Sagicor Financial Company Ltd. Annual Report 2012

FY2012 Annual Report · Sagicor Financial Company Ltd.

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Stability

The greatest house is nothing without its foundation.
In a world where even the slightest financial tremors
reverberate around the globe, Sagicor is built on solid
ground. It is our responsibility to those we serve, to our
shareholders, and to ourselves to take every measure
to protect our future, and to ensure that we stay strong,
secure and stable through whatever comes our way.

To be a great company,
committed to improving
the lives of people in
the communities in
which we operate.

ConTenTs

2012 Annual Report

Plan

Strengthen

SuPPort

overview

Chairman’s statement
Financial Highlights

10
12

Corporate & social Responsibility
Human Capital Report

16
24

Provide

adviSe

lead

operating & Financial Review

Board of Directors

Corporate Governance

accomPliSh

Protect

contribute

executive Management

Index to the Financial statements
Financial statements
notes

68
72
77

shareholder Information

182

communicate

Advisors & Bankers
offices

192
193

Sagicor Financial Corporation
Plan

The road ahead is not set.
It is up to us to plan it.

2012 Annual Report oveRvIew

Sagicor is synonymous with world-class financial services. Our vision is
“To be a great company committed to improving the lives of people in
the communities in which we operate.”

With a proud history dating back to 1840, Sagicor is a dynamic,
indigenous Group which has been redefining financial services in the
Caribbean, building a strong base from which it has expanded into
the international financial services market. Sagicor now operates in
22 countries in the Caribbean, Latin America, the UK and the US. In
2002, after 162 years as the Barbados Mutual Life Assurance Society,
the company demutualised with the overwhelming support of its
policyholders, and Sagicor Financial Corporation was formed as a
publicly listed holding company. Sagicor, the new company name,
means “wise judgment” and reflects a new vision for financial advice
and services. For 170 years, we have worked to help families by providing
the assurance and peace of mind needed, especially during their most
challenging times. This will never change.

Our name and identity draw on the strength, stability and financial
prudence that are our heritage, but this identity also represents the
freedom that wise financial thinking can bring to our Customers
throughout their lives. Through a wide range of financial products and
services, Sagicor offers “wise judgment” throughout the entire life
cycle – whether it is the purchase of a new home, planning a child’s
future and higher education, retirement, or simply providing security for
loved ones. Sagicor will meet financial needs now and for the future.

Sagicor’s objective is to continue to create a leading international
financial services group which provides world class products
and services to Customers, while generating excellent returns for
Shareholders. The six key strategic areas that inform our current
strategic plan are:

•

Profitability

Liquidity

• Capital Management

• Human Resource Management

•

Information Technology Management

• Corporate Communications, Corporate Social Responsibility

and Marketing Management

Sagicor Financial Corporation
Strengthen

Every day we move forward,
we become that much stronger.

2012 Annual Report CHAIRMAn’s sTATeMenT

stephen Mcnamara
Chairman

The Sagicor Group recorded net income from continuing operations of
US$ 74.1 million for the year to December 31, 2012, a modest reduction
from US$ 75.7 million achieved for the previous year.

Net income from continuing operations attributable to shareholders
improved to US$ 52.4 million from the corresponding amount of
US$ 44.8 million for 2011. Earnings per common share from continuing
operations totalled US 16.8¢ and represents a return on common
shareholders’ equity of 9.5%. These results are very encouraging and
provide shareholders with a reasonable level of return.

The Group’s financial statements in 2012 have been presented with
continuing operations being separated from the discontinued Sagicor
Europe operations. In December 2012, the Board and Management
made the determination that the Sagicor Europe operations, comprising
our Sagicor at Lloyd’s insurance business, would be divested and
the Group would realise its value through a sale of the business. In
accordance with International Financial Reporting Standards, the assets
and liabilities associated with Sagicor Europe are presented separately in
the statement of financial position, and the revenues, benefits, expenses
and cash flows are also separated in the financial statements with the
2011 comparative amounts presented likewise.

Revenue from continuing operations totalled US$ 1,064.4 million and
increased from the comparative amount of US$ 944.5 million for 2011.
This growth of 13% in revenue is attributable to increased net premiums
of US$ 60.5 million, increased investment income of US$ 17.5 million
and increased other revenue of US$ 42.0 million. Other revenues in
2012 benefited from one-off items, notably a gain on the recapture of a
previously reinsured block of policies.

Total benefits incurred from continuing operations totalled US$ 639.4
million as compared to US$ 541.8 million in 2011. The increase in
benefits arose from an increase of US$ 38.1 million in policy benefits
and more significantly from an increase in future policy benefits of
US$ 62.0 million. The increase in future benefits has been impacted by
the reducing yields on investment income in 2012 compared to 2011,
as future benefits have to be set aside now to offset lower expected
investment income in the future.

Sagicor Financial Corporation
2012 Annual Report

Total expenses from continuing operations amounted to US$ 326.5
million, an increase of US$ 21.3 million or 7.0% over the prior year.

As indicated in a foregoing paragraph, the Sagicor Europe results
have been classified as discontinued. These operations had another
disappointing year, with the incidence of large losses and catastrophe
loss movements being recorded, resulting in an operating loss of
US$ 15.6 million. Though this is an improvement over the operating loss
of US$ 43.2 million incurred in 2011, the result is still disappointing.
After including taxation, finance, currency exchange and impairment
charges, the net loss associated with this business totalled US$ 42.0
million (2011 - US$ 43.9 million). Sagicor is currently engaged in a sale
process with prospective buyers and we anticipate a sale of the business
in the very near future.

Overall, after including discontinued operations, the net income
attributable to shareholders was US$ 10.4 million in 2012 and US$ 1.0
million in 2011.

In the consolidated statement of financial position, assets amounted
to US$ 5.5 billion. Of this US$ 4.8 billion is attributable to continuing
operations and the remaining US$ $0.7 billion is associated with the
discontinued operation. Total liabilities are recorded at US$ 4.7 billion,
of which US$ 4.1 billion is attributable to continuing operations and
the remaining US$ $0.6 billion is associated with the discontinued
operation.

Total equity was US$ 818.6 million as of December 31, 2012 (2011
- US$ 797.5 million). Sagicor’s debt to equity ratio was 29.5% as of
December 31, 2012 (2011 - 29.2%).

Subsequent to the end of the year, the Government of Jamaica (GOJ)
announced the National Debt Exchange (NDX) programme. This is
a programme where government debt securities are exchanged for
replacement securities with a lower interest rate and longer tenor,
to enable the GOJ to reduce its debt service levels and facilitate an
agreement with the International Monetary Fund and for international
lenders to provide funding for the further development of Jamaica.
Sagicor’s Jamaican operations have agreed to participate in this
programme. The NDX announcement led to a downgrade of the

Government of Jamaica’s credit rating by Standard and Poor’s (S&P)
and consequently to a downgrade of the Sagicor Group’s credit rating
to BB+. These developments illustrate the continuing fiscal and
economic challenges faced by many countries in the Caribbean. The
NDX programme is not expected to significantly impact the long-term
profitability of the Sagicor Group

Also subsequent to the end of the year, Sagicor completed the
acquisition of the traditional life insurance policies of British American
Insurance Company Limited in the Eastern Caribbean. These policies
number approximately 17,500 and we welcome these Policyholders as
Sagicor’s newest Customers.

As the Group moves to complete the disposal of its Sagicor Europe
operations, the Board and Management will focus exclusively on
maintaining the good results achieved for the continuing operations and
enhancing them even through these challenging economic conditions.

The Board has declared half-yearly dividends of US 3.25¢ per preference
share and US 2.0¢ per common share payable on May 15.

On behalf of the Board of Sagicor, I wish to thank our Policyholders and
Clients for their continued support.

Stephen McNamara
Chairman

April 2, 2013.

Sagicor Financial Corporation
12

2012 Annual Report

FInAnCIAl HIGHlIGHTs

Amounts in US$ millions unless otherwise stated

NET INCOME 1

DIVIDENDS

SHAREHOLDER RETURNS

BOOK VALUE PER SHARE
Amounts in US cents

300

200

100

2012

2011

2012

2011

2012

2011

1 from continuing operations

NET INCOME

100

1500

1000

500

2011
Earnings per share 1 16.8¢ 15.1¢
9.5% 8.2%

2012

Return on shareholder’s equity 1

GROUP RESULTS 1

REVENUE

BENEFITS

1000

500

2012

2011

2012

2011

2012

1 from continuing operations

Income before taxes
Total comprehensive income

2011

2012
99
58

2011
98
75

Sagicor Financial Corporation

2012 Annual Report

Amounts in US$ millions unless otherwise stated

GROUP FINANCIAL POSITION

ASSETS

OPERATING LIABILITIES

EQUITY & DEBT CAPITAL

6,000

5,000

4,000

5,000

4,000

3,000

1,500

1000

500

2012

2011

2012

2011

2012

2011

2012

2011
Debt to Equity 29.5% 29.2%
253% 229%

MCCSR

SAGICOR LIFE INC - NET INCOME

SAGICOR JAMAICA- NET INCOME

SAGICOR USA - NET INCOME

SEGMENT RESULTS

100

2012

2011

2012

2011

2012

2011

Revenue
Assets

2012
340

2011
328
1,610 1,488

Revenue
Assets

2012
448

2011
433
1,893 1,864

Revenue
Assets

2012
236

2011
143
1,219 1,102

Sagicor Financial Corporation

SuPPort

We all depend on each other for support.
Without one another, we are truly alone.

2012 Annual Report

CoRpoRATe soCIAl ResponsIBIlITy

Sagicor’s view of the importance of corporate social responsibility
is summarised in its vision - “To be a great company, committed to
improving the lives of people in the communities in which we operate.”
During 2012, the Sagicor Group of Companies continued to play an
active part in its various communities around the world.

In the area of health, SLIC continued its support of the Phoenix
Children’s Hospital with its corporate donation, and staff members
volunteered to answer phones during the annual Radio-thon fundraiser.
Funds raised go directly to critical programmes and services to patients
and their families.

United states of America

In the United States of America, it was another busy year of volunteerism
and community involvement for Sagicor Life Insurance Company (SLIC).
Their primary focus was on sports, youth, health and education in
Florida.

In 2012 Sagicor sponsored
football, men’s and women’s
basketball and baseball
programmes at the Arizona
State University (ASU). ASU is
one of the largest universities
in the nation, with over 73,000
students.

The Muscular Dystrophy Association was the recipient of funds raised
during the Sagicor-sponsored 12th Annual Taste of the Town in October
2012. This event showcases signature dishes from some of the finest
restaurants in the Scottsdale area, complemented with fine wine and live
music. Proceeds benefit more than 2,400 Arizona families affected by
neuromuscular diseases.

Sagicor staff members in Scottsdale, Arizona participated in the Relay
for Life Walk by the American Cancer Society, raising money through
donations for those participating in the Walk. They also supported their
local Salvation Army and its Hydration Station Initiative by donating
over 30,000 bottles of water to the cause. An initial supply of water
was purchased by SLIC to get the collection started. However, the vast
majority of the water was purchased and donated by staff members.
Equally impressive was the decision by staff members to rent a truck,
load the water, and deliver it to the Salvation Army for final distribution.
The Salvation Army’s Hydration Stations are set up at a number of

street locations during the summer, providing some of the
neediest with water so that they can stay hydrated during
the hot weather.

SLIC continued its sponsorship of the NFL’s Arizona
Cardinals in 2012. The community outreach programme
with the Cardinals focused on three initiatives: the Annual
Holiday Food Drive, the Hometown Huddle Football
Camps and the Reading with Big Red programme. Each
year, prior to the Thanksgiving holiday, Sagicor and
the Arizona Cardinals sponsor a Food Drive to benefit

1. Sagicor signage at an Arizona State University (ASU) basketball game.

2. Bart Catmull, President and COO of Sagicor Life Insurance Company,
presents a donation to the Phoenix Children’s Hospital at their annual
telethon.

Sagicor Financial Corporation
2012 Annual Report

the St. Mary’s Food Bank Alliance. Sagicor staff members volunteer
to collect non-perishable goods at a Cardinal home game from fans
donating items as they go into the stadium.

The Hometown Huddle programme brings Cardinal players and Sagicor
volunteers together to provide a day of exercise and fun for children. In
2012, the Hometown Huddle was held at the Wilson Elementary School,
and over 100 children participated.

The Reading with Big Red programme involves a Cardinal football player,
the Cardinals mascot, Big Red, and Sagicor volunteers. The purpose of
the programme is to promote reading. The selected school in 2012 was
the Wilson Elementary School in Phoenix, Arizona. Wilson Elementary
serves some of the most disadvantaged children in the Phoenix area.
SLIC adopted a class at the school and provided a holiday party and gifts
for the entire class.

Habitat for Humanity is dedicated to eliminating sub-standard housing.
The organisation utilises volunteers from the community, corporations
and educational institutions to build homes for those in need. In 2012,
Sagicor staff members volunteered for several Habitat for Humanity
projects. Sagicor staff members gave their time and efforts, working
side-by-side with the future homeowners to complete Habitat home
projects throughout the year.

