statements exposures
13,002
12,594
25,596
0.3%
0.3%
0.6%
31,029
13,107
44,136
0.8%
0.3%
1.1%
Total
4,195,333
100.0%
3,838,395
100.0%
The amounts in respect of customer guarantees and letters of credit represent(cid:1)potential claims against(cid:1)
customers in the event of a call on customer guarantees and letters of(cid:1)credit issued by the Group.
(cid:1)
140 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.1 Credit risk (continued)
Commencing in 2009, the Group developed an internal credit rating for its financial assets and
reinsurance exposures. The internal rating is a 10 point scale which allows for distinctions in risk
characteristics and is referenced to the rating scales of international credit rating agencies. The scale
is set out in the following table.
Category
Investment
grade
t
l
u
a
f
e
d
-
n
o
N
Non-
investment
grade
Watch
Default
Sagicor
Risk
Rating
1
2
3
4
5
6
7
8
9
Classification
S&P
Moody’s
Fitch
AM Best
Minimal risk
AAA, AA
Aaa, Aa
AAA, AA
aaa, aa
Low risk
A
Moderate risk
BBB
Acceptable risk
BB
Average risk
B
A
Baa
Ba
B
A
a
BBB
bbb
BB
B
bb
b
Higher risk
CCC, CC
Caa, Ca
CCC,
ccc, cc
Default
Special mention C
Substandard
Doubtful
D
C
C
10
Loss
C
D
C
DDD
DD
D
The 3 default grades are for the Group’s lending portfolios (i.e. mortgage loans, policy loans, finance
loans and finance leases). Investment securities and reinsurance exposures use one default grade.
Reinsurance exposures are best assessed under realistic disaster scenarios. Therefore the internal
rating assessments of reinsurance assets arising from property and casualty insurance risks are set
out in note 42.1(e).
As internal credit ratings have only been done by the larger subsidiaries within the Group,
approximately 89% (2009 - 91%) by value of financial investments and cash balances have been
covered. The results are as follows:
Sagicor Financial Corporation
Amounts expressed in US $000
41. FINANCIAL RISK (continued)
41.1 Credit risk (continued)
Category
Investment
grade
Non-
investment
grade
t
l
u
a
f
e
d
-
n
o
N
Watch
Sagicor
Risk
Rating
Classification
2010
2009
Exposure
$000
Exposure
%
Exposure
$000
Exposure
%
1
2
3
4
5
6
7
8
9
Minimal risk
Low risk
708,264
615,763
Moderate risk
759,269
Acceptable
risk
193,973
Average risk
1,087,105
Higher risk
Special
Substandard
Doubtful
10
Loss
34,377
20,091
23,849
5,229
2,308
21
18
22
6
32
1
-
-
-
-
749,236
556,182
646,834
255,034
89,827
24
18
20
7
3
854,125
27
12,630
22,882
5,041
1,634
-
1
-
-
(cid:1)
(cid:1)
(cid:1)
TOTALS
3,450,228
100
3,193,425
100
Sagicor Financial Corporation 141
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.1 Credit risk (continued)
As of the date of the financial statements, the Group’s largest exposures to individual counterparty
credit risks are set out below.
Sagicor
Risk
Rating
2010
Sagicor
Risk
Rating
2009
Debt securities:
Government of Jamaica
Federal government of USA
Federal agencies of the USA
Government of Barbados
Government of Trinidad and Tobago
Deposits & cash:
The Bank of Nova Scotia
Reinsurance assets:
Scottish Re (U.S.) Inc (1)
Washington National Insurance Company (2)
5
1
1
3
2
1
7
5
916,457
96,024
143,990
133,168
122,660
113,996
6
1
1
3
2
1
109,624
56,745
Not
rated
5
769,958
132,363
143,377
113,541
150,056
102,235
128,563
63,113
(1) The reinsurance asset held in the name of Scottish Re is secured by assets held in trust by a
third party and by the Group (see note 9.2). The total assets held in trust amount to $149,819
(2009 - $178,362).
(2) The reinsurance asset arises from reinsurance assumed on a block of life insurance policies.
Sagicor Financial Corporation
Amounts expressed in US $000
41. FINANCIAL RISK (continued)
41.1 Credit risk (continued)
Exposure to credit risk is also managed in part by obtaining collateral and guarantees for mortgage
loans and finance loans and finance leases. For mortgage loans, the collateral is real estate property,
and the approved loan limit is 75% to 95% of collateral value. For finance loans and finance leases,
the collateral often comprises a vehicle or other form of security and the approved loan / lease limit is
80% to 100% of the collateral value. Unsecured finance loans and finance leases are only granted
when the initial amount is less than $15.
Exposure to mortgage loans and finance loans and finance leases by geographic area is as follows.
(cid:1)
Barbados
Jamaica
Trinidad & Tobago
Other Caribbean
USA
2010
2009
139,201
127,730
103,886
45,902
24,428
144,344
120,886
106,401
47,681
29,042
441,147
448,354
Policy loans are advanced on the security of the underlying insurance policy cash values. Cash loans
are advanced to a maximum of 82% to 100% of the cash surrender value. Automatic premium loans
are advanced to the extent of available cash surrender value.
For securities purchased under agreement to resell, title to the securities are transferred to the Group
for the duration of the agreement.
For property casualty insurance premiums receivable, insurers frequently provide settlement terms to
customers and intermediaries which extend up to 6 months.
142 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.1 Credit risk (continued)
(a) Past due and impaired financial investments
A financial asset is past due when a counterparty has failed to make payment when contractually due.
The Group is most exposed to the risk of past due assets with respect to its financial investments
namely, its debt securities, mortgage loans, finance loans and finance leases.
Debt securities are assessed for impairment when amounts are past due, when the borrower is
experiencing cash flow difficulties, or when the borrower’s credit rating has been downgraded.
Mortgage loans less than 90 to 180 days past due and finance loans and finance leases less than 90
days past due are not assessed for impairment unless other information is available to indicate the
contrary.
The assessment for impairment includes a review of the collateral. If the past due period is less than
the trigger for impairment review, the collateral is not normally reviewed and re-assessed but is
included in the amounts for(cid:1)collateral.
The tables below summarise the carrying value of financial investments which are past due, but are
not considered to be impaired and the estimated fair value of collateral.
Sagicor Financial Corporation
Amounts expressed in US $000
Debt
securities
Mortgage
loans
Finance
loans /leases
10,945
1,836
331
33
13,145
2,558
21,164
2,220
766
52
54,833
9,296
6,952
8,127
79,208
136,641
20,237
6,837
6,086
6,100
24,202
39,260
-
112,789
39,908
598
-
-
40,506
113,992
18,447
434
-
-
18,881
54,036
41. FINANCIAL RISK (continued)
41.1 Credit risk (continued)
2010
With amounts past due up to 3 months
With amounts past due up to 12 months
With amounts past due up to 5 years
With amounts past due over 5 years
Total
Estimated fair value of collateral
2009
With amounts past due up to 3 months
With amounts past due up to 12 months
With amounts past due up to 5 years
With amounts past due over 5 years
Total
Estimated fair value of collateral
(cid:1)
(cid:1)
Sagicor Financial Corporation 143
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.1 Credit risk (continued)
Balances relating to impaired financial investments are summarised in the following table. The
accumulated allowance for impairment reflects the Group’s assessment of total individually impaired
investments at the date of the financial statements.
Gross
carrying
value
Accumulated
allowance
for
impairment
Net
carrying
value
Estimated
fair value
of collateral
2010
Debt securities
Mortgage loans
Finance loans and finance leases
Total
2009
Debt securities
Mortgage loans
Finance loans and finance leases
12,811
19,257
6,242
38,310
14,415
18,806
4,184
(6,445)
(3,418)
(2,706)
(12,569)
(7,651)
(2,310)
(2,301)
Total
37,405
(12,262)
6,366
15,839
3,536
25,741
6,764
16,496
1,883
25,143
3,955
22,911
25,863
52,729
5,931
26,884
6,329
39,144
Interest of $472 (2009 - $423) has been accrued on impaired financial investments.
The Group is also exposed to impaired premiums receivable. However, under the terms of insurance
contracts, insurers can usually lapse an insurance policy for non-payment of premium, or if there is a
claim, recover any unpaid premiums from the claim proceeds.
144 Sagicor Financial Corporation
Sagicor Financial Corporation
Amounts expressed in US $000
41. FINANCIAL RISK (continued)
41.1 Credit risk (continued)
(b) Repossessed assets
The Group may foreclose on overdue mortgage loans and finance loans and finance leases by
repossessing the pledged asset. The pledged asset may consist of real estate, equipment or vehicles
which the Group will seek to dispose of by sale. In some instances, the Group may provide re-
financing to a new purchaser on customary terms.
(c) Renegotiated assets
The Group may renegotiate the terms of any financial investment to facilitate borrowers in financial
difficulty. Arrangements to waive, adjust or postpone scheduled amounts due may be entered into.
The Group classifies these amounts as past due, unless the original agreement is formally revised,
modified or substituted, in which case, the financial investment is classified as renegotiated. The
carrying value of financial investments at the date of the financial statements which were renegotiated
during the year totalled $6,689 (2009 - $1,190).
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.2 Liquidity risk
Liquidity risk is the exposure that the Group may encounter difficulty in meeting obligations associated
with financial or insurance liabilities that are settled by cash or by another financial asset. Liquidity risk
also arises when excess funds accumulate resulting in the loss of opportunity to increase investment
returns. Group companies monitor cash inflows and outflows in each operating currency. Through
experience and monitoring, the Group is able to maintain sufficient liquid resources to meet current
obligations.
Asset liability matching is a tool used by the Group to mitigate liquidity risks(cid:1)particularly in operations
with significant maturing short-term liabilities.
Certain investment portfolios within the Group contain debt and equity securities which can only be
disposed of over a period of time. In such instances, the Group generally maintains higher levels of
short-term instruments to compensate for the relative illiquidity of the aforementioned securities.
Investment property may be held to back insurance liabilities. As these assets are relatively illiquid,
the insurers hold less than 10% of their total assets in investment property.
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(a) Financial liabilities and commitments
Contractual cash flow obligations of the Group in respect of its financial liabilities and commitments
are summarised in the following tables. Amounts are analysed by their earliest contractual maturity
dates and consist of the contractual un-discounted cash flows. Where the interest rate of an
instrument for a future period has not been determined as of the date of the financial statements, it is
assumed that the interest rate then prevailing continues until final maturity.
Sagicor Financial Corporation
Amounts expressed in US $000
Sagicor Financial Corporation 145
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.2 Liquidity risk (continued)
(cid:1)
Financial liabilities:
Investment contract liabilities
Notes and loans payable
Deposit and security liabilities:
Other funding instruments
Customer deposits
Structured products
Securities sold under agreements to repurchase
Derivative financial instruments
Bank overdrafts
Sagicor Financial Corporation
Amounts expressed in US $000
2010 - Contractual cash flows
2009 - Contractual cash flows
Within
1 year
1 to 5
years
After
5 years
Total
Within
1 year
1 to 5
years
After
5 years
Total
264,112
42,929
179,998
135,637
4,702
578,773
1,372
2,750
27,785
52,963
37,413
38,943
6,057
709
66
-
6,221
151,845
32,707
12,107
2,598
-
411
-
298,118
247,737
250,118
186,687
13,357
579,482
1,849
2,750
286,627
48,713
170,777
128,382
-
507,664
-
2,380
156,205
17,405
73,992
44,430
32,489
4,071
359
199
-
3,166
162,134
37,208
13,064
2,573
307,198
284,839
252,415
173,935
6,644
-
508,023
2,049
-
2,248
2,380
8,774
30,688
195,667
Accounts payable and accrued liabilities
149,510
7,054
30,894
187,458
Total financial liabilities
1,359,783
170,990
236,783
1,767,556
1,300,748
181,719
250,882
1,733,349
Off financial statement commitments:
Loan commitments
Operating lease and rental payments
Total off financial statements commitments
12,793
4,253
17,046
199
6,214
6,413
10
-
10
13,002
10,467
23,469
27,479
4,585
32,064
3,433
9,253
12,686
117
3
120
31,029
13,841
44,870
Total
1,376,829
177,403
236,793
1,791,025
1,332,812
194,405
251,002
1,778,219
146 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.2 Liquidity risk (continued)
(b) Insurance liabilities
Sagicor Financial Corporation
Amounts expressed in US $000
The Group’s insurance liabilities mature in periods which are summarised in the following table. Amounts are stated at their carrying values recognised in the financial statements and are analysed by their
expected due periods, which have been estimated by actuarial or other statistical methods.
2010
2009
Maturing
within
1 year
Maturing
1 to 5
years
Maturing
after
5 years
Total
Maturing
within
1 year
Maturing
1 to 5
years
Maturing
after
5 years
Total
79,292
326,522
1,347,898
1,753,712
93,497
284,890
1,234,144
1,612,531
244,530
323,822
88,881
92,085
425,496
415,403
1,439,983
2,179,208
156,785
250,282
66,177
77,228
300,190
351,067
1,311,372
1,912,721
Actuarial liabilities
Other insurance liabilities (1)
Total
(1) Consists of monetary items
Sagicor Financial Corporation 147
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.2 Liquidity risk (continued)
(c) Financial and insurance assets
Sagicor Financial Corporation
Amounts expressed in US $000
The Group’s monetary financial and insurance assets mature in periods which are summarised in the following tables. Amounts are stated at their carrying values recognised in the financial statements and are
analysed by their contractual maturity dates.