In the Metropolitan Phoenix area, SLIC partnered with the Boys & Girls
Club, providing volunteers throughout the year to work with children.
The Boys & Girls Club provides programmes and guidance to children
with the ultimate goal of helping them to reach their full potential as
productive, caring and responsible citizens.

In Tampa, Florida, SLIC and its staff members sponsored and
volunteered for several projects. Staff participated and solicited
donations for the fourth consecutive year in the Arthritis Walk-a-thon.
Sagicor was a Silver Sponsor for the event in 2012, and Bart Catmull
(President and COO) served as the Corporate Honorary Chair. He
gave the keynote speech at the kick-off luncheon, and welcomed the
participants on the day of the event.

For the third consecutive year, SLIC was the premium sponsor of
the Lowry Park Zoo’s two annual 5K runs, with all proceeds going to

Sagicor Career Agents with participants at the 7th Annual Zoo Zoom Run.

support the Zoo. The runs have grown both in the number of runners
participating and in the amount of money raised each year. In 2012,
Sagicor increased its sponsorship of the Zoo by not only sponsoring
the runs, the “Zoo Zoom Run” in the Spring and the “Zoo Run Run” in
Fall, but also by sponsoring the Malayan Tiger Exhibit. Malayan Tigers
are considered to be a critically endangered species and the Zoo has
a fabulous exhibit highlighting these beautiful animals. Visitors at the
Zoo will now see the Sagicor logo on the sign at the exhibit as they read
about and see the Malayan Tigers.

2012 marked the fifth year of SLIC’s sponsorship of the University
of South Florida (USF) football and basketball programmes. Sagicor
was also involved with USF Business Department, working with the
Department and their graduate students in conducting “real world”
marketing research projects.

Sagicor continued its support of All Children’s Hospital through its
partnership with the Tampa Bay Rays Major League Baseball team and
participated in the hospital’s Annual Telethon. During the season, Tampa
Bay Rays players, along with Sagicor staff, conducted a series of visits
to the hospital during which Players autographed Sagicor/Rays baseball
shaped pillows. In addition to making a donation to the Hospital’s
largest fundraiser for the fourth consecutive year, SLIC staff volunteered
to answer phones during the Telethon.

SLIC added another element to the Rays’ partnership with a sponsorship
called Sagicor’s Tuesday Champion. At every Tuesday’s home game,
Sagicor hosted a child from the Make-A-Wish Children’s Dream Fund
for a special day at the ballpark as the Tuesday Champion. Tuesday’s

Sagicor Financial Corporation
18

2012 Annual Report

Finalists at the 18th
Tower Hamlets Schools’
Public Speaking
Competition at Lloyd’s
Old Library, with
Sagicor at Lloyd’s
Paul Marden, Head of
Marketing (far right).

United Kingdom

Sagicor at Lloyd’s (SaL) again signed up to Lloyd’s community
programme as part of its corporate social responsibility policy. SaL staff
were also heavily involved in volunteering to make their local community
stronger.

Right next door to Lloyd’s is a square mile of the most diverse of
communities in East London. Like many city areas, it has more than its
fair share of socio-economic challenges, ranging from children who need
help with literacy and numeracy, to young teenagers struggling to find
work, and run-down areas that need to be revitalised.

Champion is an opportunity for children battling life-threatening
illnesses to enjoy a once-in-a-lifetime experience, interacting on the field
with players during batting practice, receiving a bat and a ball to be used
to get autographs from the players, and throwing the first pitch of the
game. With their families in attendance, many of the children selected
came straight from the hospital to the game.

SaL is involved with a number of initiatives in East London. In
partnership with the Globe Primary School’s Words & Numbers, SaL
staff members volunteer as reading and number partners, in an effort
to improve the children’s literacy and numeracy skills. They spend their
lunchtime working with individual children to make numbers fun, and
helping them develop their reading abilities.

The class adopted by the SLIC staff in Tampa was the 3rd grade class of
Booker T. Washington. For the past three years, they have helped finance
and provide assistance for the end-of-the-school-year Carnival, and
hosted a holiday party for the entire class at the Lowry Park Zoo.

SLIC, along with other companies in the area, partnered with
Hillsborough County Education Foundation to collect school supplies
for the 2012 school year. The Tampa office divided into teams, and were
very competitive to see which one could collect the most supplies. The
Hillsborough Education Foundation serves students, teachers and
schools by bridging the gap between student needs and public funding.

In March 2012, SLIC opened its newest U.S. office in Plantation,
Florida. Shortly thereafter, it launched its community involvement with
a donation to the Miami Children’s Hospital by sponsoring six bunkers
for the Hospital’s Annual Golf Invitational. SLIC also funded two other
programmes associated with the Hospital: the ‘Kids with Cancer Outing’
and Vital Flights, an organisation that works closely with the Hospital to
provide air transportation to critically ill children receiving treatments at
medical facilities away from their homes.

SaL continues to grow its partnership with the Globe, helping to manage
and make donations towards stalls for the Summer and Christmas
Fayres. Paul Marden, SaL’s Head of Marketing, Communications and
Corporate Social Responsibility, is now one of the Governors of the
Globe Primary School, helping to continue the good work taking place
there as part of the Lloyd’s Mentoring Scheme.

SaL staff have also partnered with students from Cambridge Heath Sixth
Form College in Tower Hamlets to help them through what is a very
challenging time. Using their knowledge and experience, the volunteers
arrange to meet with students on a monthly basis to advise them on
exam techniques, university choices, the world of work and more.

Passing on our passion for sports, SaL volunteers will again be
participating in the Lloyd’s Community Programme supporting Tower
Hamlets School Sports Partnership (THSSP) Annual Spring and
Summer Games. THSSP trains young people to organise and administer
after-school sports clubs. There are currently 32 clubs, covering all
primary schools in Tower Hamlets, with up to 1,200 children attending
the clubs each week.

Sagicor Financial Corporation
2012 Annual Report

Sagicor Life Advisor,
Eural Baptiste
(center), presenting
a donation towards
the Youth Internship
Programme, to
Mr. Leslie Emanuel,
Executive Director of
DPINAC Inc., and
Ms. Damisha Boyer.

The Spring and Summer Games attract over 800 children, between
the ages of 8-10 years from the various clubs. During the Games, they
have the opportunity to take part in competitive tournaments, including
Athletics, Cricket, Football, Tag-Rugby, Badminton and Fencing, and
to try out new sports including Judo, Ultimate Frisbee, Golf and
Skateboarding.

Still in the area of sports, SaL continued to sponsor their Annual
Sporting Lunch to raise funds for the ‘Willow Foundation’, a charity
dedicated to bringing special days to the seriously ill who are between
the ages of 16 and 40 years who live in the United Kingdom.

The Caribbean

2012 marked a new chapter in Sagicor Life Inc’s (SLI)efforts to sensitise
Caribbean citizens about the threat of Chronic Non-communicable
Disease (CNCDs). In Barbados and the Eastern Caribbean, CNCDs
account for approximately 77% of deaths each year. Sagicor Life Inc is
committed to supporting and implementing strategies which can help
decrease the number of reported cases of CNCDs across the region and
their resulting negative social and economic effects.

SLI, represented by Mr. J. Edward Clarke, COO of SLI and General
Manager Barbados Operations, and the Healthy Caribbean Coalition
(HCC), represented by Professor Trevor Hassell, President of the
HCC formalised a Memorandum of Understanding (MOU) during a
signing ceremony at the United Nations Development Programme
Headquarters.

Under the MOU, Sagicor Life Inc will make an annual contribution to
HCC until 2015. This much-needed contribution will enable the regional
organisation to establish a Secretariat to manage programmes for the
prevention and management of chronic diseases among Caribbean
people. In addition, HCC has made a commitment to prepare and
implement a Caribbean Civil Society Action Plan for tackling CNCD, over
the next four years.

As a testament to its commitment to reducing the level of CNCD
in the region, SLI also signed a three-year Memorandum of
Understanding for the establishment of a new research and teaching
position in Health Economics at the Chronic Disease Research Centre

(CDRC) at the Cave Hill Campus of the University of the West Indies. The
research that will be conducted will help determine the economic and
financial impact of CNCDs as well as provide insight for governments
and non-governmental organisations which are currently striving to find
solutions to the issues caused by the rise in CNCDs, across the region.

In a continuing effort to bring positive change and awareness in
the community, SLI made a contribution to the Disabled Peoples’
International North America and the Caribbean Incorporated (DPINAC
Inc.) in late 2012.

With seed financial support from SLI, The DPINAC Inc. will launch a
Youth Internship Programme aimed at exposing young persons between
the ages of 21 - 25 without disabilities, to the issues facing persons with
disabilities. The objectives of the programme are to create a core of
young persons without disabilities who:

• Are trained in and sensitised to the issues of disability
• Can become activists in mainstream society for and on behalf
of persons with disabilities and the movement of persons with
disabilities in general

• Are trained in research, communication and organisational

management skills

Sagicor Financial Corporation
20

2012 Annual Report

• Are sensitised to the operations of Disabled Peoples’ International
(DPI) and its regions including DPINAC Inc., and the disability
movement in general.

The first candidate of the Youth Internship Program is Miss Damisha
Boyer, a 22-year-old female undergraduate student of the University of
the West Indies, majoring in Economics and Management, who has
already participated in a voluntary one-month orientation process from
July 2, 2012.

The importance of leading healthy, active lifestyles cannot be overstated.
Regular exercise and a healthy diet can help in the management and
prevention of many chronic non-communicable diseases affecting the
region today. It is fitting, therefore, that young people should lead the
way. As a company that values and supports initiatives which promote
healthy living, SLI has been pleased to lend its support, over the past
twenty one years, as title sponsor of the Annual OECS Swimming
Championships.

In 2012, the Championships were held in Antigua & Barbuda. During
the weekend event, junior athletes from across the region were given
a chance to hone their skills as they competed against their OECS
counterparts. It is hoped that the OECS Championships will not only
provide a training ground for future champions, but that the experience
will also cultivate sportsmanship and regional integration.

Each year, the standard of the event has been raised as the number of
talented swimmers qualifying increases. This is especially evident in
Antigua & Barbuda, where there has been a proliferation in the number
of swim clubs.

For the past seventeen years, SLI has continued its support of youth
development initiatives in St. Vincent, through its work with the Coast
Guard Youth Development Programme. Executed in partnership with
the St. Vincent and the Grenadines Coast Guard, the programme is
designed to cultivate well-rounded young people, between the ages of 14
and 18. The 2012 programme consisted of three phases and provided
training for 125 participants to prepare them for the many challenges of
life, as well as a greater appreciation for the role of the Coast Guard and
the many skills it entails.

Sagicor Life Agency Manager, Stanley Browne, presenting a Certificate of Completion to a
graduate of the St Vincent and the Grenadines Coast Guard Programme.

2012 was the fourteenth year of the Sigma Corporate Run organised by
Sagicor Investments, the largest 5k road race in the region, with over
16,000 participants. Sagicor Investments, together with Sagicor Life
Jamaica (SLJ), raised funds for Chain of Hope Jamaica, in support of the
Bustamante Hospital for Children’s Cardiac Unit, the 2012 beneficiary of
the Sigma Corporate Run.

Sagicor Bank continued its support in the area of sports with
sponsorship of three Tennis tournaments, the Davis Cup, the All Jamaica
Junior Tennis Tournament and the Junior Classic Tournament. The
tournaments have grown significantly since Sagicor Bank’s alliance in
2009. Participants have gone on to represent themselves and Jamaica at
both the regional and international levels.

Sagicor Bank and Investments continued its drive to assist students
at the University Level with bursaries to both the University of
Technology and the University of the West Indies. In addition, SLJ gave
14 scholarships to Grade Six Achievement Test (GSAT) students and
16 prizes to the Champion Boy and Girl from the Jamaica Teachers’
Association/Sagicor Primary and Junior High Athletic Championships.
On entering high school the latter will receive full scholarships.

Sagicor Financial Corporation
2012 Annual Report

GEM, an acronym for Greatness Exists in Me, is a local pantomime
designed to develop both the confidence and talent of young people.
This is in keeping with Sagicor’s Vision and the reason why SLJ ensured
that approximately 350 students from the inner-city and children’s
homes across the island were exposed to the GEM Pantomime.

At Sagicor, we believe that students develop overall performance
skills, improve personal confidence and master the ability to focus on
outcomes when they are actively involved in sports. One such event
which has provided this kind of opportunity in Trinidad & Tobago
is the 10th Sagicor Junior Tennis Tournament. The event attracted
approximately 150 young tennis enthusiasts.

Corporate Initiatives

The Sagicor West Indies Cricket High Performance Centre (Sagicor
HPC) continues to be the single largest investment by the Sagicor
Group of Companies. Based at the 3Ws Oval of the Cave Hill Campus
of the University of the West Indies, the Sagicor HPC 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.

The results from the Sagicor HPC programme continue to be lauded as a
step in the right direction for revitalising the performance of West Indies
cricket.