Debt securities
Mortgage loans
Policy loans
Finance loans and finance leases
Securities purchased under agreements to resell
Deposits
Derivative financial instruments
Reinsurance assets: share of actuarial liabilities
Reinsurance assets: other
Premiums receivable
Other accounts receivable
Cash resources
Total
2010
2009
Maturing
within
1 year
Maturing
1 to 5
years
Maturing
after
5 years
Total
Maturing
within
1 year
Maturing
1 to 5
years
Maturing
after
5 years
Total
373,984
682,412
1,552,156
2,608,552
433,425
576,966
1,213,898
2,224,289
25,527
3,958
65,832
28,530
264,670
2,018
15,688
44,921
145,175
33,491
218,635
32,884
14,155
58,481
-
46,270
9,640
53,875
13,366
-
1,174
-
238,671
105,137
19,752
37
754
412
297,082
123,250
144,065
28,567
311,694
12,070
108,515
178,078
4,574
62,861
-
145,175
5,043
39,708
-
218,635
22,081
4,251
56,466
82,315
229,098
274
25,148
33,794
128,043
58,567
196,020
27,471
12,294
51,631
-
44,900
3,345
66,934
3,084
751
653
-
263,724
107,472
26,981
-
518
486
313,276
124,017
135,078
82,315
274,516
4,105
115,614
207,696
4,539
41,417
-
128,794
3,516
62,736
-
196,020
1,222,429
912,257
2,035,051
4,169,737
1,269,482
788,029
1,736,748
3,794,259
148 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.3
Interest rate risk
The Group is exposed to interest rate risks. Cash flow interest rate risk is the risk that future cash flows
of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest
rate risk is the risk that the fair value of a financial instrument will fluctuate because of changes in
market interest rates. The occurrence of an adverse change in interest rates on invested assets may
result in financial loss to the Group in fulfilling the contractual returns on insurance and financial
liabilities.
The return on investments may be variable, fixed for a term or fixed to maturity. On reinvestment of a
matured investment, the returns available on the new investment may be significantly different from the
returns formerly achieved. This is known as reinvestment risk.
Guaranteed minimum returns exist within cash values of long term traditional insurance contracts, long
term universal life insurance contracts, annuity options, deposit administration liabilities and policy
funds on deposit. Where the returns credited exceed the guaranteed minima, the insurer usually has
the option to adjust the return from period to period. For other financial liabilities, returns are usually
contractual and may only be adjusted on contract renewal or contract re-pricing.
The Group is therefore exposed to the effects of fluctuations in the prevailing levels of market interest
rates on its financial position and cash flows. Interest margins may increase or decrease as a result of
such changes. Interest rate changes may also result in losses if asset and liability cash flows are not
closely matched with respect to timing and amount.
The Group is exposed to risk under embedded derivatives contained in a host insurance contract.
These risks include exposures to investment returns which may produce losses to the insurer arising
from the following contract features:
(cid:1) minimum annuity rates which are guaranteed to be applied at some future date;
(cid:1) minimum guaranteed death benefits which are applicable when the performance of an
interest bearing or unit linked fund falls below expectations;
(cid:1) minimum guaranteed returns in respect of cash values and universal life investment
accounts.
Sagicor Financial Corporation
Amounts expressed in US $000
41. FINANCIAL RISK (continued)
41.3
Interest rate risk (continued)
The Group manages its interest rate risk by a number of measures, including where feasible the
selection of assets which best match the maturity of liabilities, the offering of investment contracts
which match the maturity profile of assets, the re-pricing of interest rates on loans receivable, policy
contracts and financial liabilities in response to market changes. In certain Caribbean markets, where
availability of suitable investments is often a challenge, the Group holds many of its fixed rate debt
securities to maturity and therefore mitigates the transient interest rate changes in these markets.
(cid:1)
The tables following summarise the exposures to interest rates on the Group’s insurance and financial
liabilities (excluding actuarial liabilities which are disclosed in note 43). It includes liabilities at carrying
amounts, categorised by the earlier of contractual re-pricing or maturity dates. Insurance liabilities are
categorised by their expected maturities.
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Sagicor Financial Corporation 149
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.3
Interest rate risk (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
Exposure
within
1 year
Exposure
1 to 5
years
2010
Exposure
after
5 years
Not
exposed to
interest
2009
Total
Exposure
within
1 year
Exposure
1 to 5
years
Exposure
after
5 years
Not
exposed to
interest
Total
Other insurance liabilities (1)
32,554
5,430
56,134
331,378
Investment contract liabilities
257,945
26,400
5,096
4,897
Notes and loans payable
30,527
7,155
145,838
(1,635)
Deposit and security liabilities:
Other funding instruments
Customer deposits
Structured products
Securities sold under agreements to
repurchase
Derivative financial instruments
Bank overdrafts
Accounts payable and accrued liabilities
174,792
125,948
2,309
571,198
-
2,580
264
27,445
31,479
740
649
-
-
108
425,496
294,338
181,885
229,617
168,134
5,655
29,483
284,954
36,513
174,177
122,735
-
4,604
16,541
20,005
28,742
27,963
3,765
54,990
211,113
2,738
164
146,811
(2,485)
30,187
337
10,658
1,633
1,534
-
300,190
304,397
200,844
233,443
162,989
5,299
27,033
9,655
1,533
347
1,052
1,073
-
-
-
-
3,869
575,716
492,177
283
1,849
-
1,849
2,580
187,037
187,409
-
2,380
153
-
-
-
-
-
-
8,668
501,128
2,248
-
2,248
2,380
195,514
195,667
Total
1,198,117
99,406
245,289
529,867
2,072,679
1,142,572
101,903
246,918
417,192
1,908,585
(1) Consists of monetary items
(cid:1)
150 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.3
Interest rate risk (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
The tables following summarise the exposures to interest rate and reinvestment risks of the Group’s insurance and financial assets. Assets are stated at carrying amounts, categorised by the earlier of contractual
re-pricing or maturity dates. Reinsurance assets and policy loans are categorised by their expected maturities.
Debt securities
Equity securities
Mortgage loans
Policy loans
Finance loans and leases
Securities purchased under agreements to resell
Deposits
Derivative financial instruments
Reinsurance assets: other
Premiums receivable
Other accounts receivable
Cash resources
Total
(cid:1)
Exposure
within
1 year
Exposure
1 to 5
years
2010
Exposure
after
5 years
Not
exposed to
interest
Total
Exposure
within
1 year
Exposure
1 to 5
years
2009
Exposure
after
5 years
Not
exposed to
interest
Total
580,495
567,323
1,416,369
44,365
2,608,552
595,890
527,013
1,056,989
44,397
2,224,289
-
84,318
3,220
64,476
28,401
307,682
845
38
72
415
122,528
-
27,457
13,991
58,318
-
1,389
1,661
114
-
1,159
1,568
-
111,552
111,552
180,850
102,400
20,104
37
431
-
4,457
3,639
1,167
129
2,192
9,564
4,574
58,135
297,082
123,250
144,065
28,567
12,070
62,861
39,708
145,103
145,175
-
-
-
38,134
94,539
218,635
153,089
-
90,812
3,418
58,399
81,911
196
64
-
398
-
23,554
12,166
50,687
-
-
648
182
-
564
-
-
116,846
116,846
194,604
104,441
24,875
-
304
-
4,306
3,992
1,117
404
5,406
3,261
4,539
36,632
313,276
124,017
135,078
82,315
274,516
4,105
41,417
-
-
-
128,794
128,794
61,774
42,931
62,736
196,020
311,694
268,806
1,192,490
672,980
1,724,765
512,976
4,103,211
1,252,983
614,814
1,385,752
449,860
3,703,409
Sagicor Financial Corporation 151
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.3
Interest rate risk (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
41. FINANCIAL RISK (continued)
41.3
Interest rate risk (continued)
The table below summarises the average interest yields on financial assets and liabilities held during
the year.
Pan Caribbean Financial Services Limited and its subsidiaries (PCFS)
2010
2009
The following table indicates the sensitivity to a reasonable possible change in interest rates, with all
other variables held constant, on net income and total comprehensive income (TCI) of PCFS.
Financial assets:
Debt securities
Mortgage loans
Policy loans
Finance loans and finance leases
Securities purchased under agreements to resell
Deposits
Financial liabilities
Investment contract liabilities
Notes and loans payable
Other funding instruments
Customer deposits
Securities sold under agreements to repurchase
a) Sensitivity
8.1%
8.3%
8.6%
11.4%
5.6%
2.5%
8.3%
8.7%
2.0%
5.3%
7.4%
9.8%
8.6%
8.6%
12.9%
15.5%
2.9%
8.1%
8.7%
2.4%
6.7%
11.8%
Sensitivity to interest rate risk is considered by operating subsidiaries. The effects of changes in
interest rates of assets backing actuarial liabilities are disclosed in note 43.2.
The Group’s property and casualty operations are not exposed to a significant degree of interest rate
risk, since the majority of its interest bearing(cid:1)instruments has short-term maturities.
The sensitivity of the Group’s principal operating subsidiaries engaged in banking, investment
management and other financial services are considered(cid:1)below.(cid:1)(cid:1)(cid:1)
The sensitivity of income is the effect of the assumed changes in interest rates on net income based on
the floating rate of financial assets and financial liabilities. The sensitivity of TCI is calculated by revaluing
fixed rate available-for-sale financial assets for the effects of the assumed changes in interest rates. The
correlation of a number of variables will have an impact on market risk. It should be noted that
movements in these variables are non-linear and are assessed individually.
(cid:1)
2010
2009
Change in
Effect on
interest rate
JMD
USD
net
income
Effect on
TCI
Change in
Effect on
interest rate
JMD
USD
net
income
Effect on
TCI
- 1%
- 0.5%
1,841
10,112
- 8%
- 3%
8,394
35,379
+ 2%
+ 0.5%
(3,401)
(14,974)
+ 2%
+ 1%
(2,617)
(8,471)
(cid:1)
41.4 Foreign exchange risk
The Group is exposed to foreign exchange risk as a result of fluctuations in exchange rates since its
financial assets and liabilities are denominated in a number of different currencies.
In order to manage the risk associated with movements in currency exchange rates, the Group seeks
to maintain investments and cash in each operating currency, which are sufficient to match liabilities
denominated in the same currency. Exceptions are made to invest limited proportions in United
States dollar assets which are held to back liabilities in Caribbean currencies. Management considers
that these assets diversify the range of investments available in the Caribbean, and in the long-term
are likely to either maintain capital value and/or provide satisfactory returns.
Assets and liabilities by currency are summarised in the following tables.
152 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.4 Foreign exchange risk (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
2010
ASSETS
Financial investments(1)
Reinsurance assets
Receivables (1)
Cash resources
Other assets (2)
Total assets
LIABILITIES
Actuarial liabilities
Other insurance liabilities(1)
Investment contracts
Notes and loans payable
Deposits and securities
Provisions
Accounts payable and accruals
Other liabilities (2)
Total liabilities
Net position
Barbados $
Jamaica $
Trinidad $
UK £
US $
US$ 000 equivalents of balances denominated in
325,300
4,336
11,109
14,242
354,987
217,804
572,791
403,035
62,412
32,251
-
53,573
11,467
20,022
582,760
14,882
597,642
660,971
515
27,524
9,260
698,270
141,862
840,132
248,201
20,179
69,758
7,192
342,108
7,772
36,538
731,748
12,204
743,952
306,771
7,791
8,971
24,456
347,989
80,029
428,018
238,997
19,739
90,011
-
7,299
6,539
19,346
381,931
17,621
399,552
66,939
17,425
48,788
33,506
166,658
98,314
264,972
2,085
146,242
-
-
4,216
4,448
18,253
175,244
79,952
255,196
1,836,535
203,283
53,331
75,669
2,168,818
105,278
2,274,096
729,644
120,193
63,789
174,693
562,405
2,669
77,242
1,730,635
88,252
1,818,887
Other
currencies
Total
328,764
3,525,280
7,589
35,160
61,502
433,015
54,227
487,242
131,750
56,731
38,529
-
13,950
5,939
16,008
262,907
50,274
313,181
240,939
184,883
218,635
4,169,737
697,514
4,867,251
1,753,712
425,496
294,338
181,885
983,551
38,834
187,409
3,865,225
263,185
4,128,410
(24,851)
96,180
28,466
9,776
455,209
174,061
738,841
(1) Monetary items
(2) Non-monetary balances, income tax balances and retirement plan assets
Sagicor Financial Corporation 153
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.4 Foreign exchange risk (continued)(cid:1)
(cid:1)
Sagicor Financial Corporation
Amounts expressed in US $000
2009
ASSETS
Financial investments(1)
Reinsurance assets
Receivables (1)
Cash resources
Other assets (2)
Total assets
LIABILITIES
Actuarial liabilities
Other insurance liabilities(1)
Investment contracts
Notes and loans payable
Deposits and securities
Provisions
Accounts payable and accruals
Other liabilities (2)
Total liabilities
Net position
Barbados $
Jamaica $
Trinidad $
UK £
US $
US$ 000 equivalents of balances denominated in
325,176
3,766
7,365
24,450
360,757
223,658
584,415
385,487
59,314
29,839
-
55,373
10,022
26,713
566,748
15,164
581,912
2,503
492,749
600
21,500
19,057
533,906
146,180
680,086
201,290
18,027
53,346
14,235
258,379
6,646
57,869
609,792
8,090
617,882
62,204
299,953
5,722
7,804
11,420
324,899
80,219
405,118
220,299
16,011
85,648
-
19,269
5,737
12,783
359,747
14,411
374,158
30,960
62,810
4,860
52,769
39,392
159,831
63,604
223,435
1,260
74,498
-
-
-
6,467
10,260
92,485
63,969
156,454
66,981
1,673,319
225,238
61,249
76,187
2,035,993
84,478
2,120,471
685,917
94,751
100,845
186,609
557,165
376
79,645
1,705,308
79,273
1,784,581
335,890
Other
currencies
Total
303,589
3,157,596
8,927
40,843
25,514
378,873
67,574
446,447
118,278
37,589
34,719
-
17,301
10,111
8,397
226,395
37,162
263,557
182,890
249,113
191,530
196,020
3,794,259
665,713
4,459,972
1,612,531
300,190
304,397
200,844
907,487
39,359
195,667
3,560,475
218,069
3,778,544
681,428
(1) Monetary items
(2) Non-monetary balances, income tax balances and retirement plan assets
154 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.4 Foreign exchange risk (continued)
(a) Sensitivity
The matching of assets and liabilities by currency prevents economic exposure to currency risk, but it
does not prevent exposure to exchange gains or losses in the income statement created as a result of
the accounting treatment of monetary and non-monetary items. The gross and reinsurers’ share of the
provision for unearned premiums, and the gross and reinsurers share of deferred acquisition costs are
non-monetary assets and liabilities which are translated at their average historic rate. This means that
these items in the statement of financial position are carried at a different exchange rate to the related
assets and liabilities, such as policy benefits payable, premium receivables and cash, with the
resulting exchange differences that are created being recognised in the income statement.