In 2012, the Sagicor Visionaries’ Challenge was conceptualised by
Sagicor and the Caribbean Science Foundation (CSF), in partnership
with the Caribbean Examinations Council (CXC).

The aim of both Sagicor and the CSF is to improve the lives of the people
in the communities in which they are based. All three organisations
share the belief that, through the integration and application of Science,
Technology, Engineering and Maths (STEM), communities will facilitate
nationwide education and foster the care needed to bring about
sustainable Caribbean communities. This was the thinking behind the
Sagicor Visionaries Challenge.

Following the decision by the Sagicor Group to partner with the CSF and
the CXC, Trinidad and Tobago undertook a National STEM Awareness
Campaign in the twin-island Republic. Its purpose was threefold -
to stimulate excitement primarily in the education system and, by
extension, the general public of Trinidad and Tobago and Sagicor’s
Staff, to the wonderful world of Science, Technology, Engineering and
Mathematics; to make STEM, a common acronym in the vocabulary
of youths, parents and teachers and to show how STEM will lead to
sustainability by changing lives for the better. The campaign was a
resounding success.

During 2012, the Sagicor Visionaries’ Challenge engaged secondary
school students and teachers in 12 countries; Anguilla, Antigua &
Barbuda, Belize, Barbados, Dominica, Grenada, Guyana, Jamaica,
St. Kitts & Nevis, St. Lucia, St. Vincent & the Grenadines and Trinidad &
Tobago.

This competition was formally launched in January 2013 and over 170
projects were submitted. It required students to work with a teacher at
their institution to identify a problem facing their school or community,
and using STEM, develop effective, innovative and sustainable solutions
to the problem identified. Participation in the Challenge is intended to:

• Ignite an interest in innovation among youth, through STEM, to

help build and integrate sustainable communities throughout the
Caribbean.

• Integrate knowledge gained from formal and informal education to
enable tomorrow’s leaders to build a more sustainable Caribbean.
• Encourage and boost institutional capacity in STEM in secondary

schools within the region.

In addition to creating a forum within which secondary school children
in the region can identify challenges in their community, and providing a
solution using STEM subjects, we are, essentially, creating and nurturing
innovative scientists for tomorrow’s Caribbean. However, the ultimate
goal is to assist with the diversification of the economies of the region by
harnessing Science and Technology for economic development, and to
help raise the standard of living.

Sagicor Financial Corporation
1

Sagicor Life’s Chaguanas Branch Manager, Joel Martinez, and Sagicor Advisor/
Head Umpire, Colleen De Gannes, at the Opening of the 10th Tournament with
Tournament officials and participants.

Sagicor staff and Tampa Bay Rays Players visiting the All Children’s Hospital during
the Rays Kids Spirits programme.

Sagicor Marketing Staff at the Divali Nagar Cultural Centre at the Divali Holy
Hindu Festival celebrations.

Sagicor at Lloyd’s staff participating in a fund-raising event.

Sagicor signage at the hockey arena for the Tampa Bay Lightning NHL team.

Sagicor Life Jamaica’s Suzette Shaw-Reid,
(back, 2nd from right) welcoming students,
school representatives and parents of Faith
Tabernacle, one of the schools of the Sagicor
Adopt-a-School Programme.

(L-R) Robert Trestrail, EVP and GM, SLI,
Trinidad and Tobago; Dr. Didacus Jules, CEO
and Registrar, CXC; Mr. Richard Kellman,
COO, Sagicor Financial Corporation; Dr. the
Hon. Cardinal Warde, Interim Executive
Director, CSF, and Prof. of Electrical
Engineering, M.I.T. at the STEM National
Awareness Campaign Launch.

Representatives from the winning Portland
Team receiving the Champions Trophy at the
JTA/Sagicor Athletic Championships, from
Sagicor Life Jamaica’s (l-r) Willard Brown, Vice
President, and Dr. Adolph Cameron, General
Secretary of the Jamaica Teacher’s Association.

Participants at The Sagicor Shape Up
Extravaganza, Barbados.

2012 Annual Report

HUMAn CApITAl RepoRT

employee engagement

The LOMA Employee Opinion Surveys regularly measure employee
morale and obtain feedback on engagement, leadership, rewards and
recognition along with quality of life issues. In the past year, Group
companies reported overall improvements in survey results in spite
of declines reported in international trend data. Participation rates
increased across Group companies, indicating higher levels of trust
in the administration of these surveys. Employee satisfaction scores
across Group companies range from 70% to 76%. Sagicor Life Jamaica
Limited reported 75.7% satisfaction, notably the highest satisfaction
levels experienced by that company since the commencement of the
survey in 2005. Year-on-year score improvements range from 0.8% to
2.5%. Sagicor Life Inc reported an average score of 72%, an overall
improvement of 2.5%. Sagicor Bank and Sagicor Investments Jamaica
Limited reported a result of 70.4%, an increase of 1.0% over 2011’s
rating. In Sagicor USA, there was 98% participation by administrative
staff, and 57% by sales agents, with the survey showing overall morale
levels for Sagicor USA to be very high, and employees indicating that
they were empowered to make necessary decisions.

In 2012, Group companies maintained a focus on employee engagement
and initiatives to improve productivity and the delivery of services
to employee stakeholders. One of the key initiatives was the effort
to improve the health of the staff populations, employee wellbeing,
productivity, attendance at work, and the global initiative to manage the
cost of providing health care. Projects in Group companies were multi-
faceted and included:

1. Educational sessions for staff about the impact of lifestyle choices
on the incidents of chronic non-communicable diseases (CNCDs).
2. Health screenings and monitoring of key indicators for CNCDs such
as high blood pressure, cholesterol and BMI to encourage adoption
of a healthy lifestyle.

3. A series of fun-based activity challenges that included a Million Step
Competition in Barbados, during which 240 employees in 48 teams,
each with the daily target of 10,000 steps. amassed over 153,000,000
steps.

private and public sector stakeholders to share details of the programme
and report on its success. In addition, the Company reported very high
levels of staff motivation and engagement. The programme precipitated
a new group of team leaders who took responsibility for co-ordinating
team activities and data collection, as well as motivating team members
to achieve astounding results. Biometric data was collected and analysed
by an external company. Many participants saw improved blood sugar,
cholesterol and blood pressure readings, and achieved weight loss.
Other initiatives in this area included participation in local fitness
competitions. Sagicor General Insurance staff teams achieved a second
place ranking in a Fat Loss Challenge, and SLI earned a fourth place
position for consistent use of and participation in programmes at a local
gym.

Sagicor USA implemented a new wellness program to engage and
educate staff on health and nutrition, introducing a number of themed
events, the most significant of which was a 10-week online program
aimed at decreasing the risk of developing metabolic syndrome, a
combination of medical disorders that, when occurring together,
increase the risk of developing cardiovascular disease and diabetes, and
other chronic health conditions.

The Sagilympics staged by Sagicor Life Jamaica as part of a week of
activities saw houses (teams) compete in an Olympics-styled Sports Day.

The annual calendars of employee events included:

1. Annual themed motivational seminars with local, regional and

international speakers.

2. Annual awards functions that recognised outstanding

achievements.

3. Preventative Health Educational Programmes, “epic walks”, hikes
and competitions to encourage employees to be more active.
4. Retirement and other special functions, including Christmas

functions, and the Sagicor Family Day, featuring a fun day at a
Diamondback’s Baseball Game in Scottsdale and an Employee
Appreciation Week which included team-building events.

The results of these programmes were quite remarkable, and in
Barbados generated significant national interest and requests from both

The Sagicor Group of Companies facilitated and supported staff who
volunteered for charitable programs including the “Breakfast Club”
in Barbados which provides breakfast for children from impoverished

Sagicor Financial Corporation
2012 Annual Report

communities, a Christmas Angels Project providing gifts to children with
special needs annually, and a Children’s Christmas Party facilitated by
the Employee Sports Club. In Jamaica, staff actively participated in the
fundraising initiatives for victims of Hurricane Sandy and for the Sickle
Cell Support Club in Jamaica.

In the USA, fundraisers are held each month, where employees make
a U.S. $5.00 monthly donation for the privilege of wearing casual dress
on Fridays. All donations are matched by the company, with proceeds
donated to charity organisations in the community.

Recognition and Rewards

The outstanding performances of our Sales teams and Administrative
Staff were celebrated at awards functions. In Barbados, Sagicor Life Inc
celebrated the achievements of Janice Mullin-Sargeant, who won the
President’s Trophy for Top Producer. Eural Baptiste of Antigua, won
this award in the Eastern Caribbean region, and Albert Lyon won the
Sagicor Trophy for top producer at Sagicor Life Jamaica. Abel Simpson
in Belize topped the sales team in the Sagicor Capital Life territories,
and in Trinidad and Tobago, Denzil Supersad won Advisor of the Year.
These awards are keenly competed for each year, generating tremendous
interest and excitement across the sales teams in our Units, Agencies
and Branches.

Sagicorians are employee and citizen role models who demonstrate
sound knowledge of our business and wise judgment; they should be
creative and pioneering, and accomplish a significant assignment during
the calendar year. In addition, they must demonstrate good business
ethics and community involvement. For the first time, the Sagicorian
Award was presented in two categories – Most Outstanding Employee
of the Year and Most Outstanding Manager of the Year. Six employees,
recognised by Group companies in 2012 for their outstanding
contributions, competed for the Sagicorian Award. They were Andrew
Gutierrez, Employee of the Year, Sagicor Life Insurance Company - USA;
Roslyn Ann Dennie, Employee of the Year, Sagicor General - Trinidad
and Tobago; Fabian Broomes, Employee of the Year, Sagicor Life Inc –
Barbados; Sheldon Watson, Employee of the Year, Sagicor Life Jamaica;
Trisha Davis, Manager of the Year, Sagicor Life Inc – Trinidad and Tobago
and Sandra Kellman, Manager of the Year, Sagicor Life Inc - Barbados.

In a historic first for this program, there was a tie for the coveted
Sagicorian Award. Sheldon Watson, a Pre-Underwriter in our New
Business Department at Sagicor Life Jamaica, and Fabian Broomes, a
Systems Administrator in our Shared Services Information Technology
Department in Sagicor Life Inc in Barbados, tied for this award for 2012.

Sandra Kellman - Manager in the Reinsurance and New Business
Department, Sagicor Life Inc - Barbados was awarded the Sagicorian
Award as the most outstanding Manager in the Sagicor Group for 2012.

Sheldon Watson

Fabian Broomes

Sandra Kellman

Tricia De Gannes

Sagicor Financial Corporation
26

2012 Annual Report

Tricia De Gannes - an employee in our Sagicor Life Inc operations in
Trinidad and Tobago was recognized as the employee who made the
most outstanding contribution in the Group for 2012.

subsidiary companies from January 1, 2013. The Defined Benefit Plan
in Sagicor Life Inc, which provides pension benefits for employees
of Sagicor Financial Corporation, Sagicor Life Inc and associated
companies, is now closed to new entrants.

strategic Rewards and Benefits

Group Companies carefully monitored the competitive positioning and
effectiveness of compensation and benefits for best practice, using
survey data and benchmarking against local, regional and international
data.

equity programs

On December 31, 2012, the Employee Share Ownership Plan, approved
by Shareholders in December 2005, came of age. Twenty nine (29)
employees (retirees and former employees) who left in good standing in
Barbados, Trinidad and Tobago, Belize and St. Lucia were beneficiaries
of the first awards. The ESOP is an Equity based incentive program for
employees other than executives.

pension Benefits

Sagicor Life Inc complied with the requirements of the New
Occupational Pensions Benefits legislation in Barbados, and
implemented the strategic decision to introduce a new Defined
Contribution plan for all new administrative employees of SLI and

service delivery

The Human Resources Departments across the Group continued to
improve the delivery of services through the strategic implementation of
technology solutions for compensation administration, with the roll-out
of Payroll Web, a secure and confidential website to access pay slips.
This system has reduced paper usage and decreased the payroll man
hours associated with printing, batching and distributing pay slips, while
improving the security associated with the distribution process. Group
companies will fully implement the functions of Payroll Web system and
Workforce – a time and attendance system that provides a desktop log in
and portal for staff and management to manage time and attendance.

Sagicor USA implemented “Workforce Now”, which merged the EZ
Labor Timekeeping with Pay Expert Payroll Processing, enabling
employees to access their time keeping, vacation and sick benefits,
paystubs and W-2 forms all in one central location.

At Sagicor Life Jamaica, as the first step in the launch of a Human
Resources Self-Service Portal to further improve HR’s customer service
levels, a new online system for administering leave benefits was

launched in April 2012, significantly
reducing costs and time spent on
leave administration.

SLJ, having entered Sagicor
Success for consideration in the
Human Resource Management
Association of Jamaica’s 2012 HR
Innovation Award Competition,
was awarded 3rd Place for the
most innovative initiative of 2012.