The phenomenon in the foregoing paragraph occurs in the Sagicor at Lloyd’s Syndicate 1206
operations, which writes a significant proportion of its insurance business in currencies other than the
pound sterling, which is its functional currency. Its impact on reported net income is disclosed in note
4.1 as foreign exchange unwinding.
The Group is exposed to currency risk in its operating currencies whose values have noticeably
fluctuated against the United States dollar (USD).
The exposure to currency risk may result in three types of risk, namely:
(cid:1)
Currency risk relating to the future cash flows of monetary balances
This occurs when a monetary balance is denominated in a currency other than the functional currency
of the reporting unit to which it belongs. In this instance, a change in currency exchange rates results
in the monetary balances being retranslated at the date of the financial statements and the exchange
gain or loss is taken to income (note 26).
Sagicor Financial Corporation
Amounts expressed in US $000
41. FINANCIAL RISK (continued)
41.4 Foreign exchange risk (continued)
(cid:1)
Currency risk of reported results of foreign operations
This occurs when a reporting unit’s functional currency depreciates or appreciates in value when
retranslated to the USD, which is the Group’s presentational currency. In this instance, the
conversion of the reporting unit’s results at a different rate of exchange results in either less or
more income being consolidated in the Group’s income statement.
(cid:1)
Currency risk of the Group’s investment in foreign operations
This occurs when a reporting unit’s functional currency depreciates or appreciates in value when
retranslated to the USD, which is the Group’s presentational currency. In this instance, the
conversion of the reporting unit’s assets and liabilities at a different rate of exchange results in a
currency loss or gain which is recorded in the currency translation reserve (note 22). If the
reporting unit was disposed of, either wholly or in part, then the corresponding accumulated loss
or gain in the currency translation reserve would be transferred to income.
The operating currencies whose values noticeably fluctuate against the USD are the Jamaica
dollar (JMD) and the Pound Sterling (GBP). The theoretical impact of JMD and GBP currency
risk on reported results and of the Group’s investment in foreign operations is considered below.
Sagicor Financial Corporation 155
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
41. FINANCIAL RISK (continued)
41. FINANCIAL RISK (continued)
41.4 Foreign exchange risk (continued)
41.4 Foreign exchange risk (continued)
(i) JMD currency risk
(ii) GBP currency risk
The effect of a 10% depreciation in the JMD relative to the USD arising from JMD reporting units as of
December 31, 2010 and for the year then ended are considered in the following table.
The effect of a 15% depreciation in the GBP relative to the USD arising from JMD reporting units as of
December 31, 2010 and for the year then ended are considered in the following table.
Amounts denominated in
JMD
USD
Total
amounts
Effect of a 10%
depreciation
Amounts denominated in
GBP
USD
Total
amounts
Effect of a 15%
depreciation
Financial position:
Assets
Liabilities
Net position
Represented by:
836,085
743,781
617,299
1,453,384
439,942
1,183,723
92,304
177,357
269,661
(76,008)
(67,617)
(8,391)
Financial position:
Assets
Liabilities
Net position
Represented by:
263,280
245,147
18,133
226,052
183,011
43,041
489,332
428,158
61,174
Currency risk of the Group’s investment in foreign operations
(8,391)
Currency risk of the Group’s investment in foreign operations
(34,335)
(31,970)
(2,365)
(2,365)
Income statement:
Revenue
Benefits
Expenses
Income taxes
Net income
Represented by:
271,751
47,760
319,511
(146,583)
(16,453)
(163,036)
(95,739)
(10,121)
(1,963)
(616)
(97,702)
(10,737)
19,308
28,728
48,036
Currency risk relating to the future cash flows of monetary balances
Currency risk of reported results of foreign operations
(8,904)
13,326
8,704
920
14,046
15,801
(1,755)
14,046
Income statement:
Revenue
Benefits
Expenses
135,239
134,865
270,104
(5,084)
(124,266)
(80,101)
(204,367)
16,212
(63,989)
(44,624)
(108,613)
8,348
Income taxes
1,739
-
1,739
(227)
Net income
Represented by:
(51,277)
10,140
(41,137)
19,249
Currency risk relating to the future cash flows of monetary balances
12,559
Currency risk of reported results of foreign operations
6,690
19,249
An 8.33% appreciation in the JMD relative to the USD would have equal and opposite effects to
those disclosed above.
An 11.54% appreciation in the GBP relative to the USD would have equal and opposite effects to
those disclosed above.
156 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.5 Fair value of financial instruments
Sagicor Financial Corporation
Amounts expressed in US $000
Financial instruments carried at fair value in the financial statements are measured in accordance
with a fair value hierarchy. This hierarchy is as follows:
(a)
(b)
Level 1 – unadjusted quoted prices in active markets for identical instruments.
Level 2 – inputs other than quoted prices in Level 1 that are observable for the instrument,
either directly or indirectly.
Level 3 – inputs for the instrument that are not based on observable market data.
(c)
A financial instrument is regarded as quoted in an active market if quoted prices are readily and
regularly available from an exchange or other independent source, and those prices represent actual
and regularly occurring market transactions on an arm’s length basis. The Group considers that
market transactions should occur with sufficient frequency that is appropriate for the particular market,
when measured over a continuous period preceding the date of the financial statements. If there is
no data available to substantiate the frequency of market transactions of a financial instrument, then
the Group does not consider the instrument to be traded in an active market.
Certain investment portfolios of the Group which are classified as available for sale contain corporate
and government debt securities which are not quoted and which have been valued using internal
models which contain inputs that are not based on observable market data. These assets are
classified as Level 3 in the fair value hierarchy.
Included in the assets designated at fair value through income are mortgage loans and securities
purchased under agreements to resell for which the full income return and capital returns accrue to
holders of unit linked policy and deposit administration contracts. As these assets are valued with
inputs other than observable market data, they are classified as Level 3 in the fair value hierarchy.
Certain of the group’s policy liabilities are unit linked, i.e. derive their value from a pool of assets which
are carried at fair value. The Group assigns a fair value hierarchy of Level 2 to the contract liability if the
liability represents the unadjusted fair value of the underlying pool of assets.
The following table shows the financial assets and financial liabilities carried at fair value by level of the
fair value hierarchy.
Sagicor Financial Corporation 157
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.5 Fair value of financial instruments (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
2010
2009
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Available for sale securities:
Debt securities
Equity securities
Financial assets designated at fair value:
Debt securities
Equity securities
Mortgage loans
Securities purchased under agreements to resell
Derivative financial assets:
Equity indexed options
Interest rate swap
Foreign currency put option, currency forward and
collar option
377,490
57,770
435,260
14,699
15,548
-
-
1,323,030
22,038
1,345,068
79,283
3,969
-
-
30,247
83,252
-
-
-
-
521
-
368
889
42,315
7,905
50,220
2,351
4,322
46,876
2,982
56,531
8,675
2,506
-
1,742,835
87,713
1,830,548
96,333
23,839
46,876
2,982
367,245
64,554
431,799
2,179
10,628
-
-
1,006,847
27,219
1,034,066
66,462
1,580
-
-
170,030
12,807
68,042
9,196
2,506
368
11,181
12,070
-
-
-
-
817
-
80
897
84,673
8,015
92,688
2,673
4,850
48,180
10,020
65,723
2,365
843
-
3,208
1,458,765
99,788
1,558,553
71,314
17,058
48,180
10,020
146,572
3,182
843
80
4,105
Total assets
465,507
1,429,209
117,932
2,012,648
Total assets by percentage
23%
71%
6%
100%
444,606
1,103,005
161,619
1,709,230
26%
65%
9%
100%
There have been no material transfers between Level 1 and Level 2 during 2010 and 2009.
158 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.5 Fair value of financial instruments (continued)
Policy liabilities:
Unit linked deposit administration liabilities
Non-derivative financial liabilities:
Structured products
Derivative financial liabilities:
Exchange traded funds
Equity indexed options
Total liabilities
Total liabilities by percentage
Sagicor Financial Corporation
Amounts expressed in US $000
2010
2009
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
-
-
1,328
-
1,328
1,328
1%
83,847
-
83,847
-
-
521
521
84,368
93%
5,655
5,655
-
-
-
5,655
6%
1,328
521
1,849
91,351
100%
-
-
1,431
-
1,431
1,431
2%
76,587
-
76,587
-
-
817
817
77,404
92%
5,299
5,299
-
-
-
5,299
6%
1,431
817
2,248
84,134
100%
There have been no material transfers between Level 1 and Level 2 during 2010 and 2009.
For Level 3 instruments, reasonable changes in inputs which could be applied to the valuation of available for sale instruments would affect other comprehensive income. Level 3 available for sale securities comprise
primarily of corporate and government agency debt instruments issued in the Caribbean, with significant amounts in Jamaica and Trinidad. The fair values of these instruments have been derived from
December 31 market yields of government instruments of similar durations in the country of issue of the instruments.
Reasonable changes in inputs which could be applied to the valuations of assets designated at fair value are largely offset in income, since the changes in fair value are borne by contract holders.
The following tables present the movements in Level 3 instruments for the year.
Sagicor Financial Corporation 159
Notes to the Financial Statements
Year ended December 31, 2010
41. FINANCIAL RISK (continued)
41.5 Fair value of financial instruments (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
2010
Available
for sale
assets
Assets
designated
at fair value
Derivative
assets
Total
assets
2009
Total
assets
2010
2009
Non-
derivative
liabilities
Total
liabilities
Total
liabilities
Balance, beginning of year
92,688
65,723
3,208
161,619
165,201
5,299
5,299
Additions
Issues
5,015
7,480
4,362
16,857
31,055
390
390
-
-
-
-
-
48
48
552
13,604
-
Transfers into Levels 3
95
-
-
95
8,706
-
-
Fair value changes recorded in income
(101)
1,493
2,359
3,751
3,685
-
-
Fair value changes recorded in other
comprehensive income
690
-
1,516
2,206
1,849
-
-
-
-
-
Disposals and divestitures
(34,715)
(18,705)
(264)
(53,684)
(39,917)
-
-
-
Settlements
-
-
-
-
-
(77)
(77)
(10,009)
Transfers from Level 3
(15,507)
-
-
(15,507)
-
-
-
-
Effect of exchange rate changes
2,055
540
-
2,595
(8,960)
Balance, end of year
50,220
56,531
11,181
117,932
161,619
(5)
5,655
(5)
1,152
5,655
5,299
Fair value changes recorded in income
for instruments held at end of year
-
1,432
2,223
3,655
-
-
-
-
The carrying values of the Group’s financial assets and financial liabilities carried at amortised cost approximate their fair value, except as disclosed in notes 9, 15, 16 and 17.
The Group is exposed to other price risk arising from changes in equity prices. The group mitigates this risk by holding a diversified portfolio and by minimising the use of equity securities to back its insurance
and financial liabilities.
160 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
41. FINANCIAL RISK (continued)
41. FINANCIAL RISK (continued)
41.5 Fair value of financial instruments (continued)
41.6 Derivative financial instruments and hedging activities (continued)
(a) Sensitivity
The sensitivity to fair value changes in equity securities arises from those instruments classified as
available for sale. There is no significant sensitivity to those instruments classified at fair value through
income, since fair value changes are borne by policy contract holders.