Janice Mullin-Sargeant

Albert Lyon

Denzil Supersad

Sagicor Financial Corporation
The implementation of EASi Admin, an Equity Administration solution
selected to enhance the administration of the Executive Long Term
Incentive Program and the Employee Share Ownership Plan, will be
completed in 2013.

Mugs to eliminate and reduce the use of styrofoam cups. Tote Bags, with
the Sagicor logo, were provided to staff to reduce the use of plastic and
paper bags. In addition, all new-hire information kits are now paperless
and provided on line.

Training and Development

Industrial Relations

2012 Annual Report

Group Companies maintained harmonious relationships with trade
unions in Barbados, St. Lucia and Jamaica during this period.

Group Companies commissioned executive development programs
tailored specifically for senior and emerging leaders in the financial
services industry. In the USA, Sagicor USA completed an onsite
management training session with Barry Deutsch, Co-Author of “You’re
Not the Person I Hired – A CEO’s Survival Guide to Hiring Top Talent”
with follow-up plans to implement this new approach using the Client
Services Department as a pilot.

Anti-Money Laundering, Information Security and Code of Business
Conduct and Ethics, Fraud Awareness, Sexual Harassment and
Industrial Relations courses continued in 2012, using workshops and
e-learning formats that provide 24-hour access to training materials.
These programmes provided training to meet regulatory requirements
in several countries; for international best practices for the security of
client and company information; and to sensitise employees to their
obligations under Sagicor’s Code of Business Practice and Ethics.

The Company supports industry-specific programs leading to
designations such as FLMI (Fellow, Life Management Institute),
FFSI (Fellow, Financial Services Institute), FALU (Fellow, Academy of
Life Underwriting) and FHIAS (Fellow, Health Insurance Advanced
Studies). Programmes for other business skills such as Business
Communications, Supervisory Management, Performance Management,
Mentoring and Coaching, continue annually, using a blend of internal
facilitators and external business and academic schools. Group
Companies also provided significant support to employees pursuing
professional accounting, actuarial and investment programmes as part
of employee development and for succession planning.

Going Green

Sagicor Life Insurance Company USA continued efforts to support a
“going green” initiative, by providing employees with Sagicor Bistro

Sagicor Financial Corporation
Provide

Nothing brightens the present like knowing
that we have provided for the future.

2012 Annual Report opeRATInG AnD FInAnCIAl RevIew

oveRvIew

Economic environment

The Sagicor Group is a leading provider of insurance products and
related services in the Caribbean region. It also provides insurance
products in the USA and UK and banking services in some Caribbean
countries.

The main insurance lines are life insurance, annuities and pension
management, health insurance and property and casualty insurance.
The customer base is predominately individuals but certain lines are
marketed to employers to provide employee benefits and to commercial
enterprises to provide property and casualty products.

eXTeRnAl envIRonMenT

The external environment impacts the operating and financial
performance of the Sagicor Group.

Economic factors, such as economic growth, employment levels and
disposable income impact the levels of new and of renewal of life
insurance and annuity products offered by the Group. Interest rates
and investment yields affect the level of savings and investment returns
offered within life insurance, annuities and banking products, and
ultimately the profit margins that the Group can generate from these
product lines.

The health and mortality of insured customers and beneficiaries impact
the levels of death, disability and health benefits the Group is required to
meet.

Property and casualty insurance products offer policyholders financial
protection against loss of or damage to property, against accidents, and
against liability to third parties.

The Group’s operating units are all regulated by insurance, banking and
securities regulations. The Group therefore has to meet certain statutory
and reporting requirements to governments and government agencies.

The major developed economies of the world continued to experience
economic challenges during 2012. In the United States of America
(USA), annual economic growth for 2012 was estimated at 2.2%.
Unemployment remained relatively high ending the year at 7.8% and
interest rates continued to be held at very low levels. In Europe, annual
economic growth for 2012 was very marginal or negative, with the
German economy achieving an estimated 0.7% growth and the United
Kingdom an estimated -0.1% growth. Countries with commodity driven
or export led economies such as the ‘BRICS’ continued to generate
positive economic growth, albeit at lower rates than in the preceding two
years.

In the Caribbean region, the performance of economies has been
generally weak with very low real GDP growth being experienced in
Barbados, Jamaica and Trinidad & Tobago. Unemployment levels
remain relatively high. Most governments face fiscal challenges and the
Government of Jamaica has been seeking to conclude an agreement with
the International Monetary Fund (IMF) for support and to facilitate new
investment by international lenders.

Interest rates in Trinidad & Tobago have declined to near historic
levels. The long-term yield on Government of Trinidad & Tobago debt
instruments was approximately 4.2% as of December 31, 2012, falling
from approximately 5.4% one year earlier. Currency exchange rates have
remained stable except for the Jamaica dollar which declined by 7.4%
during 2012 when compared to the US dollar.

Insurance Regulation

While there has been no significant legislative change in the insurance
sphere in the Caribbean, governments and regulators either have
initiated or are contemplating enhancements to insurance regulation as
a response to the recent failure of insurance subsidiaries of CL Financial
in the region.

In the United Kingdom, the deadline for Solvency II has been moved
to January 1, 2015. However, Lloyd’s of London has proceeded with a
programme of implementation, with significant milestones achieved
during 2012.

Sagicor Financial Corporation
2012 Annual Report

GRoUp ResUlTs

Revenues in 2012 surpassed US$ 1 billion by US$ 64 million and also
surpassed the 2011 total by US$ 119 million.

Commensurate with the growth in revenue, insurance and other benefits
also increased in 2012 to a total of US$ 639 million as compared to a
total of US$ 542 million in 2011. Expenses and taxes also increased and
reached US$ 351 million in 2012 as compared to a total of US$ 327
million in 2011.

Net income from continuing operations totalled US$ 74 million in 2012
and US$ 76 million in 2011.

ConsolIDATeD InCoMe 1 - $ millions

2012

Revenue

Benefits

Expenses & taxes

net income

Other comprehensive income

Total comprehensive income

1 from continuing operations

1,064

(639)

(351)

(16)

2011

945

(542)

(327)

(1)

Other comprehensive income recorded a net loss of US$ 16 million in
2012 as compared to a loss of US$ 1 million in 2011.

In December 2012, the Board and Management made a decision
to dispose of Sagicor Europe, which owns the Sagicor at Lloyd’s
operations. Since the future value of these operations would be realised
through sale and not through trading, in accordance with International
Financial Reporting Standards, the results of Sagicor Europe have been
separated from the Group’s continuing operations and presented as a
discontinued operation.

The results of the Group’s continuing operations are further analysed
under the next several sub-headings. The results of the discontinued
operation are discussed and analysed in the penultimate section.

Shareholder returns

The Group’s net income and comprehensive income are allocated to the
equity owners of the respective Group companies in accordance with
their results. As some Group companies have minority shareholders,
particularly in the Sagicor Jamaica operating segment, the Group’s net
income is allocated accordingly between holders of Sagicor’s common
shares and the minority interest shareholders. There is also an allocation
to Sagicor Life Inc policyholders who hold participating policies, an
arrangement which was established on the demutualisation of Sagicor
Life Inc.

For 2012, US$ 52 million of net income from continuing operations
was allocated to the holders of common shares of Sagicor Financial
Corporation, which corresponded to earnings per share of US 16.8
cents. The comparative amounts for 2011 were US$ 45 million of net
income and US 15.1 cents per share. The respective annual returns on
shareholders’ equity were 9.5% for 2012 and 8.2% for 2011.

Dividends declared to shareholders in respect of 2012 totalled US$ 12
million and represented US 4 cents per share. The same amounts were
declared for 2011.

CoMMon sHAReHolDeR ReTURns 1

2012

Net income - $ millions

Dividends - $ millions

Earnings per share - cents

Dividends per share - cents

Return on equity - %

16.8

4.0

9.5

1 from continuing operations except for dividends.

2011

15.1

4.0

8.2

Sagicor Financial Corporation
32

2012 Annual Report

Revenue

The sources of the Group’s revenue are insurance premiums from
customers, investment income arising from investments held, fee
income and other revenues. The following table summarises the main
items of revenue.

RevenUe - $ millions

2012

2011

Net insurance premiums:

Life and annuity

Health

Property & casualty

Net investment income

Fees and other revenues

511

136

665

295

104

1,064

459

129

605

278

945

Premium revenue from life insurance and annuity was US$ 511 million
and represented 77% of total premium revenue. The comparative
amounts for 2011 were US$ 459 million and 76%. The Group markets
a range of life and annuity products, most of which are long-term
contracts for which a monthly premium is paid by the customer. For
some long-term contracts a single premium (usually a lump sum) is
paid at the beginning of the contract. There are also annual renewable
contracts which are marketed largely to employers to provide coverage
to their employees on a group basis.

The Group markets annual renewable health insurance contracts to
employers and associations. These provide benefits against medical
costs incurred by insured persons. Premium revenue from health
insurance totalled US$ 136 million, an increase of US$ 7 million over the
2011 total.

The Group also markets property and casualty insurance contracts in
the Caribbean region. These are marketed to individuals and commercial
enterprises. Premium revenue from these classes of insurance totalled
US$ 18 million, a modest increase of US$ 1 million when compared to
2011.

Income is generated from the investments made by the Group. The
annual yields achieved on financial investments were as follows.

InTeResT yIelDs

Debt securities

Mortgage loans

Policy loans

2012

7.1%

7.6%

8.1%

2011

7.6%

8.1%

Finance loans & finance leases

10.2%

11.5%

Securities purchased for resale

Deposits

5.1%

2.4%

6.2%

2.9%

Income from fees and other revenues totalled US$ 104 million.
Compared to 2011, this was an increase of US$ 42 million, of which
US$ 34 million related to non-recurring transactions and US$ 8
million related to transactions of a recurring nature. The non-recurring
transactions include a gain of US$ 32 million on the recapture of a
reinsurance contract (a gain of US$ 21 million after income tax is
deducted). The gain arose due to a difference in methods for valuation
of the insurance liabilities which were reinsured.

Benefits

The following table summarises the expense incurred by the Group in
providing benefits.

Sagicor Financial Corporation
2012 Annual Report

BeneFITs - $ millions

Net insurance benefits:

Life and annuity

Health

Property and casualty

Interest expense

2012

2011

457

106

571

639

365

471

542

Insurance benefits comprise amounts payable to policyholders and
beneficiaries in accordance with the contract terms of insurance policies
issued or assumed by the Group. Interest payable to investment
contract-holders or financial institutions which have placed funds with
the Group are treated as interest benefits.

Current life insurance and annuity benefits are recognised on the
notification of death, disability or critical illness of an insured person,
on the maturity or surrender of a policy, on the declaration of a policy
bonus or dividend, or an annuity payment date. Future life insurance
and annuity benefits are recognised in the financial statements on in-
force long-term insurance contracts based on reserving methodologies
adopted by the Group in accordance with established actuarial practice.

Life and annuity benefits totalled US$ 457 million in 2012, of which
US$ 278 million related to current benefits and US$ 179 million related
to future benefits. The corresponding amounts for 2011 were a total of
US$ 365 million, of which US$ 248 million were for current benefits and
US$ 117 million were in respect of future benefits.

The amount of future benefits recorded in the statement of income is a
function of the policy contracts in-force and of the appropriate actuarial
assumptions which are made to value them. For 2012, the growth and
maturing of policy contracts was the principal reason for the increase but
the continued low interest rates in the USA also contributed to the need
to increase the future benefits.

Health, property and casualty insurance benefits are recognised either
on the notification or settlement (for short notification periods) of a
claim from policyholders. In addition, incurred but not reported (IBNR)
benefits are recognised in accordance with established or expected
trends for claims incurred.

Total health insurance benefits were US$ 106 million representing an
overall claims to premium ratio of 78%. The comparative 2011 amounts
were US$ 97 million and an overall claims to premium ratio of 75%.
Property and casualty claims amounted to US$ 8 million in 2012, a
reduction of US$ 1 million from the 2011 comparative figure.

The interest returns the Group has provided to investment contract-
holders and financial institutions which have advanced funds are
summarised in the following table.

InTeResT yIelDs

Investment contracts

Other funding instruments

Customer deposits

Securities sold for repurchase

Expenses and taxes

2012

7.2%

2.6%

3.8%

5.4%

2011

8.3%

2.8%

4.2%

5.3%

Expenses and taxes totalled US$ 351 million for 2012 and US$ 327
million for 2011.

Expenses of administration represent the largest expense category
and totalled US$ 192 million in 2012 and US$ 178 million in 2011.
The expense for commissions represents compensation and benefits
payable to insurance agents and brokers who generate new and renewal
premium revenue for the Group. Commissions totalled US$ 89 million
for 2012 and US$ 84 million for 2011.

Sagicor Financial Corporation
34

2012 Annual Report

GRoUp FInAnCIAl posITIon

Sagicor’s activities of issuing insurance contracts, of accepting funds
from depositors, of banking and securities dealing, result in the Group
receiving significant funds which are held as liabilities and are invested
in a variety of assets.

The Group’s sources of capital are equity contributions from
shareholders, retained earnings and reserves, and borrowings.

The table below summarises the consolidated financial position of
Sagicor as of December 31, 2012 and 2011.

sTATeMenT oF FInAnCIAl posITIon
- $ millions

2012

2011

Assets

Liabilities arising from operations

Borrowings

Equity

5,549

4,489

241

819

5,549

5,364

4,334

232

798

5,364

eXpenses & TAXes - $ millions

Administrative expenses

Commissions

Finance costs, depreciation and
amortisation

Premium, asset and income taxes

2012

192

351

2011

178

327

The Group is subject to a variety of direct taxes, with premium and
income taxes comprising the main types of tax. Taxes are incurred
in the jurisdiction in which the income is generated. Premium tax is
customarily a percentage of gross premium revenue, while income tax
is usually either a percentage of investment income or a percentage of
profits.

Comprehensive income

Gains and losses recorded within other comprehensive income arise
from fair value changes of certain classes of assets and from the
retranslation of foreign currency operations.

For 2012, fair value changes in assets accounted for a net gain of
US$ 2 million and the retranslation of foreign currency operations
accounted for a loss of US$ 18 million. The latter arose entirely from the
depreciation of the Jamaica dollar. The corresponding amounts for 2011
were a gain of US$ 3 million arising from fair value changes in assets
and a loss of US$ 4 million from the retranslation of foreign currency
operations.

Combining net income and other comprehensive income, the result is
total comprehensive income. Summarising the Group’s results from
continuing operations, total comprehensive income was US$ 58 million
for 2012 and US$ 75 million for 2011.

Sagicor Financial Corporation
2012 Annual Report

Assets

Invested assets and cash balances as of December 31 are summarised
in the table below.

InvesTMenTs & CAsH - $ millions

Debt securities

Mortgage loans

Policy loans

Finance loans and finance leases

Securities purchased for re-sale

Deposits

Cash

Investment property and other items

1 continuing operations

20121

3,124

2011

3,107

264

125

155

136

184

369

273

125

158

295

185

277

4,377

4,432

Debt securities are the largest class of invested assets, and represented
71% of total investments and cash as of December 31, 2012 (70% as
of December 31, 2011). These securities are very suitable instruments
to back long-term insurance liabilities because of their medium to long
term duration, the regular interest payments received, and the relatively
lower credit risk.

Debt instruments are issued primarily by Governments, state sponsored
agencies and corporate entities. The Group acquires and holds these
instruments usually in the country where the funding arose. The Group
also invests in debt instruments of short duration as a way of earning
investment returns with minimal risk and of providing opportunities for
investment contract-holders to earn safe returns.

Other invested assets are spread across various assets classes such as
mortgages, loans, deposits and property.

In conducting its operations, the Group acquires or holds other assets
such as property, plant and equipment, and insurance related and other
receivables and balances.

As of December 31, the Group held US$ 706 million in assets classified
as discontinued. The majority of these assets will be disposed of on the
completion of sale of the Sagicor at Lloyd’s operations.

Liabilities arising from operations

The Group issues life insurance and annuity contracts either to
individuals or to employers in respect of their employees (groups).
Insurance liabilities are summarised in the table below.

InsURAnCe lIABIlITIes - $ millions

Future benefits - individual contracts

Future benefits - group contracts

Current benefits and other payables

1 continuing operations

2012 1

1,657

384

219

2,260

2011

1,525

352

881

2,758

Future benefits represents amounts recognised at the date of the
financial statements for liabilities not yet due. These liabilities may
become due in the near, medium or long-term and are estimated using
established actuarial techniques.

Current benefits and other payables represent amounts which are
currently due and are in the course of settlement. These include benefits
in respect of all classes of insurance written - life, annuity, health,
property and casualty.

The Group’s liabilities which arise from issuing investment contracts,
accepting deposits and funding are in the next table.

Sagicor Financial Corporation
36

2012 Annual Report

FInAnCIAl lIABIlITIes - $ millions

2012

2011

Investment contracts

Securities sold for re-purchase

Customer deposits

Other funding instruments and other
items

346

591

207

294

316

613

197

273

The amounts recognised in the statement of financial position in respect
of these instruments are summarised in the next table.

eQUITy & BoRRowInGs - $ millions

2012

2011

Common shareholders’ equity

Preference shareholders’ balances

Minority interest shareholders’ balances

1,438

1,399

7.5% senior notes due 2016

Participating accounts & other

Classified as:

Equity

Borrowings

578

117

227

146

(8)

578

117

188

145

1,060

1,030

819

241

798

232

1,060

1,030

Investment contracts are issued to pension funds and as savings
vehicles to provide returns to contract holders. Securities sold for re-
purchase provide specific security to depositors who place funds with
the Group for investment return. Deposits and other funding provide
monies to the Group to invest in loans and related securities.

Other liabilities include general provisions, accruals and payables which
arise in the ordinary course of business.

As of December 31, the Group held US$ 631 million in liabilities
classified as discontinued. These will either be transferred or settled on
the completion of sale of the Sagicor at Lloyd’s operations.

Capital

The Group has issued equity and debt instruments to provide capital
for its operations. These instruments are common shares, preference
shares and notes payable.

301 million common shares of Sagicor Financial Corporation are
outstanding and are tradable on the Barbados, Trinidad & Tobago and
London stock exchanges. 120 million convertible redeemable 5 year 6.5%
preference shares were issued by the Company in 2011 and these are
also tradable on the Barbados and Trinidad & Tobago stock exchanges.

Common shares of certain subsidiaries are held by minority interests
primarily in Jamaica where those shares are tradable on the local stock
exchange. In 2006, a subsidiary issued 150 million 10 year 7.5% notes
payable.

Participating accounts were established by a subsidiary to provide
additional policyholder protection on participating policies which pay
policy bonuses and dividends.

A measure of financial stability is the debt (borrowings) to equity ratio
which for the Sagicor Group was 29.5% as of December 31, 2012 and
29.1% as of December 31, 2011.

A measure used to determine the capital adequacy of a life insurance
Group, which is the predominant activity within Sagicor, is the Canadian
Minimum Continuing Capital and Surplus Requirement (MCCSR).
The consolidated MCCSR ratio for the Sagicor Group was 253% as
of December 31, 2012 and 229%, as of December 31, 2011, both of
which are significantly in excess of the minimum recommended ratio of
150%. These ratios include risk factors for the potential credit default
of debt instruments of Caribbean Governments held by life insurance
subsidiaries.

Sagicor Financial Corporation
2012 Annual Report

SAGICOR GROUP
SUMMARY ORGANISATIONAL CHART

SAGICOR FINANCIAL CORPORATION
- HOLDING COMPANY & GROUP FINANCING

SAGICOR LIFE
- LIFE & HEALTH INSURANCE

SAGICOR JAMAICA

SAGICOR
USA

OTHER
OPERATING COMPANIES

SAGICOR
EUROPE
(discontinued
operation)

BARBADOS,
EASTERN
CARIBBEAN
&
DUTCH
ISLANDS,
CENTRAL
AMERICA

TRINIDAD &
TOBAGO

SAGICOR LIFE
- LIFE &
HEALTH
INSURANCE

SAGICOR
INVESTMENTS
JAMAICA
- INVESTMENT
& BANKING

SAGICOR LIFE
- LIFE
INSURANCE

SAGICOR
GENERAL
- P&C
INSURANCE

INVESTMENT,
FINANCE &
REAL ESTATE
ENTITIES

SAGICOR AT
LLOYD’S
- P&C
INSURANCE

JAMAICA
&
CAYMAN
ISLANDS

JAMAICA

U.S.A.

BARBADOS,
TRINIDAD
& TOBAGO,
EASTERN
CARIBBEAN

U.K.
&
WORLDWIDE

Sagicor Financial Corporation
38

2012 Annual Report

opeRATInG seGMenTs

sAGICoR lIFe InC

The Group’s principal reportable operating segments, as defined by
International Financial Reporting Standards, are Sagicor Life Inc, Sagicor
Jamaica, Sagicor USA, and Sagicor Europe. The performance of these
segments in 2012 is discussed under the following sub-headings and
under discontinued operation.

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, Bahamas and Panama. The main
activities of this segment are the provision of life insurance, annuities,
health insurance, pension investment and pension administration
services.

In 2012, this segment generated revenue of US$ 340 million. This was
an increase of US$ 12 million over the previous year. The main revenue
component was premium income which totalled US$ 239 million.
Investment income totalled US$ 82 million while other items totalled
US$ 19 million.

Benefits totalled US$ 212 million, increasing by US$ 21 million over the
previous year’s total. Current insurance benefits were US$ 156 million
while amounts recognised for future insurance benefits were US$ 41
million. The latter amount represented an increase of US$ 18 million
over the 2011 total and consequently was mainly of normal increases
arising from the growth and maturing of in-force policy contracts.

InCoMe - $ millions

Revenue

Benefits

Expenses and taxes

Segment income

Segment income attributable to
shareholders

FInAnCIAl posITIon - $ millions

Assets

Liabilities

Net assets

2012

340

(212)

(108)

2012

1,610

2011

328

(191)

(106)

2011

1,488

(1,219)

(1,146)

391

342

Net segment income for the year was US$ 20 million as compared
to US$ 31 million for the prior year. The increase recorded for future
benefits adversely affected the performance of the participating
accounts which recorded a net loss of US$ 13 million in 2012 (net loss
of US$ 2 million in 2011). Consequently, the net income attributable to
shareholders for the segment totalled US$ 33 million in both 2012 and
2011.

Financial investments comprised 71% of segment assets and policy
liabilities comprised 92% of segment liabilities at the end of 2012.

Total expenses and taxes in 2012 were marginally above that recorded in
2011.

Sagicor Jamaica Segment

This segment comprises subsidiaries in Jamaica and Cayman Islands
conducting insurance, banking and investment management. Prior
to its rebranding to Sagicor in December 2012, the banking and
investment management subsidiaries operated under the Pan Caribbean
Financial Services 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.

Sagicor Financial Corporation
2012 Annual Report

Financial investments comprised 86% of the segment’s assets at the end
of 2012. The liabilities of this segment were distributed 37% to policy
liabilities and 58% to deposit and security liabilities at the end of 2012.

Sagicor USA Segment

This segment consists of the USA operations of Sagicor which market
life insurance and annuity products to individuals.

Segment revenue totalled US$ 236 million in 2012, increasing by US$
93 million over the 2011 total. Premium revenue recorded in 2012 was
US$ 147 million and exceeded the 2011 total by US$ 45 million. New
premium written in this segment is predominately single premium
annuities and life contracts. Investment income for 2012 totalled US$ 52
million, a significant increase over the US$ 39 million recorded in 2011.
This increase is a result of investment gains of US$ 8 million recorded in
2012.

Other revenues included one-time gains on the recapture of insurance
liabilities previously reinsured and on the acquisition of the PEMCO life
insurance business based in Washington State. These gains arose from
the difference between the Group’s actuarial measurement basis and the
USA statutory measurement basis which was used for both the recapture
and the acquisition. The gain on the recapture was US$ 32 million which
was subject to income tax at 35%, and the acquisition gain was an after
tax US$ 2 million.

This segment generated revenue of US$ 448 million in 2012, an increase
of US$ 15 million over the 2011 total. The main revenue component was
premium income which totalled US$ 260 million in 2012 and increased
by US$ 7 million over the prior year. Investment income totalled US$
153 million while other revenues increased by US$ 10 million from
the previous year. Foreign exchange gains in 2012 contributed to this
increase.

Benefits totalled US$ 247 million. Sagicor Jamaica experienced an
increase of US$ 15 million in current insurance benefits while future
insurance benefits and interest benefits declined.

Expenses and taxes incurred totalled US$ 133 million in 2012, increasing
by US$ 7 million over the prior year. The increase is attributed mainly to
expenses of administration.

sAGICoR JAMAICA

InCoMe - $ millions

Revenue

Benefits

Expenses and taxes

Segment income

Segment income attributable to
shareholders

FInAnCIAl posITIon - $ millions

Assets

Liabilities

Net assets

2012

448

(247)

(133)

2012

1,893

2011

433

(240)

(126)

2011

1,488

(1,515)

(1,146)

378

342

Net segment income for the year was US$ 68 million, marginally above
the total of US$ 67 million recorded for 2011. As the Sagicor Jamaica
segment is owned 51% by the Group (59% up to July 2012), the resulting
net income attributable to shareholders was US$ 36 million in 2012 and
US$ 38 million in 2011.

Sagicor Financial Corporation
40

2012 Annual Report

sAGICoR UsA

InCoMe - $ millions

Revenue

Benefits

Expenses and taxes

Segment income

Segment income attributable to
shareholders

FInAnCIAl posITIon - $ millions

Assets

Liabilities

Net assets

2012

236

(170)

(48)

2012

1,219

(1,031)

188

2011

143

(98)

(39)

2011

1,102

(931)

171

Commensurate with the growth in premium revenue, total benefits
increased to US$ 170 million in 2012 from US$ 98 million in 2011.