The effects of an across the board 20% change in equity prices of the Group’s available for sale
equity securities as of December 31, 2010 on total comprehensive income before tax (TCIBT) are as
follows.
Available for sale equities
Carrying value
Effect of a
20% change
on TCIBT
Listed on Caribbean stock exchanges and markets
Listed on US stock exchanges and markets
Listed on other exchanges and markets
28,433
47,657
11,623
87,713
5,687
9,531
2,325
17,543
(cid:1)
41.6 Derivative financial instruments and hedging activities
Derivatives are carried at fair value and presented in the financial statements as separate assets and
liabilities. Asset values represent the cost to the Group of replacing all transactions with a fair value in
the Group’s favour assuming that all relevant counterparties default at the same time, and that
transactions can be replaced instantaneously. Liability values represent the cost to the Group
counterparties of replacing all their transactions with the Group with a fair value in their favour if the
Group were to default.
Derivative assets and liabilities on different transactions are only set off if the transactions are with the
same counterparty, a legal right of set-off exists and the cash flows are intended to be settled on a net
basis. The fair values are set out below.
2010
2009
Assets
Liabilities
Assets
Liabilities
70
-
-
298
9,196
2,506
12,070
-
12,070
-
1,328
-
-
521
-
1,849
-
1,849
-
-
80
-
3,182
-
3,262
843
4,105
-
1,431
-
-
817
-
2,248
-
2,248
Derivatives held for trading:
Currency forward
Exchange traded funds
– short sale
Foreign currency put option
Foreign exchange collar option
Equity indexed options
Interest rate swap
Derivatives designated as cash
flow hedges:
Interest rate swap
(i) Currency forward
Currency forwards represent commitments to buy and sell foreign currencies on a gross basis at
future dates at specified prices. The credit risk is evaluated for each contract and is collateralised
where deemed necessary. The currency forward contracts are settled on a net basis. The contract
expires in January 2011.
Sagicor Financial Corporation 161
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
41. FINANCIAL RISK (continued)
41. FINANCIAL RISK (continued)
41.6 Derivative financial instruments and hedging activities (continued)
41.6 Derivative financial instruments and hedging activities (continued)
(ii) Exchange traded funds – short sale
During 2009, the Group entered into transactions to sell euro currencies that were borrowed from a
broker. The Group benefits if there is a decline in the asset price between the sale and the repurchase
date. The contract expires in January 2011.
(ii) Foreign currency put option
Foreign currency put options are contractual agreements under which the seller grants the purchaser the
right but not the obligation to sell at a set date, a specified amount of a foreign currency at a
predetermined price. The seller receives a premium from the purchaser in consideration for the
assumption of foreign exchange risk.
(iii) Foreign exchange collar option
During the year the Group entered a collar to sell a call option and buy a put option; the notional
amount was £963,000 and will be settled on a net basis. The contract expires on various settlement
dates ending in December 2012.
(iv) Equity indexed options
The Group has purchased equity indexed options in respect of structured products and in respect of
life and annuity insurance contracts.
For certain structured product contracts with customers (note 17), equity indexed options give the
holder the ability to participate in the upward movement of an equity index while being protected from
downward risk. The Group is exposed to credit risk on purchased options only, and only to the extent
of the carrying amount, which is their fair value.
For certain universal life and annuity insurance contracts, the Group has purchased custom options
that are selected to materially replicate the policy benefits that are associated with the equity indexed
components within the policy contract. These options are appropriate to reduce or minimise the risk of
movements in specific equity markets. Credit risk that the Group has regarding the options is mitigated
by ensuring that the counterparty is sufficiently capitalised. Both the asset and the associated
actuarial liability are valued at fair market value on a consistent basis, with the change in
values being reflected in the income statement. The valuations combine external valuations with
internal calculations.
(v) Cash flow hedge – interest rate swap
The cash flow hedge is used to protect against exposures to variability in future interest cash flow of a
floating rate available-for-sale financial instrument.
The notional principal amount of the outstanding interest rate swap contract is $20,000. The fixed
interest rate is 10.2% and the floating rate is USD-LIBOR-BBA. The amounts and timing of future
cash flows, representing both principal and interest flows are based on their contractual terms. The
critical terms of the interest rate swap had been negotiated to match the terms of available-for-sale
financial instrument. Both the interest rate swap and the floating rate available-for-sale financial
instrument mature in 2015. The interest rate swap is settled on a net basis.
During the year, the Group discontinued hedge accounting as the hedge relationship was no longer
effective arising from the Jamaica Debt Exchange programme. Hedge accounting was therefore
ceased from January 1, 2010. Consequently, effective January 1, 2010, changes in fair value of the
interest rate swap are now recognised in revenue in the statement of income. The amount recognised
in the current year is $1,063, net of deferred tax. The hedge accounting gains and losses up to
December 31, 2009 will be transferred to the statement of income as interest income is recognised on
the floating rate financial instrument.
162 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
42. INSURANCE RISK
42. INSURANCE RISK (continued)
From an insurance risk perspective, the Group’s insurance business can be summarised into three
categories, which are discussed below.
42.1 Property and casualty insurance risks (continued)
(b)
Claims risk
42.1 Property and casualty insurance risks
(a)
Pricing risk
Pricing risk is the risk that insurance contracts are priced too low for the insurance risk assumed.
In determining the pricing of an insurance contract, the insurer considers the nature and amount of the
risk assumed, and recent experience and industry statistics of the benefits payable. This is the
process of underwriting, which establishes appropriate pricing guidelines, and may include specific
tests and enquiries which determine the insurer’s assessment of the risk. Insurers may also establish
deductibles, exclusions, and coverage limits which will limit the potential losses incurred. The pricing
of a contract therefore consists of establishing appropriate premium rates, deductibles and event
limits.
Pricing inadequacy risk may arise either from the use of inadequate experience and statistical data in
deriving pricing factors or from market softening conditions.
Insurance losses are triggered by an event. Insurance losses may be categorised as:
(cid:1)
attritional losses, which are expected to be of reasonable frequency and are less than a
pre-determined amount;
(cid:1) large losses, which are expected to be relatively infrequent and more than a pre-
determined amount;
(cid:1)
catastrophic losses, which are an aggregation of losses arising from one incident or
proximate cause, affecting one or a number of insurance classes. These losses are
infrequent and are generally very substantial.
The insurer records claims based on submissions made by claimants. In certain instances, the insurer
obtains additional information from loss adjustors, medical reports and other specialist sources.
However, the possibility exists that claim submissions are either fraudulent or are not covered under
the terms of the policy. The initial claim recorded may only be an estimate, which has to be refined
over time until final settlement occurs. During the period to final settlement, the insurer has to record
these estimates as outstanding liabilities.
A proportion of risks assumed are written by third parties under delegated underwriting authorities.
The third parties are assessed in advance and are subject to authority limits and reporting procedures.
The performance of contracts written by each delegated authority is monitored periodically.
In addition, experience and industry statistics indicate that at any particular date, there are incurred
but not reported (IBNR) claims. Statistical and actuarial techniques are used to estimate IBNR claim
liabilities at each date of the financial statements.
Claims risk is the risk that incurred claims may exceed expected losses. Claims risk may arise from
(cid:1)
(cid:1)
(cid:1)
(cid:1)
invalid claim submissions;
the frequency of incurred claims;
the severity of incurred claims;
the development of incurred claims.
Sagicor Financial Corporation 163
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
42. INSURANCE RISK (continued)
42. INSURANCE RISK (continued)
42.1 Property and casualty insurance risks (continued)
(c) Concentration of insurance risk
Insurance risk may be concentrated in geographic locations, altering the risk profile of the insurer. The
most significant exposure for this type of risk arises where a single event could result in a large
number of claims. The concentration of insurance risk is illustrated by the distribution of premium
revenue by geographical location of the risk.
2010 Premium revenue by
geographical location
Gross
Ceded
Net
Barbados
Jamaica
Trinidad & Tobago
Other Caribbean
United Kingdom
USA
Rest of the world & worldwide
Total
22,197
567
28,563
12,094
124,495
108,280
158,006
454,202
17,315
138
19,412
6,761
14,295
19,827
26,236
103,984
4,882
429
9,151
5,333
110,200
88,453
131,770
350,218
42.1 Property and casualty insurance risks (continued)
(cid:1)
Realistic disaster scenarios modelled for 2010 resulted in estimated losses in the originating
currencies. Four scenarios are listed below.
Scenario:
Gross loss
Net loss
in offshore energy
A $112,500,000 industry loss from a Gulf of Mexico hurricane
loss of approximately
resulting
losses of $107,000,000
$5,500,000 and mainland property
including the consideration of demand surge and storm surge.
insured
North East Windstorm: A $78,000,000 industry loss, for a major
hurricane making landfall in New York State, with damage also
occurring in neighbouring states.
California Quake - San Francisco. A $78,000,000 industry property
(shake and fire following) loss, including consideration of demand
surge, from an earthquake originating from the San Andreas Fault
(North) near San Francisco.
62,684
14,684
72,373
16,524
75,118
16,316
Hurricane affecting Barbados and St. Lucia having a 100 year
return period.
220,053
5,000
(d) Reinsurance risk
Concentration of risk is mitigated through risk selection, event limits, quota share reinsurance and
excess of loss reinsurance.
The Group assesses its exposures by modelling realistic disaster scenarios of potential catastrophic
events. Claims arising from wind storms, earthquakes, floods, terrorism, failure or collapse of a major
corporation (with liability insurance cover) and events triggering multi coverage corporate liability
claims are considered to be the potential sources of catastrophic losses arising from insurance risks.
To limit its exposure of potential loss on an insurance policy, the insurer may cede certain levels of
risk to a reinsurer. Reinsurance however does not discharge the insurer’s liability. Reinsurance risk is
the risk that reinsurance is not available to mitigate the potential loss on an insurance policy. The risk
may arise from
(cid:1)
(cid:1)
(cid:1)
the credit risk of a reinsurer;
the unavailability of reinsurance cover in the market at adequate levels or prices;
the failure of a reinsurance layer upon the occurrence of a catastrophic event.
164 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
42. INSURANCE RISK (continued)
42. INSURANCE RISK (continued)
42.1 Property and casualty insurance risks (continued)
42.1 Property and casualty insurance risks (continued)
The Group selects reinsurers which have well established capability to meet their contractual
obligations and which generally have high credit ratings. The credit ratings of reinsurers are
monitored. Insurers also place reinsurance coverage with various reinsurers to limit their exposure to
any one reinsurer.
For its property risks, insurers use quota share and excess of loss catastrophe reinsurance treaties to
obtain reinsurance cover. Catastrophe reinsurance is obtained for multiple claims arising from one
event or occurring within a specified time period. However, treaty limits may apply and may expose
the insurer to further claim exposure. Under some treaties, when treaty limits are reached, the insurer
may be required to pay an additional premium to reinstate the reinsurance coverage. Excess of loss
catastrophe reinsurance treaties typically cover up to four separate catastrophic events per year.
Caribbean operations
Retention by insurers - currency amounts in thousands
Property risks
Motor and liability risks
(cid:1) maximum retention of $3,750 for a single event;
(cid:1) maximum retention of $5,000 for a catastrophic event;
(cid:1)
quota share retention to maximum of 25% in respect of treaty
limits;
quota share retention is further reduced to a maximum of $500
per event.
(cid:1)
(cid:1) maximum retention of $500 for a single event;
(cid:1)
quota share retention a maximum of 50% in respect of treaty
limits
treaty limits apply.
For other insurance risks, insurers limit their exposure by event or per person by excess of loss or
quota share treaties.
(cid:1)
Retention limits represent the level of risk retained by the insurer. Coverage in excess of these limits is
ceded to reinsurers up to the treaty limit. Claim amounts in excess of reinsurance treaty limits revert to
the insurer. Principal features of retention programs used in the Group’s Caribbean and UK operations
are summarised in the tables below. However, these arrangements are not exhaustive and do not
represent a complete schedule of all reinsurance arrangements for each line of insurance business
written.
Miscellaneous accident risks
(cid:1) maximum retention of $75 for a single event; treaty limits apply.
Engineering business risks
(cid:1) maximum retention of $250 for a single event;
(cid:1)
treaty limits apply.
Property, motor, and
engineering risks
(cid:1)
(cid:1)
catastrophic excess of loss reinsurance cover is available per
event for amounts in excess of treaty limits;
treaty limits apply to catastrophic excess of loss coverage.
(cid:1)
(cid:1)
.
Sagicor Financial Corporation 165
Notes to the Financial Statements
Year ended December 31, 2010
42. INSURANCE RISK (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
42. INSURANCE RISK (continued)
42.1 Property and casualty insurance risks (continued)
42.1 Property and casualty insurance risks (continued)
UK operations
- underwriting year 2010
Direct property risks
Personal accident risks
Retention by insurers - currency amounts in thousands
(cid:1) maximum retention of $2,500 per risk;
(cid:1) maximum retention of $15,000 for 1st loss, $5,000 for 2nd loss,
$5,000 for 3rd loss, for catastrophe exposed events;
treaty and aggregate limits apply.
(cid:1)
(cid:1) maximum retention of $3,000 per risk;
(cid:1) maximum retention of $3,000 per event;
(cid:1) maximum retention of $2,000 per person
(cid:1) maximum retention of £300 per travel and medical risk;
(cid:1)
treaty limits apply
(e) Credit risk – reinsurance exposures
As set out in note 41.1, the Group has an internal credit rating scale for its reinsurance exposures. In
order to assess the potential reinsurance recoveries on the occurrence of a catastrophic insurance
event, these exposures are assessed using the following realistic disaster scenarios:
(cid:1) North East Windstorm: A $78,000,000 industry loss, for a major hurricane making landfall in
New York State, with damage also occurring in neighbouring states;
(cid:1) Hurricane with a 250 year return period affecting Barbados and St. Lucia and an earthquake
with a 250 year return period affecting Trinidad within a 24 hour period.
The reinsurance recoveries derived from the above are assigned internal credit ratings as follows:
lines (liability) and
Special
liability
International treaty property
Direct motor
(cid:1) maximum retention of £5,000 per event;
(cid:1)
treaty limits apply.
(cid:1) maximum retention of £5,000 per event;
(cid:1)
treaty limits apply.
(cid:1)
70% quota share retention per event
(cid:1) maximum retention - £500 per event;
(cid:1)
treaty limits apply
The effects of reinsurance ceded are disclosed in notes 14, 24 and 27. Information on reinsurance
balances are disclosed in notes 10, 20 and 41.
Sagicor
Risk
Rating
1
2
3
4
5
6
Category
Investment
grade
Non- investment
grade
Watch
t
l
u
a
f
e
d
-
n
o
N
(cid:1)
(cid:1)
(cid:1)
166 Sagicor Financial Corporation
Classification
Minimal risk
Low risk
Moderate risk
Average risk
Higher risk
TOTAL
Exposure
$000
Exposure %
275,055
553,755
-
-
-
32
65
-
3
-
-
856,834
100
Acceptable risk
28,024
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
42. INSURANCE RISK (continued)
42. INSURANCE RISK (continued)
42.2 Term life, health and critical illness insurance risks
42.2 Term life, health and critical illness insurance risks (continued)
(a)
Pricing risk
Pricing risk is the risk that insurance contracts are priced too low for the insurance risk assumed.
In determining the pricing of an insurance contract, the insurer considers the nature and amount of the
risk assumed, and recent experience and industry statistics of the benefits payable. This is the
process of underwriting, which establishes appropriate pricing guidelines, and may include specific
medical tests and enquiries which determine the insurer’s assessment of the risk. Insurers may also
establish deductibles and coverage limits for health risks which will limit the potential claims incurred.
Term life and critical illness risks have limitations of insured amounts. The pricing of a contract
therefore consists of establishing appropriate premium rates, deductibles and coverage limits.
Pricing inadequacy risk may arise either from the use of inadequate experience and statistical data in
deriving pricing factors or from market softening conditions.
(b)
Mortality risk and morbidity
Mortality risk is the risk that worsening mortality rates will result in an increase of death claims.
Morbidity is the incidence of disease or illness.
Insurance claims are triggered by the incurral of a medical claim, the diagnosis of a critical illness or
by death of the person insured.
For contracts providing death benefits, higher mortality rates would result in an increase in death
claims. The Group annually reviews its mortality experience and compares it to industry mortality
tables. This review(cid:1)may result in future adjustments to the pricing or re-pricing of these contracts.
(cid:1)
The cost of health related claims depends on the incidence of beneficiaries becoming ill, the duration
of their illness, and the cost of providing medical services. An increase in any of these three factors
will result in increased health insurance claims. In such circumstances, the insurer may adjust the(cid:1)
pricing or re-pricing of these contracts.
Critical illness claims arise from the diagnosis of a specific illness in a policy beneficiary. The Group
annually reviews its critical illness claim experience and compares it to industry statistics. This review
may result in future adjustments to the pricing or re-pricing of these contracts.
42.3 Life and annuity insurance risks (with investment returns)
Life and annuity insurance risk of contracts with investment returns arise from long-term contracts
which in most instances have durations greater than 5 years. Under the contract, the policyholder is
required to pay either a single premium at the contract inception, or periodic premiums over the
duration of the policy contract. From the premium(s) received, acquisition expenses and maintenance
expenses are financed. Investment returns are credited to the policy and are available to fund
surrender, withdrawal and maturity policy benefits. The principal risks associated with these policies
are:
(cid:1) Mortality risk
(cid:1) Lapse risk
(cid:1) Expense risk
(cid:1) Financial risk
(a)
Mortality risk
Mortality risk is the risk that worsening mortality rates will result in an increase of death claims and that
improving mortality rates will lengthen the payout period of annuities.
(b)
Lapse risk
Lapse risk is that, on average, policyholders will terminate their policies ahead of the insurer’s
expectation. Early lapse may result in the following:
(cid:1) Acquisition costs are not recovered from the policyholder;
(cid:1)
In order to settle benefits, investments are liquidated prematurely resulting in a loss to the
insurer;
(cid:1) Maintenance expenses are allocated to the remaining policies, resulting in an increase in
expense risk.
(cid:1)
Sagicor Financial Corporation 167
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
42. INSURANCE RISK (continued)
42. INSURANCE RISK (continued)
42.3 Life and annuity insurance risks (with investment returns) (continued)
42.4 Concentration risk (life, annuity and health insurance) (continued)
(c)
Expense risk
The Group has significant inforce policies in which it either does not have the ability or has limited
ability to re-price the contract for an increase in expenses caused by inflation or other factors. This
means that planned growth in the Group’s policy maintenance expenses has to be funded by
increasing the volume of inforce policies and/or by productivity gains. Failure to achieve this will
result in an increase in actuarial liabilities.
(d)
Financial risk
In addition to the risks outlined in note 41, for inforce long-term contracts the Group has adopted a
policy of investing in assets with cash flow characteristics that closely match the cash flow
characteristics of its policy liabilities. The primary purpose of this matching is to ensure that cash
flows from these assets are synchronised with the timing and the amounts of payments that must be
paid to policyholders. Mis-matches in asset and liability cash flows generally have the effect of
increasing financial risk which will result in an increase in actuarial liabilities.
42.4 Concentration risk (life, annuity and health insurance)
Total insurance coverage on insurance policies quantifies some of the risk exposures. Typically,
claims arising in any one year are a very small proportion in relation to the total insurance coverage
provided. The total amounts insured by the Group at December 31, gross and net of reinsurance, are
summarised below.
Gross amount insured
Net amount insured
2010
2009
2010
2009
Contracts issued to individuals
– life insurance
Contracts issued to groups
– life insurance
19,480,346
17,767,943
15,853,511
14,417,374
10,470,005
8,288,414
7,804,779
6,539,084
For health insurance, the concentration of insurance risk is illustrated by the distribution of premium
revenue by the location of the insured persons.
(a)
Mortality and morbidity risk
2010 Premium revenue by location of insureds
Gross
Ceded
Net
Mortality and morbidity risk may be concentrated in geographic locations, altering the risk profile of
the insurer. The most significant exposure for this type of risk arises where a single event could
result in a large number of claims.
Many beneficiaries of life insurance policies issued by the Group (the insured population) are
resident in certain countries within the Caribbean. It is estimated that the insured populations in
Antigua, Barbados, Cayman Islands, Jamaica, Netherlands Antilles, St Lucia and Trinidad and
Tobago represent respectively over 5% of the population of each.
Barbados
Jamaica
Trinidad & Tobago
Other Caribbean
USA
Total
19,083
70,938
16,178
26,259
290
1,076
1,412
634
1,019
215
18,007
69,526
15,544
25,240
75
132,748
4,356
128,392
168 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
42. INSURANCE RISK (continued)
43. SENSITIVITY ANALYSIS OF ACTUARIAL LIABILITIES
42.5 Reinsurance risk (life, annuity and health insurance)
To limit its exposure of potential loss on an insurance policy, the insurer may cede certain levels of
risk to a reinsurer. The Group selects reinsurers which have well established capability to meet their
contractual obligations and which generally have high credit ratings. The credit ratings of reinsurers
are monitored. Reinsurance ceded does not discharge the insurer’s liability and failure by a reinsurer
to honour its commitments could result in losses to the Group.
For life, annuity and health insurance risks, insurers limit their exposure per person by excess of loss
or quota share treaties.
Retention limits represent the level of risk retained by the insurer. Coverage in excess of these limits is
ceded to reinsurers up to the treaty limit. The principal features of retention programs used by insurers
are summarised in the tables below:
Type of insurance contract
Retention by insurers
- currency amounts in thousands
Health insurance contracts with individuals Retention per individual to a maximum of $75
Health insurance contracts with groups
Retention per individual to a maximum of $75
Life insurance contracts with individuals
Retention per individual life to a maximum of $783
Life insurance contracts with groups
Retention per individual life to a maximum of $783
Actuarial liabilities comprise 73% of total insurance liabilities (2009 – 76%). The determination of
actuarial liabilities is sensitive to a number of assumptions, and changes in those assumptions could
have a significant effect on the valuation results. These factors are discussed below.
43.1 Sensitivity arising from the valuation of life insurance and annuity contracts
The valuation of actuarial liabilities of life insurance and annuity contracts is sensitive to:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
the economic scenario used in CALM,
the investments allocated to back the liabilities,
the underlying assumptions used, and
the margins for adverse deviations.
Under the CALM methodology, the AA is required to test the actuarial liability under 9 economic
scenarios. These tests have been done and the results of the valuation provide adequately for
liabilities derived from the worst of these different scenarios.
The assumption for future investment yields has a significant impact on actuarial liabilities. The
different scenarios tested under CALM reflect the impact of different yields.
The other assumptions which are most sensitive in determining the actuarial liabilities of the Group
are:
Operating expenses and taxes
Lapse
(cid:1)
(cid:1)
(cid:1) Mortality and morbidity
Life insurance and annuity blocks of
contracts
0% to 37.5% retention on policy liabilities
The scenarios developed and tested by insurers were as follows.
The effects of reinsurance ceded are disclosed in the notes 13, 14, 24 and 27. Information on
reinsurance balances are disclosed in notes 10, 20 and 41.
(cid:1)
(cid:1)
(cid:1)
.
Sagicor Financial Corporation 169
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
43. SENSITIVITY ANALYSIS OF ACTUARIAL LIABILITIES (continued)
43. SENSITIVITY ANALYSIS OF ACTUARIAL LIABILITIES (continued)
43.1 Sensitivity arising from the valuation of life insurance and annuity contracts (continued)
43.1 Sensitivity arising from the valuation of life insurance and annuity contracts (continued)
Sensitivity
Scenario
Sagicor Life Inc
segment
Sagicor Life Jamaica
segment
Sagicor USA segment
Lapse rates were either
doubled or halved, and the
more adverse result was
selected.
For business which produces higher valuation
reserves with an increase in lapse rates, the scenario
lapse rates were doubled. For business which
produces higher valuation reserves with a decrease in
lapse rates, the scenario lapse rates were halved.
Assumed increases in the
investment portfolio yield
rates of 0.25% per year for
5 years.
increases
in
Assumed
the
investment portfolio
yield rates of 0.5% for 10
years.
A 1% flat increase was
applied to the statutory
and pricing interest rate.
Assumed decreases
in
investment portfolio yield
rates of 0.25% per year for
5 years.
Assumed decreases
in
investment portfolio yield
rates of 0.5% per year
for 10 years.
Mortality and morbidity rates for insurance and critical
illness products were increased by 3% of the base rate
per year for 5 years.
For annuity products,
decreased by 3% of the base rate for 5 years.
the mortality
rates were
A 1% flat decrease was
applied to the statutory
and pricing interest rate.
life
For
insurance
products only, the base
assumed
rates were
increased annually by
3% cumulatively over the
next five years.
Worsening
rate of lapse
High interest
rate
Low interest
rate
Worsening
mortality and
morbidity
Higher
expenses
Policy unit maintenance expense rates were increased
by 5% for 5 years above those reflected in the base
scenario.
170 Sagicor Financial Corporation
was
The assumed
rate
annually
cumulatively over
next five years.
inflation
increased
5%
the
by
The following table represents the estimated sensitivity of each of the above scenarios to net actuarial
liabilities for insurers by segment. Correlations that may exist between scenario assumptions were not
explicitly taken into account.
Sagicor Life Inc
segment
Sagicor Life Jamaica
segment
Sagicor USA
segment
2010
2009
2010
2009
2010
2009
759,399
730,013
347,449
300,801
454,397
367,048
change in liability
change in liability
change in liability
64,978
62,576
37,183
32,783
19,022
15,366
Base net actuarial
liability - $000
Scenario
Worsening rate
of lapse
High interest rate
(62,479)
(45,587)
(57,884)
(54,373)
(27,401)
(22,134)
Low interest rate
106,512
66,075
93,590
62,269
31,559
25,493
Worsening mortality /
morbidity
24,830
19,714
24,229
20,480
8,795
7,104
Higher expenses
30,509
28,673
19,967
16,641
1,166
942
.