Current insurance benefits totalled US$ 80 million in 2012, increasing
from US$ 59 million in 2011. The expense for future insurance benefits
in 2012 totalled US$ 84 million, increasing from US$ 34 million in 2011.
The 2012 expense for future insurance benefits reflects both the growth
and maturing of in-force contracts and the continued lower interest rates
in the USA.

Expenses and taxes totalled US$ 48 million in 2012 as compared to
US$39 million in 2011. An increase in income taxes US$ 5 million was
the main contributor with the income tax on the recapture gain being
the major source of the tax increase. Administrative and commissions
expenses also increased in 2012, commensurate with the growth in
premium revenue.

As of December 31, 2012, financial investments comprised 94% of the
segment assets and policy liabilities comprised 81% of the segment
liabilities.

DIsConTInUeD opeRATIon

The discontinued operation comprises the Sagicor at Lloyd’s business
and consists primarily of property and casualty insurance business
written through Lloyd’s of London Syndicate 1206. The Lloyd’s of
London franchise enables the syndicate to write international business
outside of the United Kingdom.

As stated in a foregoing section, the Group has made a decision to
dispose of these operations. Disposal is expected during 2013. In
accordance with International Financial Reporting Standards, the
discontinued operation is defined as the Sagicor Europe operating
segment plus all directly associated Head Office balances. In addition,
as a discontinued operation, the overall carrying value of the net assets
in the statement of financial position has been reduced to the estimated
amount recoverable on disposal.

Compared to 2011, the Sagicor at Lloyd’s operating results in 2012
improved considerably with a reduction in the operating loss by US$ 27
million. The 2011 results included significant amounts of catastrophe
and non-catastrophe claims losses.

The operating loss in 2012 of US$ 16 million reflected the tail effects
from the international treaty property and motor insurance lines which
were being wound down. In our 2011 Performance Review, we indicated
that these insurance lines were the cause of the 2011 operating loss and
that they had been placed in run off.

The tail effects, attributable to the run off lines, consisted of some
shortfall in expected premium income and some adverse claims
development.

Net income of the segment for 2012 was US$ 18 million, well above the
US$ 6 million recorded for 2011.

With respect to the active lines of insurance, the property and personal
accident lines performed well, while the liability lines under-performed as
a number of large claims were recorded.

Sagicor Financial Corporation
2012 Annual Report

The assets of the discontinued operation totalled US$ 706 million,
and comprised principally of financial investments, reinsurance
recoveries and premium receivables. The liabilities of the discontinued
operation totalled US$ 631 million and comprised principally of claims
outstanding, claims incurred but not reported and the provision for
unearned premium.

looKInG FoRwARD

The near-term outlook is for modest world economic growth. Growth in
the major developed economies of North America, Europe and Japan
will be fairly low and in some instances there will be further setback from
recent years’ performance. The ‘BRICS’ and other commodity driven
economies should continue to experience moderate to good growth
not dissimilar to that experienced in 2012. In the Caribbean region, no
significant improvement in economic performance is expected and
governments will continue to face fiscal challenges. The Government of
Jamaica has introduced a National Debt Exchange (NDX) programme
and is expected to secure an IMF agreement and new international
funding for development.

At Sagicor, our focus in 2013 is to complete the sale of the Sagicor at
Lloyd’s business, to integrate further and to be more productive with our
expense structures. Sagicor will experience some initial downside from
the NDX, but this should have no lasting impact as the programme is
part of a package to strengthen the Jamaica economy. We will continue
with our business development strategies which call for further
penetration of our markets and providing customers with superior
financial solutions. The results from continuing operations in 2011 and
2012 have been reasonably good and provide us with the strong platform
to take Sagicor forward.

In the statement of income, revenues, benefits and expenses have all
declined from 2011 levels due to the decision to place certain lines in
run-off.

DIsConTInUeD opeRATIon

InCoMe - $ millions

Revenue

Benefits

Expenses

Net operating loss

Non-operating charges and expenses

Net loss

FInAnCIAl posITIon - $ millions

Assets

Liabilities

Net assets

2012

323

(200)

(139)

(16)

(26)

(42)

2012

706

(631)

2011

411

(287)

(167)

(43)

(1)

(44)

The main components of non-operating charges and expenses were
income tax expense (US$ 5 million) , finance costs (US$ 10 million) and
a provision for loss on disposal of the discontinued operation (US$ 10
million).

The income tax expense included a charge of US$ 8 million to adjust
the deferred tax asset to its deemed recoverable amount. Finance costs
primarily consisted of the costs of providing reinsurance financing
for capital purposes. The loss on disposal was an estimate based on
the status of the bid offers received at the issue date of the financial
statements. It recognised the costs of disposal and the indication
from the bids received that compensation would exclude certain items
recognised within the assets and liabilities being sold.

The overall loss from the discontinued operation was therefore US$ 42
million in 2012. The comparative loss for 2011 was US$ 44 million.

Sagicor Financial Corporation
adviSe

The wisest person is the one
who knows to take good advice.

2012 Annual Report

BoARD oF DIReCToRs

sTepHen MCnAMARA, 62,
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 serves as a Director of a number of other
subsidiaries within the Group.

AnDRew AleonG, 52, 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.

pRoFessoR
sIR HIlARy BeCKles, K.A, 57,
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.

Sagicor Financial Corporation
2012 Annual Report

peTeR ClARKe, 58, 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. Mr Clarke is a Financial Consultant, who
formerly practised as a Barrister-at-Law before
embarking on a 22-year career in stockbroking.
From 1984 to 2000, he was the Managing
Director of Money Managers Limited, and
Chief Executive of West Indies Stockbrokers
Limited from 2001 until his retirement in
2005. Mr Clarke is a Director of a number of
companies in Trinidad and Tobago, including
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.
Mr Clarke also serves as a Director of Sagicor
Life Inc, Sagicor Life Jamaica Limited, Sagicor
Investments Jamaica Limited (formerly Pan
Caribbean Financial Services) and Sagicor Bank
Jamaica Limited (formerly Pan Caribbean Bank).

DR JeAnnIne CoMMA, 62, has
been an independent Director since June 2007,
and is Chairman of the Human Resources
Committee. She is a citizen of Trinidad
and Tobago. She holds a PhD from George
Washington University, Washington, DC,
USA, and is also a graduate 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.

JoyCe DeAR, 69, 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 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
programmes 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. Mrs Dear was elected a Director of
Sagicor Life Inc in 2010, and is also a Director
of a number of other subsidiaries within the
Group, including Globe Finance Inc, where she
serves as Vice-Chair of the Board.

Sagicor Financial Corporation
46

2012 Annual Report

MARJoRIe FyFFe-CAMpBell,
61, has been an independent Director since
June 2005, and is a citizen of Jamaica.
She holds an MSc in Accounting from the
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.

RICHARD KellMAn, 61, 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
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
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.

MonIsH DUTT, 54, is a citizen of
India and a permanent resident of the United
States of America. He holds an MBA with a
concentration in Finance from the London
Business School, London University, and a
BA in Economics from the University of Delhi.
He is a Fellow of the Institute of Chartered
Accountants, London, England. Currently a
Consultant on Emerging Markets, Mr Dutt is a
seasoned investment professional who, for the
25 years preceding 2011, was employed with
the International Finance Corporation (IFC),
a member of the World Bank Group. While
at IFC, he held various positions, the most
recent of which was Chief Credit Officer for
Global Financial Institutions & Private Equity
Funds. He was formerly the Head of IFC’s
Private Equity Advisory Group, the Head of the
Baltics, Central Europe, Turkey and Balkans
Group, Principal Investment Officer for Asia,
Senior Investment Officer for Central & Eastern
Europe, and an Investment Officer for Africa,
Latin America and Asia. Mr Dutt has extensive
experience evaluating investment proposals in
financial institutions and private equity funds
globally, structuring investments, tracking
global investment portfolios, and providing
quality control guidance to private equity fund
investments. Mr Dutt has also represented IFC
on boards of investee companies.

Sagicor Financial Corporation
2012 Annual Report

wIllIAM lUCIe-sMITH, 61,
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 and a
number of other subsidiaries within the Group.

DoDRIDGe MIlleR, 55, 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 30 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, Sagicor Investments
Jamaica Limited (formerly Pan Caribbean
Financial Services) and a number of other
subsidiaries within the Group.

JoHn sHeTTle, JR, 58, 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 to 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
lead

A true leader gives not orders,
but directions.

2012 Annual Report

CoRpoRATe GoveRnAnCe

Directors’ Interests

Directors’ interests as at December 31, 2012 and as at the record date, May 2, 2013, are as follows:

shares as at 31-Dec-12

shares as at 2-May-13

Common shares

preference shares

Common shares

preference shares

Stephen McNamara

Andrew Aleong

Professor Sir Hilary Beckles

Peter Clarke

Dr Jeannine Comma

Joyce Dear

Monish Dutt

Marjorie Fyffe-Campbell

Richard Kellman

William Lucie-Smith

Dodridge Miller

John Shettle, Jr

Beneficial

21,500

518,358

9,579

10,000

11,523

26,000

1,000

25,643

12,921

80,000

1,097,704

1,000

non-
Beneficial

Beneficial

non-
Beneficial

50,000

5,000

100,000

150,000

200,000

15,000

Beneficial

21,500

518,358

9,579

10,000

11,523

26,000

1,000

32,604

12,921

80,000

1,097,704

1,000

non-
Beneficial

Beneficial

non-
Beneficial

55,000

50,000

5,000

100,000

150,000

200,000

15,000

Restricted stock Grants

stock options

As at 31-Dec-12

As at 2-May-13

As at 31-Dec-12

As at 2-May-13

vested

Unvested

vested

Unvested

vested

exercised Unvested

vested

exercised Unvested

Richard Kellman

17,034

167,213

17,034

167,213

35,065

Dodridge Miller

502,595

705,745

502,595

705,745 1,052,764

199,772

35,065

858,149 1,052,764

199,772

858,149

Sagicor Financial Corporation
2012 Annual Report

Corporate Governance Report

1 Board Composition and structure

The maximum number of Directors permitted by the Restated 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 Group 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, 2012 and as at the record date, May 2, 2013, are set
out earlier in this Report. Non-Executive Directors do not participate in
performance-based 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. All fees
have been approved by Shareholders.

The Board of Directors considers that the quality, skills and experience
of Directors enhances the Board’s effectiveness and the collective Board
is required to have the core set of skills identified in the Board Core
Competency Matrix below.

Sagicor Financial Corporation
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2012 Annual Report

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

Risk Management

Information Technology

other: education

Sagicor Financial Corporation

2012 Annual Report

In addition, individual Directors must also possess specific knowledge
and experience commensurate with the business requirements of the
Company and are also expected to have a style of operation which
comprises:

(a)

high personal standards consistent with the Company’s Code
of Business Conduct and Ethics
commitment to business leadership
(b)
courage to express and defend a position
(c)
decisiveness and willingness to be held accountable
(d)
effective intervention and decision-making style
(e)
(f)
willingness to contribute to team synergy
(g) mature and thoughtful perspective on business.

The Company is also mindful that the Board must reflect the business,
social, economic and cultural jurisdictions from which the Company
draws customer patronage, and that Directors must have sufficient
time available to devote to performance of their Board duties. Finally,
Directors are required to undergo annually a rigorous self assessment
of their independence to ensure that they do not put themselves in
positions where their personal interests conflict or may be perceived to
conflict with the interests of the Company. All Directors have satisfied
the 2012 independence self assessment.

2 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.

Peter E Clarke, Dr L Jeannine Comma, Joyce E Dear and Dodridge D
Miller will retire at the Tenth Annual Meeting, and all being qualified,
have offered themselves for re-election. Profiles of the nominees are
contained in the Management Proxy Circular accompanying the Notice
of the Meeting. The Board recommends that all the nominees be re-
elected. In making this recommendation, the Board has been guided
by the nomination process overseen by the Corporate Governance
and Ethics Committee which requires a review of 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 performance as Directors, including their willingness
and ability to devote the time necessary to fulfil their role as Directors.

3 Board Responsibilities

3.1 Board of Directors

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 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.

3.2 Board Committees

The four Committees of the Board - Audit, Corporate Governance and
Ethics, Human Resources, 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 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

Sagicor Financial Corporation
54

2012 Annual Report

financial reporting standards having a significant impact on the financial
statements. It also reviews actuarial reports and recommendations.
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, regulatory and other
requirements, and management of risk. The Committee’s composition
meets the independence and skill requirements of the Group’s Corporate
Governance Policy and remained unchanged in 2012. 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 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’s composition
meets the independence requirements of the Group’s Corporate
Governance Policy and remained unchanged in 2012. 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 a Member on August 18, 2010).

The mandate of the Human Resources 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’s composition meets
the independence requirements of the Group’s Corporate Governance
Policy. The current Members are Dr Jeannine Comma (appointed a
Member on September 18, 2007, and Chairman on August 24, 2011),

Stephen McNamara (appointed a Member on August 18, 2010), and
Andrew Aleong (appointed a Member on March 23, 2012). Professor
Sir Hilary Beckles demitted office as a Committee Member during the
year.

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 certain 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’s composition meets the
independence requirements of the Group’s Corporate Governance Policy
and remained unchanged in 2012. 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), John Shettle, Jr (appointed a Member on March 18, 2009),
and Peter Clarke (appointed a Member on August 18, 2010).

4 Board evaluation

In 2012, the Board undertook its annual performance evaluation
to assess the effectiveness of the Board’s performance as a whole.
The evaluation took the form of a self-assessment and peer review
questionnaire, and an evaluation of the Corporate Governance system
as a whole. Findings continue to reveal ongoing opportunities for the
enhancement of our Corporate Governance practices. The Corporate
Governance and Ethics Committee continued to manage Director
independence and potential conflicts of interest, and the Committee
concluded that Directors continued to meet the independence
requirements under our Corporate Governance Policy.

5 Director orientation and on-going Director education

New Director, Monish Dutt, was given an orientation to the Company
which took the form of a documentation package for reference and

Sagicor Financial Corporation
2012 Annual Report

various interviews. During the year, on-going Director education
was planned in the areas of incentive-based compensation but was
postponed and will now form part of the 2013 program. The Board is
committed to continuing these sessions to ensure Director effectiveness
by enhancing Director knowledge.

6 Board operations

During 2012, Management engaged the Board of Directors (BOD) 9
times, either in formal meetings or by requests for round-robin decisions
in between meetings. The Audit Committee (AC) met 5 times; the
Corporate Governance and Ethics Committee (CGC) met 4 times; the
Human Resources Committee (HRC) met 4 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

Joyce Dear

Monish Dutt

Marjorie Fyffe- Campbell

Richard Kellman

William Lucie-Smith

Dodridge Miller

BoD

9 of 9

5 of 5

9 of 9

5 of 5

4 of 5

5 of 5

CGC

4 of 4

HRC

4 of 4

3 of 3

2 of 2

4 of 4

IRC

3 of 3

2 of 3

3 of 3

5 of 5

3 of 4

5 of 5

Total

20 of 20

19 of 20

15 of 15

12 of 12

17 of 18

14 of 14

5 of 5

17 of 18

9 of 9

14 of 14

9 of 9

100

Sagicor Financial Corporation
56

2012 Annual Report

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 2012 was to:

• consider and approve the Group strategic plan, capital plan and

projections for the period 2013 to 2015;

• review periodically the Group capital and liquidity plan, strategic and
business development initiatives forming part of the Strategic Plan,
and other key initiatives;

• examining the implications of changes to International Financial

Reporting Standards;

• approving the 2012 Internal Audit Plan, reviewing Internal Audit

reports and monitoring Management action on open Internal Audit
items;

• reviewing compliance with various financial covenants;
• reviewing reports on pending material litigation and claims, and

pending regulatory issues;

• reviewing regulatory compliance and other compliance reports;
• assessing the adequacy of the Committee’s mandate and evaluating

• receive and consider periodic reports and presentations from

its effectiveness in fulfilling the same.

Management on the performance of various subsidiaries within the
Group and the Group on a consolidated basis;

• review and approve unaudited interim and audited annual

consolidated financial statements;
• approve interim and final dividends;
• review and approve actuarial reports of the Appointed Actuary; and
• receive reports on work being carried out by Board Committees, and

Corporate Governance and ethics Committee Report:
The Committee’s principal business during 2012 included:

• reviewing Board and Director core competencies and identifying

gaps to inform the nomination process;

• overseeing Director nominations, Board Committee, subsidiary and

consider and approve their recommendations as required.

outside Board appointments;

• overseeing the management of independence requirements and

7 Committee operations

conflicts of interest;

Audit Committee Report:
The 2012 activities of the Audit Committee included:

• reviewing the adequacy of Director and Officer liability insurance

cover;

• overseeing the Director self and peer performance evaluation

process;

• reviewing and approving the external audit plan and timetable;
• evaluating the performance of the External Auditors for Group

entities and approving their audit fees;

• monitoring Director attendance;
• reviewing investor relations plans and programs;
• conducting its annual review of the adequacy of the Code of

• reviewing the External Auditors’ 2011 Management Letter and

Business Conduct and Ethics;

Report on the 2011 audit;

• generally monitoring the operation of Corporate Governance

• approving the 2012 Audit Engagement Letter;
• generally reviewing the circumstances and conditions under which a

policies and practices; and

• assessing the adequacy of the Committee’s mandate and evaluating

rotation of External Auditors should be considered;

its effectiveness in fulfilling the same.

• reviewing and recommending for approval by the Board interim and

annual audited financial statements;

• making dividend recommendations to the Board;
• reviewing actuarial reports of the Appointed Actuary;
• reviewing reports of the External Auditors on key audit issues;
• reviewing the financial performance of the Group and key

subsidiaries;

Human Resources Committee Report:
During 2012, the Human Resources Committee:

• reviewed executive performance, compensation and terms of

engagement;

• monitored succession planning and leadership and development

plans at the executive level;

Sagicor Financial Corporation
2012 Annual Report

• granted awards to qualified participants under the annual cash

incentive plan, long-term incentive plan (LTI) and employee share
ownership plan (ESOP) based on performance against established
benchmarks;

• reviewed aspects of the rules of the Company’s annual long-term

incentive plans;

• reviewed ESOP financial statements;
• reviewed plans for corporate re-structuring and reorganisation; and
• assessed the adequacy of the Committee’s mandate and evaluated

its effectiveness in fulfilling the same.

Investment and Risk Committee Report:
In 2012, the Investment and Risk Committee’s work included monitoring
key risks to which the Group is exposed, including:

• reviewing in detail interest rate, credit, liquidity and foreign exchange

risk dashboards for the Company as a whole, and for its major
subsidiaries;

• monitoring of risk exposures and reviewing mitigation strategies
designed to manage risk, and generally overseeing the enterprise
risk management process;

• reviewing investment performance as required; and
• assessment of the adequacy of the Committee’s mandate and an

evaluation of its effectiveness in fulfilling the same.

8 enterprise Risk Management

The Group’s 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 and sensitivity to financial and insurance risks are disclosed

in Notes 41 and 42 respectively to the 2012 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,
controls, and governance processes, as designed and represented
by Management, is adequate and functioning in a manner to ensure,
among other things, that risks are appropriately identified and
managed, and that employees’ actions are in compliance with policies,
standards, procedures, applicable laws and regulations. The work of
Internal Audit also seeks to give assurance that resources are acquired
economically, used efficiently, and adequately protected, and that quality
and continuous improvement are fostered in the organisation’s control
process, and significant legislative or regulatory issues impacting the
organisation are recognised and addressed appropriately.

10 Compliance

Sagicor continues to strengthen and streamline its compliance function
in response to the increasing complexity of regulatory and other risks,
with the Audit Committee continuing to exercise oversight of all aspects
of compliance.

The Group Compliance Committee’s mandate is to ensure that
compliance is managed on a formal and proactive basis as opposed
to an ad hoc and reactive basis, is governed by appropriate policy,
and is implemented and administered in accordance with policy. The
Committee is also charged with ensuring that risk management practices
are developed, implemented and administered for identifying, assessing,
managing, reporting and monitoring compliance risk, and with lending
value-added support for the administration of and compliance with
Sagicor’s Code of Business Conduct and Ethics. The Committee, whose
membership includes the Group Chief Compliance Officer as Chair, and

Sagicor Financial Corporation
58

2012 Annual Report

the Chief Compliance Officer of each major operating subsidiary, the
Group Chief Risk Officer and Group General Counsel, continued to be
active in 2012.

11 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
satisfactorily, including widely available anonymous whistle-blowing
facilities. These enabled Management to take timely corrective action.
The Corporate Governance and Ethics Committee carried out its annual
review of the Code to ensure its adequacy.

Investor Relations and Communications

During 2012, the Company continued to execute its investor relations
communications program with quarterly briefings to the Media, Analysts
and Brokers. The Company continues to ensure that price-sensitive
information is released across markets at the same time, and to manage
its Insider Trading Policy as an integral part of the Code of Business
Conduct and Ethics. The annual Shareholders’ briefing was held in
Trinidad, where the majority of Shareholders reside, for the benefit
of Shareholders who are unable to travel to Barbados for the Annual
Meeting of Shareholders.

By Order of the Board of Directors.

Sandra Osborne, QC
Corporate Secretary

May 24, 2013.

Sagicor Financial Corporation
accomPliSh

Perhaps the greatest part of reaching a goal
is choosing the next one.

2012 Annual Report

eXeCUTIve MAnAGeMenT

DoDRIDGe D. MIlleR
FCCA, MBA, LLM, LLD (Hon)
Group President and Chief Executive Officer

Dodridge Miller 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 30 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, Sagicor Investments Jamaica Limited (formerly PanCaribbean Financial Services)
and a number of other subsidiaries within the Group.

RICHARD M. KellMAn
BSc, FIA, ASA
Group Chief Operating Officer

Richard Kellman 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 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 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.

RICHARD Byles
BSc, MSc
President and Chief Executive Officer, Sagicor Life Jamaica Limited

Richard Byles was appointed President and CEO of Sagicor Life Jamaica Limited, a member of the Sagicor Group, in March
2004. He is Chairman of the Board of Sagicor Investments Jamaica Limited (formerly PanCaribbean Financial Services),
Sagicor Property Services Limited, Sagicor Reinsurance Limited (Cayman), Sagicor Insurance Managers (Cayman) and
Desnoes and Geddes. He also serves on the boards of several subsidiary and associated companies as well as Air Jamaica

and RBA Limited. He has earned valuable experience within the financial sector, spanning the areas of Life, Health and General Insurance, Asset
and Investment Management, Banking, Pension Administration, Property Development and Reinsurance Management. Mr Byles holds a BSc in
Economics from the University of the West Indies and an MSc in National Development from the University of Bradford, England.

Sagicor Financial Corporation
2012 Annual Report

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. Prior to joining Sagicor, Dr Downes-Grant was a Senior Manager in the Management Consulting and Insolvency Division of Coopers &
Lybrand (now PricewaterhouseCoopers). Dr Downes-Grant has also had significant work experience in Development Banking. 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

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, is both a Fellow of the Canadian Institute of Actuaries and a Fellow of the Society of Actuaries, and is a
Chartered Enterprise Risk Analyst. Prior to joining Sagicor, Mr Gallagher worked with Eckler Partners in Toronto in their

financial institutions practice. He has over 25 years of experience in the industry.

MAXIne MAClURe
BSc, MEd, MBA
Executive Vice President, Corporate Services and Chief Compliance Officer

Maxine MacLure was appointed Executive Vice President, Corporate Services, Sagicor Financial Corporation in February
2007. Prior to this, she served as President and CEO, Sagicor USA, from March 2004. Ms MacLure joined Sagicor in
December 2001 as President and CEO of Life of Jamaica (LOJ). Before joining Sagicor, Ms MacLure was General Manager
of Insurance for FINSAC in Jamaica, where she ran a 2-year insurance reform project sponsored by the Inter-American

Development Bank and the Jamaican Government. She also spent 7 years as a senior Financial Sector Regulator in Canada, and 11 years in banking
in Canada & the UK. 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.

Sagicor Financial Corporation
64

2012 Annual Report

pHIlIp n.w. osBoRne
BSc, ACA, FCA
Chief Financial Officer

Mr Osborne was appointed Chief Financial Officer in 2003. He has held senior finance positions in the life insurance sector
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. He is currently a Director of Globe Finance Inc., Barbados Farms Ltd, and Sagicor at Lloyd’s Ltd and its affiliates, which are
all subsidiaries in the Sagicor Group, and of Almond Resorts Inc. and TD Reinsurance (Barbados) Inc. 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. Mr Osborne is a citizen of Barbados.

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 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 from the 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 Programme 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

Ravi Rambarran joined Sagicor in 2006, and he 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 and Chief 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 MSc 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.

Sagicor Financial Corporation
MelBA sMITH
BA
Vice President, Corporate Communications

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 Communicators. 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.

2012 Annual Report

Sagicor Financial Corporation
Protect

In order to achieve what we want,
we must first protect what we have.