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
43. SENSITIVITY ANALYSIS OF ACTUARIAL LIABILITIES (continued)
44. ANALYSIS OF PROPERTY AND CASUALTY CLAIM LIABILITIES
43.2 Dynamic capital adequacy testing (DCAT)
44.1 Development of claim liabilities
DCAT is a technique used by the Group to assess the adequacy of the insurer’s financial position and
financial condition in the light of different future economic and policy experience scenarios. DCAT
assesses the impact over the next 5 years on the insurer’s financial position and financial condition(cid:1)
under specific scenarios.(cid:1)(cid:1)
The development of an insurer’s claims in the course of settlement provides a measure of its ability to
estimate the ultimate value of claims incurred. In the following tables, estimates of total ultimate
claims incurred and recoverable from reinsurers for each year are provided at successive year ends.
The most recent estimate is then reconciled to the recognised liability.
For Caribbean operations, the disclosures are by accident year. Accident year is the financial period
in which the claim is incurred.
(cid:1)
For UK operations, the disclosures are by underwriting year. Underwriting year is the period to which
a policy’s annual premium has been allocated.
The financial position of an insurer is reflected by the amounts of assets, liabilities and equity in the
financial statements at a given date. The financial position therefore relies on the valuation
assumptions used for establishing the actuarial liabilities being adequate to measure future adverse
deviations in experience. The financial position does not offer any indication of an insurer’s ability to
execute its business plan.
The financial condition of an insurer at a particular date is its prospective ability at that date to meet its
future obligations, especially obligations to policyholders, those to whom it owes benefits and to its
shareholders.
The financial condition analysis examines both an insurer’s ability to execute its business plan and to
absorb adverse experience beyond that provided for when its actuarial liabilities are established.
The purpose of the DCAT is
(cid:1)
(cid:1)
(cid:1)
to develop an understanding of the sensitivity of the total equity of the insurer and
future financial condition to changes in various experience factors and management
policies;
to alert management to material, plausible and imminent threats to the insurer’s
solvency;
and to describe possible courses of action to address these threats.
Full DCAT is conducted periodically by insurers within the Group.
Sagicor Financial Corporation 171
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
44. ANALYSIS OF PROPERTY AND CASUALTY CLAIM LIABILITIES (continued)
44.1 Development of claim liabilities
CARIBBEAN OPERATIONS - BY ACCIDENT YEAR
Estimate of gross claims incurred as of December 31
9,206
2006
One year later
Two years later
Three years later
Four years later
Most recent year
Cumulative payments to date
Gross liability recognised
Liability for prior years
Total liability
Net favourable (unfavourable) development
Estimate of reinsurers’ share as of December 31
One year later
Two years later
Three years later
Four years later
Most recent year
Cumulative receipts to date
Recoverable recognised
Recoverable for prior years
2007
21,325
16,247
15,305
15,237
2008
2009
2010
Total
16,953
15,521
18,643
81,648
16,256
15,215
-
-
16,101
-
-
-
-
-
-
-
-
-
-
-
-
15,237
(14,320)
917
16,101
(14,050)
2,051
15,215
(11,194)
4,021
18,643
73,982
(9,215)
9,428
(56,560)
17,422
8,658
8,535
8,368
8,786
8,786
(7,781)
1,005
-
-
-
-
-
1,217
-
-
-
-
-
18,639
420
1,266
886
884
999
6,088
9,922
6,693
6,327
852
9,411
9,540
9,392
6,293
-
306
8,392
-
7,666
11,020
40,011
8,207 -
-
-
-
-
-
-
-
975
-
- -
-
-
975
(951)
6,293
(6,204)
24
89
9,392
(8,226)
1,166
8,207
(6,060)
2,147
11,020
(4,969)
35,887
(26,410)
6,051
9,477
-
-
-
-
-
(235)
9,242
4,124
Total recoverable from reinsurers
-
-
-
-
-
Net (favourable) unfavourable development
291
3,629
19
185
-
172 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
44. ANALYSIS OF PROPERTY AND CASUALTY CLAIM LIABILITIES (continued)
Sagicor Financial Corporation
Amounts expressed in US $000
44.1 Development of claim liabilities
UK OPERATIONS - BY UNDERWRITING YEAR
Estimate of gross claims incurred as of December 31
One year later
Two years later
Three years later
Four years later
Most recent year
Cumulative payments to date
Claims on unearned premiums
Gross liability recognised
Liability for prior years
Total liability
2006
48,285
36,547
34,571
33,610
2007
55,700
57,384
58,385
2008
109,814
119,218
2009
193,513
2010
262,362
Total
669,674
212,784
-
-
131,771
-
-
-
58,748
-
-
-
-
32,931
-
-
-
-
-
32,931
(30,954)
58,748
(53,629)
-
-
1,977
5,119
131,771
(92,159)
(16)
39,596
212,784
(93,347)
(10,072)
109,365
262,362
(14,686)
(140,641)
107,035
-
-
-
-
-
-
-
-
-
-
Net favourable (unfavourable) development
15,354
(3,048)
(21,957)
(19,271)
-
Estimate of reinsurers’ share as of December 31
13
-
8,114
14,650
One year later
Two years later
Three years later
Four years later
Most recent year
-
94
24
50
50
Cumulative receipts to date
-
2,777
2,043
2,125
(1,184)
Recoverable from claims on unearned premiums
-
-
14,634
-
-
17,691
-
-
-
2,125
-
-
-
-
-
-
-
-
-
9,869
6,738
17,691
(7,164)
(5)
10,522
Recoverable recognised
Recoverable for prior years
50
941
-
-
-
-
-
Total recoverable from reinsurers
-
-
-
-
-
14,634
14,650
49,150
(2,563)
-
(10,911)
(731)
11,340
(4,033)
10,617
(4,769)
33,470
1,984
35,454
698,596
(284,775)
(150,729)
263,092
16,046
279,138
(28,922)
32,646
Net (favourable) unfavourable development
(37)
(2,125)
(7,822)
(6,520)
-
(16,504)
Sagicor Financial Corporation 173
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
44. ANALYSIS OF PROPERTY AND CASUALTY CLAIM LIABILITIES (continued)
45. CAPITAL MANAGEMENT (continued)
44.2 Sensitivity of claim liabilities
45.1 Capital resources (continued)
The effect of a 5% increase in the property and casualty net claims ratio would result in a decrease in
income before taxes of $17,511 (2009 – $12,475).
45. CAPITAL MANAGEMENT
The Group manages its capital resources according to the following objectives:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
To comply with capital requirements established by insurance, banking and other financial
intermediary regulatory authorities;
To comply with internationally recognised capital requirements for insurance, where local
regulations do not meet these international standards;
To safeguard its ability as a going concern to continue to provide benefits and returns to
policyholders, depositors, note-holders and shareholders;
To provide adequate returns to shareholders;
To maintain a strong capital base to support the future development of Group operations.
(cid:1)
45.1 Capital resources
The principal capital resources of the Group are as follows:
Shareholders’ equity
Minority interest
Notes and loans payable
Total financial statements capital resources
Letter of credit facilities, net of collateral assets
Total off financial statements resources
2010
2009
565,552
168,942
181,885
916,379
34,530
34,530
538,074
137,503
200,844
876,421
35,775
35,775
Total capital resources
950,909
912,196
174 Sagicor Financial Corporation
The Group deploys its capital resources through its operating activities. These operating activities are
carried out by subsidiary companies which are either insurance entities or provide other financial
services. The capital is deployed in such a manner as to ensure that subsidiaries have adequate and
sufficient capital resources to carry out their activities and to meet regulatory requirements.
The capital adequacy of the principal operating subsidiaries is discussed in the following section.
45.2 Capital adequacy
(cid:1)
(a) Life insurers
Capital adequacy is managed at the operating company level. It is calculated by the Appointed
Actuary and reviewed by executive management, the audit committee and the board of directors. In
addition, the Group seeks to maintain internal capital adequacy at levels higher than the regulatory or
internationally recognised requirements. To assist in evaluating the current business and strategy
opportunities, a risk-based capital approach is a core measure of financial performance. The risk-
based assessment measure which has been adopted is the Canadian Minimum Continuing Surplus
and Capital Requirement (MCCSR) standard. The minimum standard recommended by the Canadian
regulators for companies is an MCCSR of 150%. A number of jurisdictions in the Caribbean region
have no internationally recognised capital adequacy requirements, and in accordance with its
objectives for managing capital, the Group has adopted the Canadian MCCSR standard.
The consolidated MCCSR for the Sagicor Group as of December 31 is set out below.
Sagicor Group
(cid:1)
2010
224%
2009
273%
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
45. CAPITAL MANAGEMENT (continued)
45. CAPITAL MANAGEMENT (continued)
45.2 Capital adequacy (continued)
(cid:1)
(b) Sagicor at Lloyd’s: Syndicates 1206 & 44
45.2 Capital adequacy (continued)
The Financial Services Authority (FSA) Lloyd’s sourcebook requires Lloyd’s syndicates to comply with
an Individual Capital Adequacy Standards regime. A key objective of the regime is that syndicate
management focuses on risk management and there is a clearly defined link between risk and capital
setting.
Sagicor at Lloyd’s has adopted an approach whereby risks identified as having a material effect on the
capital requirements are documented within a risk register are shown as prime risks. It is recognised
that this register is(cid:1)dependent on both the identification and subsequent analysis of individual risks by
management. The risk register is subject to regular(cid:1)review and is updated to reflect the changes in
the syndicate’s risk profile. The risk classes comprise insurance, credit, market, liquidity, Group and(cid:1)
operational risks.
The Individual Capital Assessment (ICA) is calculated using “stress and scenario” methodology for
prime risk categories except for reserving risk where a stochastic model is used. Prime risks have
been correlated to minimise potential aggregation of risks.
Each year, an ICA is prepared based on a one year event horizon and capital requirements are based
on the 99.5% confidence level over the next year. The ICA provides for all losses modelled to
ultimate. An overall ICA number is computed. To this is added a premium and the resulting total,
known as the Funds at Lloyd’s requirement (FaL) is placed at the disposal of Lloyd’s of London. The
FaL may consist of cash, securities or banker’s irrevocable standby letters of credit. The FaL is put
into effect before the start of the underwriting year and remains in place until the underwriting year
closes and its profits are distributed or its losses are assumed by the participating member. An
underwriting year is normally held open for a period of three years. The FaL requirements for the
Syndicates at the beginning of each underwriting are as follows:
(cid:1)
(cid:1)
FaL requirement:
Syndicate 1206
Syndicate 44
Represented by:
Banker’s letters of credit
Deposits at Lloyd’s of London
Reinsurance financing
Solvency surplus
Underwriting year
2011 - £000
2010 - £000
2009 - £000
137,241
4,438
141,679
52,100
31,622
60,000
-
98,440
4,899
103,339
52,100
30,934
18,750
1,555
65,000
2,833
67,833
52,100
733
15,000
-
143,722
103,339
67,833
(c) Pan Caribbean Financial Services Group
Capital adequacy and the use of regulatory capital are monitored monthly by the PCFS Group
management employing techniques based on the guidelines developed by the Financial Services
Commission (FSC), the Bank of Jamaica (BOJ), Basel II and the Risk Management and Compliance
Unit. The required information is filed with the respective Regulatory Authorities at stipulated
intervals. The BOJ and the FSC require each regulated entity to:
(cid:1)
Hold the minimum level of regulatory capital;
(cid:1) Maintain a minimum ratio of total regulatory capital to the risk-weighted assets.
Sagicor Financial Corporation 175
Notes to the Financial Statements
Year ended December 31, 2010
45. CAPITAL MANAGEMENT (continued)
45.2 Capital adequacy (continued)
(cid:1)
The risk-weighted assets are measured by means of a hierarchy of five risk weights classified
according to the nature of each asset and counterparty, taking into account any eligible collateral or
guarantees. A similar treatment is adopted for off financial statements exposure, with some
adjustments to reflect the more contingent nature of the potential losses.
The table below summarises the ratios of the regulated companies within the PCFS Group for the
years ended December 31, 2010 and 2009. During those two years, the individual entities within this
Group complied with all of the externally imposed capital requirements to which they are subject. The
regulated companies within the PCFS Group are Pan Caribbean Financial Services Limited (PCFS)
and PanCaribbeanBank Limited (PCB).
Sagicor Financial Corporation
Amounts expressed in US $000
45. CAPITAL MANAGEMENT (continued)
45.3 Financial covenants (continued)
Permitted liens are defined to be liens existing on the date of issue of the senior notes, certain liens
which would arise in the course of normal business, and other liens as long as the aggregate
outstanding principal amount of such secured indebtedness of the Group, taken as a whole, does not
exceed 10% of the consolidated net tangible assets. The latter is defined in the indenture.
As of December 31, 2010, the Group satisfied this requirement.
(b) Letter of credit facilities
The financial covenants entered into by the Group on the issue of letter of credit facilities by the Bank
of Nova Scotia are summarised below.
PCFS
PCB
2010
2009
2010 2009
(i) Tangible net worth
Actual capital base to risk weighted assets
46%
61%
32%
33%
Required capital base to risk weighted assets
10%
10%
10%
10%
The Group is required to maintain a tangible net worth greater than $250,000 at all times, such
covenant to be tested annually based on the consolidated audited financial statements. Tangible net
worth is defined in the agreements to establish letter of credit facilities.
As of December 31, 2010 and 2009, the Group satisfied this requirement.
45.3 Financial covenants
(a) 7.5% senior notes due 2016
Under an indenture entered into by the Group on the issue of the senior notes (see note 16), the
Group has to comply with a restrictive covenant which will not allow the Company or any of its
subsidiaries to directly or indirectly, incur or permit to exist any lien to secure any indebtedness or any
guarantee of indebtedness, other than permitted liens, without effectively providing that the senior
notes are secured equitably and rateably with (or, if the obligation to be secured by the lien is
subordinated in right of payment to the senior notes, prior to) the obligations so secured for so long as
such obligations are so secured.
(cid:1)
(cid:1)
.
(cid:1)
176 Sagicor Financial Corporation
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
45. CAPITAL MANAGEMENT (continued)
45. CAPITAL MANAGEMENT (continued)
45.3 Financial covenants (continued)
45.3 Financial covenants (continued)
(ii) Interest coverage ratio
(i) Equity
The Group is required to maintain an interest coverage ratio of at least 5:1 at all times, such covenant
to be tested annually based on the consolidated audited financial statements. Interest coverage ratio
is defined in the agreements to establish letter of credit facilities.
The Group is required to maintain Equity of at least $575,000 at all times.
As of December 31, 2010 and 2009, the Group satisfied this requirement.
For the years ended December 31, 2010 and 2009, the Group’s interest coverage ratio was 5.6:1 and
7.6:1 respectively.
(iii) Financial strength
Under the agreements to establish the letter of credit facilities, Sagicor Life Inc is required to maintain
minimum financial strength ratings of BBB- from Standard & Poor’s and of B+ from A.M. Best. A
further requirement is that a material adverse change in the financial condition of Sagicor Life Inc
should not occur.
As of December 31, 2010 and up to the date of issue of these financial(cid:1)statements, Sagicor Life Inc
maintained the required financial strength ratings.
(iv) Permitted liens
The covenant described in part (a) of this note also forms a covenant under the agreements to
establish the letter of credit facilities.
(c)
Loan from the Royal Bank of Canada (RBC)
The financial covenants entered into by the Group on the receipt in December 2009 of a loan of
$25,000 by the Royal Bank of Canada are summarised below.
(cid:1)
(ii) Interest coverage ratio
The Group is required to maintain an interest coverage ratio of at least 1.75:1 at all times, such
covenant to be tested quarterly based on the consolidated financial statements. Interest coverage
ratio is defined in the agreement to establish the loan.
For the year ended December 31, 2010 and 2009, the Group’s interest coverage ratio was 1.80:1 and
1.86:1 respectively.
46. STATUTORY RESTRICTIONS ON ASSETS
Insurers are registered to conduct insurance business under legislation in place in each relevant
jurisdiction. This legislation may prescribe a number of requirements with respect to deposits,
investment of funds and solvency for the protection of policyholders. In general, these requirements
do not restrict the ability of the insurer to trade investments.
Banking subsidiaries may also be required to hold deposits with Central Banks which regulate the
conduct of banking operations.
To satisfy the above requirements, invested assets and cash totalling $1,262,023 (2009 - $1,100,760)
have been deposited with regulators or are held in trust to the order of regulators.
In some countries where the Group operates, there are exchange controls or other restrictions on the
remittance of funds out of those countries.
Sagicor Financial Corporation 177
Notes to the Financial Statements
Year ended December 31, 2010
Sagicor Financial Corporation
Amounts expressed in US $000
47.
FIDUCIARY RISK
48. EVENTS AFTER DECEMBER 31, 2010 (continued)
48.2 Insurance catastrophe events
Since the date of these financial statements, insurance catastrophe events have occurred in the
southern hemisphere to which the Group is exposed through its Sagicor at Lloyd’s operations.
The events and initial estimates of claims are as follows:
(cid:77) Toowoomba & Brisbane floods estimated at $5,500;
(cid:77) Cyclone Yasi estimated at $4,700;
(cid:77) Christchurch Earthquake, estimated at $7,800.
Sagicor at Lloyd’s exposure in these events is protected by reinsurance above $7,800 per event.
In addition to the above, the recent Japan Earthquake will also have a material impact on the 2011
results; however, it is too early to quantify the effect of this event.
48.3 International Finance Corporation (IFC)
In February 2011, the Company announced that it had entered into discussions with IFC for the latter to
invest up to $100,000 in the Company, in the form of common and preference shares. The investment
by IFC is subject to completion of negotiations and all necessary regulatory and shareholder approvals.
The Group provides investment management, administration and corporate trust services to
investment funds and other corporate entities which involve the Group making allocation, purchase
and sale decisions in relation to a wide range of investments. These assets are held in a fiduciary
capacity and are not included in these financial statements. These services give rise to fiduciary risk
that may expose the Group to claims for mal-administration or under-performance of these funds.
In the ordinary course of business, the Group manages assets of pension funds, mutual funds, unit
trusts and other corporate entities which are not included in the Group’s financial statements. The
investments and cash under administration are as follows:
2010
2009
1,134,473
348,593
987,096
327,776
1,483,066
1,314,872
Pension and insurance fund assets
Mutual fund, unit trust and other investment fund assets
48. EVENTS AFTER DECEMBER 31, 2010
48.1 Joint venture
Sagicor Life Jamaica Ltd (SLJ) entered into a joint venture agreement with an investment services
company incorporated in Costa Rica on February 2, 2011 to explore insurance business and
insurance related services in Central America. Under the terms of the agreement SLJ will provide
technical expertise, administrative services and operating systems to support joint venture operations.
The joint venture partner will provide marketing know-how and local support to the joint venture. The
agreement is subject to regulatory approval in the applicable countries in Central America.
(cid:1)
(cid:1)
178 Sagicor Financial Corporation
All that we are is the result
of what we have thought.
SHAREHOLDER INFORMATION
SHARES
The following Shareholders own more than 5% and 3% respectively of the capital of the Company as at December 31, 2010:
Name
National Insurance Board, Barbados:
Republic Bank Limited – 1162:
Number of Shares
18,950,000
10,998,300
Percentage
6.5
3.8
The total number of common shares issued in 2010 was 438,183, which were issued on July 22, 2010 as vested restricted stock under
the Long-Term Incentive Plan for Executives (LTI). The total number of issued common shares as at December 31, 2010 was therefore
291,341,344 (2009: 290,903,161).
The Tables below show grants of restricted stock and stock options as at December 31, 2010 under the LTI.
Year
2008
2009
2009
2010
Value - US$
2.50
2.50
1.58
1.60
Totals
Award
596,914
674,828
430,122
1,033,548
2,735,412
Less: allocated for settlement of tax
Total converted to shares
RESTRICTED STOCK GRANTS
Vested 2008
Vested 2009
Vested 2010
Forfeited
Balance
298,459
0
0
0
278,505
331,449
430,122
0
298,459
1,040,076
9,216
235,530
0
379,490
624,236
(186,053)
438,183
10,734
10,106
0
0
20,840
0
97,743
0
654,058
751,801
Sagicor
Financial
Corporation
180
STOCK OPTIONS
Year
2006
2007
2008
2009
2010
Exercise
Price -
US$
Award
Awards
Lapsed /
Forfeited
Adjusted
Award
Vested
2007 -
2009
Vested
2010
Vested
Awards
Lapsed /
Forfeited
Total
Vested
Options
Exercised
Options
not
Exercised
Adjusted
Award Balance
1.98
2.01
2.5
2.5
1.6
932,387
(130,232)
802,155
699,291
198,705
(95,841)
802,155
(120,443)
681,712
681,712
2,049,598 (239,686)
1,809,912 1,024,800 452,480
(119,838)
1,357,442
(72,839)
1,284,603
1,737,073
1,422,949 (180,820)
1,242,129
355,737
310,534
(45,201)
621,070
1,595,496
(83,033)
1,512,463
2,169,066
0
2,169,066
0
0
378,117
0
0
0
378,117
0
0
0
0
621,070
1,242,129
378,117
1,512,463
0
2,169,066
Totals
8,169,496 (633,771)
7,535,725 2,079,828 1,339,836 (260,880) 3,158,784 (193,282) 2,965,502
7,342,443
DIVIDENDS
An interim dividend of US 2 cents per share, approved for the half-year ended June 30, 2010, was paid on October 15, 2010 to the
holders of common shares and depositary interests whose names were registered on the books of the Company at the close of business
on September 15, 2010. A final dividend of US 2 cents per share, payable on May 16, 2011, was approved for the financial year ended
December 31, 2010 to the holders of common shares and depositary interests whose names were registered on the books of the Company
at the close of business on April 20, 2011. The total dividend for the 2010 financial year amounted to US 4 cents per share.
Sagicor
Financial
Corporation
181
ANALYSIS OF SHAREHOLDING
Number of Shareholders by Size of Holding as at December 31, 2010 (with 2009 Comparison)
Size of Holding
Number of Shareholders
Percentage of
Shareholders
Total Shares Held
Percentage of Shares Held
1 - 1,000
1,001 - 2,500
2,501 - 5,000
5,001 - 10,000
10,001 - 25,000
25,001 - 100,000
100,001 - 1,000,000
1,000,001 - & above
2010
6,577
15,625
7,324
4,229
3,073
693
225
18
2009
6,335
15,709
7,406
4,275
3,079
690
229
17
2010
17.42
41.38
19.39
11.20
8.14
1.84
0.60
0.05
2009
16.79
41.62
19.62
11.33
8.16
1.83
0.60
0.05
2010
2009
4,014,284
3,928,961
25,962,039
26,098,842
25,430,237
25,715,179
30,231,859
31,319,508
44,284,005
44,370,941
32,351,711
32,208,066
65,236,735
65,279,966
63,830,474
61,981,698
2010
1.38
8.91
8.73
10.38
15.20
11.10
22.39
21.91
2009
1.35
8.97
8.84
10.77
15.25
11.07
22.44
21.31
Total
37,764
37,740
100.00
100.00
291,341,344 290,903,161
100.00
100.00
Number of Shareholders by Country of Residence and by Type as at December 31, 2010
Country
Directors, Management,
Staff, Advisors
Companies
Individuals
Total
Trinidad and Tobago
Barbados
Eastern Caribbean
Other Caribbean
Other
Total
Shareholders
%
Shareholders
%
Shareholders
%
Shareholders
%
61
139
25
12
11
248
24.60
56.05
10.08
4.84
4.44
100.00
468
229
32
51
5
785
59.62
29.17
4.08
6.50
0.64
15,999
12,199
7,317
193
1,023
43.56
33.20
19.92
0.53
2.79
16,528
12,567
7,374
256
1,039
43.77
33.27
19.53
0.68
2.75
100.00
36,731
100.00
37,764
100.00
Sagicor
Financial
Corporation
182
Number of Shareholders by Country of Residence and by Type as at December 31, 2009
Country
Directors, Management,
Staff, Advisors
Companies
Individuals
Total
Trinidad and Tobago
Barbados
Eastern Caribbean
Other Caribbean
Other
Total
Shareholders
%
Shareholders
%
Shareholders
%
Shareholders
%
45
133
2
6
17
182
21.98
73.08
1.10
2.75
1.10
503
256
33
51
5
59.32
30.19
3.89
6.01
0.59
16,082
11,919
7,255
350
1,083
43.83
32.49
19.77
0.95
2.95
16,630
12,308
7,290
407
1,105
44.06
32.61
19.32
1.08
2.93
100.00
848
100.00
36,689
100.00
37,740
100.00
Number of Shares by Country of Residence and by Type as at December 31, 2010
Country
Directors, Management,
Staff, Advisors
Companies
Individuals
Total
Trinidad and Tobago
Barbados
Eastern Caribbean
Other Caribbean
Other
Total
Shares
459,429
2,700,650
68,298
548,000
184,052
%
11.60
68.19
1.72
13.84
4.65
Shares
32,930,332
33,764,569
450,516
3,652,034
162,880
%
46.41
47.58
0.63
5.15
0.23
Shares
105,070,214
66,667,115
20,706,220
3,482,243
20,494,792
%
48.55
30.80
9.57
1.61
9.47
Shares
138,459,975
103,132,334
21,225,034
7,682,277
20,841,724
%
47.53
35.40
7.29
2.64
7.15
3,960,429
100.00
70,960,331
100.00
216,420,584
100.00
291,341,344
100.00
Sagicor
Financial
Corporation
183
Number of Shares by Country of Residence and by Type as at December 31, 2009
Country
Directors, Management,
Staff, Advisors
Companies
Individuals
Total
Trinidad and Tobago
524,267
10.00
44,912,819
Shares
%
Shares
3,209,019
2,884
61.18
0.05
38,272,936
523,516
1,099,146
20.96
2,920,314
409,861
7.81
890,354
%
51.32
43.72
0.60
3.34
1.02
Shares
105,512,632
64,033,380
22,104,085
1,976,788
4,511,160
%
53.25
32.32
11.16
1.00
2.28
Shares
150,949,718
105,515,335
22,630,485
5,996,248
5,811,375
%
51.89
36.27
7.78
2.06
2.00
5,245,177
100.00
87,519,939
100.00
198,138,045
100.00
290,903,161
100.00
Barbados
Eastern Caribbean
Other Caribbean
Other
Total
Sagicor
Financial
Corporation
184
ADVISORS AND BANKERS
APPOINTED ACTUARY
Sylvain Goulet, FCIA, FSA, MAAA, Affiliate Member of the (British) Institute of Actuaries
and Affiliate Member of the Caribbean Actuarial Association
AUDITORS
PricewaterhouseCoopers, Chartered Accountants
LEGAL ADVISORS
Allen & Overy LLP, New York, USA
Allen & Overy LLP, London, United Kingdom
Carrington & Sealy, Barbados
Patterson K H Cheltenham, QC, LLM, Barbados
Barry L V Gale, QC, LLB (Hons), Barbados
Hobsons, Trinidad and Tobago
Shutts & Bowen LLP, Florida, USA
BANKERS
Butterfield Bank (Barbados) Limited
FirstCaribbean International Bank Limited
RBTT Bank Limited
RBC Royal Bank (Barbados) Limited
The Bank of Nova Scotia
Sagicor
Financial
Corporation
185
OFFICES
Sagicor Corporate Head Office
SAGICOR FINANCIAL CORPORATION
Cecil F deCaires Building
Wildey, St Michael
Barbados
Tel: (246) 467-7500
Fax: (246) 436-8829
Email: info@sagicor.com
Website: www.sagicor.com
Subsidiaries
SAGICOR LIFE INC
Sagicor Financial Centre
Lower Collymore Rock
St Michael, Barbados
Tel: (246) 467-7500
Fax: (246) 436-8829
Email: info@sagicor.com
Sagicor Life Inc Branch Offices
Barbados
1st Avenue, Belleville
St Michael
Tel: (246) 467-7700
Fax: (246) 429-4148
Email: info@sagicor.com
Antigua
Sagicor Financial Centre
#9 Factory Road,
St John’s
Tel: (268) 480-5550
Fax: (268) 480-5520
Email: info_antigua@sagicor.com
Grenada
The Mutual/Trans-Nemwil Office Complex
The Villa, St George’s
Tel: (473) 440-1223
Fax: (473) 440-4169
Email: info_grenada@sagicor.com
St Lucia
Sagicor Financial Centre
Choc Estate, Castries
Tel: (758) 452-3169
Fax: (758) 450-3787
Email: info_stlucia@sagicor.com
Trinidad and Tobago
Sagicor Financial Centre
16 Queen’s Park West, Port of Spain
Tel: (868) 628-1636/7/8
Fax: (868) 628-1639
Email: comments@sagicor.com
Sagicor Life Inc Agencies
Anguilla
Malliouhana Insurance Co Ltd
Caribbean Commercial Centre
The Valley
Tel: (264) 497-3712
Fax: (264) 497-3710
Dominica
WillCher Services Inc
44 Hillsborough Street
Corner Hillsborough & Independence Street
Roseau
Tel: (767) 440-2562
Fax: (767) 440-2563
Email: info_dominica@sagicor.com
Guyana
Hand-in-Hand Mutual Life Assurance Company
Limited
Lots 1, 2 and 3, Avenue of the Republic
Georgetown
Tel: (592) 251861
Fax: (592) 251867
Montserrat
Administered by Antigua Branch
St Kitts
Sagicor Life Inc
C/o The St Kitts Nevis Anguilla Trading and
Development Co. Ltd
Central Street, Basseterre
Tel: (869) 465-9476
Fax: (869) 465 6437
St Vincent
Incorporated Agencies Limited
Kenmars Building, Halifax Street
Kingstown
Tel: (784) 456-1159
Fax: (784) 456-2232
SAGICOR GENERAL INSURANCE INC
Beckwith Place, Lower Broad Street
Bridgetown, Barbados
Tel: (246) 431-2800
Fax: (246) 426-0752
Email: sgi-info@sagicorgeneral.com
Sagicor
Financial
Corporation
186
Sagicor General Insurance Branch Offices
Barbados
Mall Internationale
Haggatt Hall
St Michael
Tel: (246) 431-2886
Fax: (246) 426-8245
Sagicor Financial Centre
Lower Collymore Rock
St Michael
Tel: (246) 467-7650
Fax: (246) 428-6269
Building #2
Chelston Park
Culloden Road
St Michael
Antigua
Sagicor Life Inc
Sagicor Financial Centre
9 Factory Road
PO Box 666
St Johns
Trinidad and Tobago
Sagicor Financial Centre
16 Queen’s Park West
Port of Spain
Tel: (868) 628-1636/7/8
Fax: (868) 628-1639
Sagicor General Insurance Agencies
HHV Whitchurch & Company Limited
Old Street
PO Box 771
Roseau
Dominica
Tel: (767) 448-2181
Fax: (767) 448-5787
WillCher Services Inc
44 Hillsborough Street
Corner Hillsborough & Independence Street
Roseau
Dominica
Tel: (767) 440-2562
Fax: (767) 440-2563
JE Maxwell & Company Limited
PO Box GGM507
Bridge Street
Castries
St Lucia
Tel: (758) 451-7829
Fax: (758) 451-7271
GLOBE FINANCE INC
6 Rendezvous Court, Rendezvous Main Road
Christ Church, Barbados
Tel: (246) 426-4755
Fax: (246) 426-4772
Website: www.globefinanceinc.com
SAGICOR FUNDS INCORPORATED
Sagicor Corporate Centre, Wildey
St Michael, Barbados
Tel: (246) 467-7500
Fax: (246) 436-8829
Email: info@sagicor.com
SAGICOR ASSET MANAGEMENT INC
Sagicor Corporate Centre
Wildey, St Michael,
Barbados
Tel: (246) 467-7500
Fax: (246) 426-1153
Email: info@sagicor.com
SAGICOR FINANCE INC
Sagicor Financial Centre
Choc Estate, Castries
Tel: (758) 452-4272
Fax: (758) 452-4279
SAGICOR ASSET MANAGEMENT (TRINIDAD
AND TOBAGO) LIMITED
Sagicor Financial Centre
16 Queen’s Park West, Port of Spain
Tel: (868) 628-1636/7/8
Fax: (868) 628-1639
NATIONWIDE INSURANCE COMPANY
LIMITED
Sagicor Financial Centre
16 Queen’s Park West
Port of Spain, Trinidad
Tel: (868) 628-1636
Fax: (868) 628-1639
Email: comments@sagicor.com
Sagicor
Financial
Corporation
187
BARBADOS FARMS LIMITED
Bulkeley
St George
Barbados
Tell: 427-5299
Fax: 437-8873
SAGICOR PANAMA SA
Ave Samuel Lewis y Calle Santa Rita
Edificio Plaza Obarrio
3er Piso Oficina 201
Panama City, Panama
Tel: (507) 223-1511
Fax: (507) 264-1949
Email: capital1@sinfo.net
SAGICOR CAPITAL LIFE INSURANCE
COMPANY LIMITED
Registered Office
M B & H Corporate Services Limited, Mareva
House,
4 George Street,
Nassau, Bahamas
Sagicor Capital Life Branch Offices
Belize
The Insurance Centre
212 North Front Street
Belize City
Tel: (501) 223-3147
Fax: (501) 223-7390
Email: capitalbe@btl.net
Curaçao
Schottegatweg Oost #11
Tel: (599) 9 736-8558
Fax: (599) 9 736-8575
Email: capital.life@curinfo.an
Sagicor Capital Life Agencies
Curaçao
Guillen Insurance Consultants
PO Box 4929
Kaya E, Salas No 34
Tel: 011-5999-461-2081
Fax: 011-5999-461-1675
Email: chris-guillen@betlinks.an
Haiti
Cabinet d’Assurance Fritz de Catalogne
Angles Rues de Peuple et des Miracles
Port-au-Prince
Tel: (509) 226695
Fax: (509) 230827
Email: capital@compa.net
St Maarten
C/o Charlisa NV, Walter Nisbeth Road #99B
Phillipsburg
Tel: (599) 542-2070
Fax: (599) 542-3079
Email: capital@sintmaarten.net
CAPITAL LIFE INSURANCE COMPANY
BAHAMAS LIMITED
C/o ColinaImperial Insurance Limited
56 Collins Avenue, P O Box 4937
Nassau, Bahamas
Tel: (242) 393-9518
Fax: (242) 393-9523
SAGICOR LIFE ARUBA NV
Fergusonstraat #106
AHMO Plaza Building, Suites 1 and 2
Oranjestad, Aruba
Tel: (297) 823967
Fax: (297) 826004
Email: calico@setarnet.aw
Lyder Insurance Consultants
Seroe Blanco 56A
Tel: (297) 582-6133
LOJ HOLDINGS LTD
28-48 Barbados Avenue
Kingston 5, Jamaica
Tel: (876) 929-8920(-9)
Fax: (876) 960-1927
SAGICOR LIFE JAMAICA LIMITED
28-48 Barbados Avenue
Kingston 5, Jamaica
Tel: (876) 929-8920(-9)
Fax: (876) 960-1927
Website: www.sagicorjamaica.com
Sagicor
Financial
Corporation
188
EMPLOYEE BENEFITS ADMINISTRATORS LTD
28-48 Barbados Avenue
Kingston 5, Jamaica
Tel: (876) 929-8920(-9)
Fax: (876) 960-1927
Website: www.sagicorjamaica.com
HEALTH CORPORATION JAMAICA LTD
ST ANDREW’S DEVELOPERS LIMITED
SAGICOR INSURANCE BROKERS LIMITED
SAGICOR LIFE OF THE CAYMAN ISLANDS
LIMITED
Global House, 198 North Church Street
George Town, Grand Cayman
Cayman Islands
Tel: (345) 949-8211
Fax: (345) 949-8262
Email: global@candw.ky
SAGICOR INSURANCE MANAGERS LIMITED
1st Floor Harbour Place
103 South Church Street
George Town
Grand Cayman
Tel: (345)-949-7028
Fax: (345)-949-7457
SAGICOR PROPERTY MANAGEMENT
SERVICES LTD
78a Hagley Park Road,
Kingston 10,
Jamaica
Telephone: (876) 929-9182-6
Facsimile: (876) 929-9187
SAGICOR RE INSURANCE LTD
Global House, 198 North Church Street
George Town, Grand Cayman
Cayman Islands
Tel: (345) 949-8211
Fax: (345) 949-8262
Email: global@candw.ky
LESTED DEVELOPERS LIMITED
PANCARIBBEAN FINANCIAL SERVICES
LIMITED
Pan Caribbean Building
60 Knutsford Boulevard
Kingston 5, Jamaica
Tel: (876) 929-5583-4
Fax: (876) 926-4385
Website: www.gopancaribbean.com
Email: options@gopancaribbean.com
PANCARIBBEANBANK LIMITED
PANCARIBBEAN INVESTMENTS LIMITED
PANCARIBBEAN ASSET MANAGEMENT
LIMITED
PANCARIBBEAN SECURITIES LIMITED
MANUFACTURERERS INVESTMENTS LIMITED
SAGICOR USA, INC
4010 Boy Scout Blvd, Suite 800
Tampa, Florida 33607
USA
Telephone: 813-287-1602
Fax: 813-287-7420
SAGICOR LIFE INSURANCE COMPANY
4343 N. Scottsdale Road, Suite 300
Scottsdale, Arizona
85251
Tel: 1-800-531-5067
Fax: (345) 949-8262
Website: www.sagicorlifeusa.com
LAUREL LIFE INSURANCE COMPANY
SAGICOR EUROPE LIMITED
Maples Corporate Services Limited
Ugland House
South Church Street
George Town, Grand Cayman
Cayman Islands
SAGICOR CAYMAN REINSURANCE, LTD
Maples Corporate Services Limited
Ugland House
South Church Street
George Town, Grand Cayman
Cayman Islands
SAGICOR AT LLOYD’S LIMITED
1 Great Tower Street
London
United Kingdom
EC3R 5AA
Tel: +44 (0)20 3003 6800
Fax: +44 (0)20 3003 6999
Website: www.sagicor.eu
Email: info@sagicor.eu
SAGICOR SYNDICATE HOLDINGS LIMITED
SAGICOR SYNDICATE SERVICES LIMITED
SAGICOR CLAIMS MANAGEMENT INC
Sagicor
Financial
Corporation
189
SAGICOR CORPORATE CAPITAL LIMITED
SAGICOR COPORATE CAPITAL TWO LIMITED
LLOYD’S SYNDICATE 1206
LLOYD’S SYNDICATE 44
SAGICOR UNDERWRITING LIMITED
1 Great Tower Street
London
United Kingdom
EC3R 5AA
Tel: +44 (0)20 3003 6969
Fax: +44 (0)20 3003 6997
Website: www.sagicorunderwriting.com
Email: sul@sagicor.eu
SAGICOR FINANCE LIMITED
Maples Corporate Services Limited
Ugland House
South Church Street
George Town, Grand Cayman
Cayman Islands
Associated Companies
FAMGUARD CORPORATION LIMITED
East Bay & Shirley Street
PO Box SS-6232
Nassau, NP
Bahamas
Tel: (242) 396 4000
Fax: (242) 393 1100
Website: www.famguardbahamas.com
RGM LTD
Albion Plaza Energy Centre,
22-24 Victoria Avenue,
Port of Spain,
Trinidad W.I.
Office: (868) 625-6505 ext. 26
Fax: (868) 624-7607
Mobile: (868) 678-3181
Direct: (868) 624-6975
Email: gpd@rgm.co
Sagicor
Financial
Corporation
190
Cover Design: Blammo Worldwide
Layout and Artwork: GENESIS Graphics
Pre-Press and Printing: COT Media Group