2012 Annual Report

InDeX To THe FInAnCIAl sTATeMenTs AnD noTes

Page

Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Financial Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Appointed Actuary’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

10 Reinsurance Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Consolidated Financial Statements:

Income Tax Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

12 Miscellaneous Assets and Receivables. . . . . . . . . . . . . . . . . . . . . . . . 115

Statement of Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

13 Actuarial Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

14 Other Insurance Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Investment Contract Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

16 Notes and Loans Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Notes to the Financial Statements:

17 Deposit and Security Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Incorporation and Principal Activities . . . . . . . . . . . . . . . . . . . . . . . . . 77

18 Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

2 Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Income Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

3 Critical Accounting Estimates and Judgements. . . . . . . . . . . . . . . . . . 96

20 Accounts Payable and Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . 122

Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

21 Common and Preference Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Investment Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

22 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

Investment In Associated Companies . . . . . . . . . . . . . . . . . . . . . . . . 109

23 Participating Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

Property, Plant and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

24 Premium Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111

25 Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

Sagicor Financial Corporation

Page

2012 Annual Report

26 Fees and Other Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Insurance Risk - Life, Annuity & Health Contracts . . . . . . . . . . . . . . 170

27 Policy Benefits & Change in Actuarial Liabilities . . . . . . . . . . . . . . . . 127

44 Fiduciary Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

45 Statutory Restrictions on Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

29 Employee Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

46 Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

30 Equity Compensation Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

47 Events after December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

31 Employee Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

33 Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

34 Earnings per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

35 Other Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

36 Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

37 Subsidiary Acquisition and Ownership Changes . . . . . . . . . . . . . . . . 139

38 Discontinued Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

39 Contingent Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

40 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

41 Financial Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

Insurance Risk - Property & Casualty Contracts . . . . . . . . . . . . . . . . 165

Sagicor Financial Corporation

2012 Annual Report

AUDIToR’s RepoRT

Sagicor Financial Corporation

ACTUARy’s RepoRT

2012 Annual Report

Sagicor Financial Corporation

CONSOLIDATED STATEMENT OF FINANCIAL POSITION Sagicor Financial Corporation
72
Amounts expressed in US$000
As of December 31, 2012

ConsolIDATeD sTATeMenT oF FInAnCIAl posITIon
As of December 31, 2012

sagicor Financial Corporation
Amounts expressed in Us $000

Note

2012

2011

Note

2012

2011

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

Assets of discontinued operation

115,224

145,818

36,559

79,612

122,185

137,017

33,683

120,787

4,041,326

4,092,166

102,686

33,073

105,329

183,996

705,732

331,309

41,706

300,558

184,662

LIABILITIES

Actuarial liabilities

Other insurance liabilities

Investment contract liabilities

Total policy liabilities

Notes and loans payable

Deposit and security liabilities

Provisions

Income tax liabilities

Accounts payable and accrued liabilities

Liabilities of discontinued operation

Total assets

5,549,355

5,364,073

Total liabilities

These financial statements have been approved for issue by the Board of Directors on
April 2, 2013.

EQUITY

Share capital

Reserves

Retained earnings

Total shareholders’ equity

Participating accounts

Minority interest in subsidiaries

Total equity

2,040,907

1,876,477

187,199

346,196

2,574,302

241,556

1,092,429

43,413

33,613

114,425

630,977

788,680

315,559

2,980,716

232,530

1,083,565

44,172

31,170

194,387

4,730,715

4,566,540

296,058

16,411

289,136

601,605

(10,333)

227,368

818,640

296,048

20,865

290,222

607,135

2,201

188,197

797,533

Director

Total equity and liabilities

5,549,355

5,364,073

Sagicor
Financial
Corporation

Sagicor Financial Corporation

CONSOLIDATED STATEMENT OF INCOME Sagicor Financial Corporation
sagicor Financial Corporation
Amounts expressed in US$000
Year ended December 31, 2012
Amounts expressed in Us $000

ConsolIDATeD sTATeMenT oF InCoMe
year ended December 31, 2012

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 and asset taxes

Finance costs

Depreciation and amortisation

Total expenses

INCOME BEFORE TAXES

Income taxes

NET INCOME FROM CONTINUING OPERATIONS

Note

2012

2011 (1)

Note

2012

2011 (1)

757,223

(92,220)

665,003

295,148

104,253

1,064,404

691,208

(86,658)

604,550

277,696

62,247

944,493

599,758

503,100

(28,840)

(32,332)

570,918

68,465

639,383

470,768

70,995

541,763

192,131

177,874

88,626

11,956

17,897

15,901

84,232

9,448

15,930

17,694

Net income from continuing operations

Net loss from discontinued operation

NET INCOME FOR THE YEAR

Net income/(loss) is attributable to:

Common shareholders:

From continuing operations

From discontinued operation

Participating policyholders

Minority interests

Basic earnings per common share:

From continuing operations

From discontinued operation

Fully diluted earnings per common share:

From continuing operations

From discontinued operation

74,060

(42,034)

32,026

52,408

(42,034)

10,374

(12,525)

34,177

32,026

75,715

(43,872)

31,843

44,845

(43,872)

973

(1,878)

32,748

31,843

16.8 cents

15.1 cents

(13.9) cents

(14.9) cents

2.9 cents

0.2 cents

16.8 cents

15.1 cents

(13.9) cents

(14.9) cents

2.9 cents

0.2 cents

326,511

305,178

(1) Restated to reflect Sagicor Europe as discontinued.

98,510

(24,450)

74,060

97,552

(21,837)

75,715

3
Sagicor
Financial
Corporation

Sagicor Financial Corporation

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Sagicor Financial Corporation
ConsolIDATeD sTATeMenT oF CoMpReHensIve InCoMe
Year ended December 31, 2012
Amounts expressed in US$000
year ended December 31, 2012

sagicor Financial Corporation
Amounts expressed in Us $000

OTHER COMPREHENSIVE INCOME

Note

2012

2011 (1)

TOTAL COMPREHENSIVE INCOME

Note

2012

2011 (1)

Items net of tax that may be reclassified subsequently to
income:

Available for sale assets:

Unrealised gains arising on revaluation

Gains transferred to income

Net change in actuarial liabilities

Retranslation of foreign currency operations

Other items

38,023

(13,128)

(22,278)

(18,121)

(19)

16,313

(5,015)

(11,459)

(3,435)

(15,523)

(3,596)

Items net of tax that will not be reclassified subsequently
to income:

Unrealised (losses) / gains arising on revaluation of owner
occupied property

(156)

3,009

OTHER COMPREHENSIVE INCOME FROM CONTINUING
OPERATIONS

(15,679)

(587)

Other comprehensive income from discontinued operation

144

OTHER COMPREHENSIVE INCOME FOR THE YEAR

(15,535)

2,282

1,695

Net income

Other comprehensive income

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

32,026

(15,535)

16,491

31,843

1,695

33,538

Total comprehensive income is attributable to:

Common shareholders:

From continuing operations

From discontinued operation

Participating policyholders

Minority interests

45,676

(41,890)

3,786

(12,286)

24,991

16,491

45,275

(41,590)

3,685

(1,893)

31,746

33,538

Basic total comprehensive earnings per common share
from continuing operations

14.6 cents

15.2 cents

(1) Restated to reflect Sagicor Europe as discontinued.

Sagicor
Financial
Corporation

Sagicor Financial Corporation

ConsolIDATeD sTATeMenT oF CHAnGes In eQUITy
year ended December 31, 2012

75
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Sagicor Financial Corporation
Amounts expressed in US$000
Year ended December 31, 2012

sagicor Financial Corporation
Amounts expressed in Us $000

Year ended December 31, 2012

Balance, beginning of year

Total comprehensive income from continuing operations

Total comprehensive income from discontinued operation

Transactions with holders of equity instruments:

Movements in treasury shares

Changes in reserve for equity compensation benefits

Changes in ownership of subsidiaries (note 37)

Dividends declared (note 21.3)

Transfers and other movements

Balance, end of year

Year ended December 31, 2011

Balance, beginning of year

Total comprehensive income from continuing operations

Total comprehensive income from discontinued operation

Transactions with holders of equity instruments:

Allotments of common shares

Movements in treasury shares

Allocation to preference share reserve

Changes in reserve for equity compensation benefits

Dividends declared (note 21.3)

Transfers and other movements

Balance, end of year

Share Capital
(note 21)

Reserves
(note 22)

Retained
Earnings

Total
Shareholders’
Equity

Participating
Accounts
(note 23)

Minority
Interests

Total
Equity

296,048

20,865

290,222

607,135

2,201

188,197

797,533

(6,713)

52,389

45,676

(12,286)

24,991

144

(42,034)

(41,890)

4,494

1,028

4,862

4,494

5,890

(19,835)

(41)

27,351

58,381

(41,890)

4,453

33,241

(13,264)

(33,099)

(3,407)

16,411

3,532

125

(248)

134

289,136

601,605

(10,333)

227,368

818,640

277,172

(14,406)

302,786

44,845

565,552

45,275

4,347

168,942

(1,893)

31,746

430

2,282

31,309

2,047

(43,872)

(41,590)

19,799

(923)

31,309

2,047

738,841

75,128

(41,590)

19,799

(923)

31,309

1,997

(50)

(14,328)

(13,489)

(27,817)

(797)

791

(6)

(253)

1,048

789

296,048

20,865

290,222

607,135

2,201

188,197

797,533

296,058

19,799

(923)

5
Sagicor
Financial
Corporation

Sagicor Financial Corporation

76CONSOLIDATED STATEMENT OF CASH FLOWS Sagicor Financial Corporation
sagicor Financial Corporation
Amounts expressed in Us $000
Amounts expressed in US$000
Year ended December 31, 2012

ConsolIDATeD sTATeMenT oF CAsH Flows
year ended December 31, 2012

OPERATING ACTIVITIES

Income before taxes

98,510

Adjustments for non-cash items, interest and dividends

36.1

(46,444)

97,552

(48,646)

FINANCING ACTIVITIES

Allotment of common shares

Movement in treasury shares

(249)

19,799

(1,358)

Note

2012

2011 (1)

Note

2012

2011 (1)

Interest and dividends received

Interest paid

Income taxes paid

Net increase in investments and operating assets

Net increase in operating liabilities

Recapture of reinsurance contract held

Net cash flows - operating activities

36.1

13.2

256,676

241,919

(81,080)

(20,130)

(83,326)

(19,823)

(198,930)

(293,604)

13,984

3,826

26,412

109,568

3,640

INVESTING ACTIVITIES

Property, plant and equipment, net

36.2

(19,843)

(12,470)

Investment in associated companies, net

Intangible assets, net

Acquisition of subsidiary, net of cash and cash equivalents

1,005

(2,025)

(9,461)

1,655

(3,394)

Net cash flows - investing activities

(30,324)

(14,209)

Allotment of preference shares

21.2

115,906

Shares issued to minority interests

Change in ownership of subsidiaries

Other notes and loans payable, net

Dividends paid to common shareholders

Dividends paid to preference shareholders

Dividends paid to minority interests

Net cash flows - financing activities

36.3

(38)

35,416

2,055

(11,846)

(7,790)

(12,130)

5,418

197

(32,797)

(11,589)

(2,544)

(13,489)

74,125

Effects of exchange rate changes

(593)

(5,032)

NET CHANGE IN CASH AND CASH EQUIVALENTS -
CONTINUING OPERATIONS

Net change in cash and cash equivalents - discontinued
operation

913

58,524

(52,008)

(72,933)

Cash and cash equivalents, beginning of year

264,659

CASH AND CASH EQUIVALENTS, END OF YEAR

36.4

213,564

279,068

264,659

(1) Restated to reflect Sagicor Europe as discontinued

Sagicor
Financial
Corporation

Sagicor Financial Corporation

Notes to the Financial Statements Sagicor Financial Corporation

77
77

Year ended December 31, 2012

Amounts expressed in US$000

1 INCORPORATION AND PRINCIPAL ACTIVITIES

2 ACCOUNTING POLICIES

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.

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.

2.1 Basis of preparation

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.

These consolidated financial statements are prepared in accordance with and comply with
International Financial Reporting Standards (IFRS).

The principal activities of the Sagicor Group are as follows:

•

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 activities.

The Group has adopted accounting policies for the computation of actuarial liabilities of 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.

7
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

78Notes to the Financial Statements Sagicor Financial Corporation
78
Amounts expressed in US$000

Year ended December 31, 2012

2.1 Basis of preparation (continued)

2.2 Basis of consolidation

(a) Amendments to IFRS

(a) Subsidiaries

There are no new or amended standards which are effective for the 2012 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 2012 financial year that have no significant impact on
the Group’s financial statements are listed in the following table.

IFRS

Subject of amendment

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.

IFRS 7 –
Financial Instruments:
Disclosures

Disclosures - Transfers of Financial Assets
The amendments will assist users of financial statements to
evaluate the risk exposures relating to transfers of assets and the
effect of those risks on an entity’s financial position. Disclosure
requirements are set out respectively for transferred assets that are
not de-recognised entirely or that are de-recognised entirely.

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.

The Group has voluntarily adopted the following amendment ahead of the required date for adoption.

IFRS

Subject of amendment

Adopted by the
Group from

IAS 1 –
Presentation of
Financial Statements

Presentation of Items of Other Comprehensive
Income

2011

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.

Minority interest balances represent the equity in a subsidiary not attributable to Sagicor’s interests.

On an acquisition by acquisition basis, the Group recognises at the date of acquisition the
components of any minority interest in the acquiree either at fair value or at the proportionate
share of
the acquiree’s net identifiable assets. The latter option is only available if the minority interest
component is entitled to a proportionate share of net identifiable assets of the acquiree in the event of
liquidation. For certain components of minority interests, other IFRS may override the fair value option.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

79
79

Year ended December 31, 2012

Amounts expressed in US$000

2.2 Basis of consolidation (continued)

Minority interest balances are subsequently re-measured by the minority’s proportionate share of
changes in equity after the date of acquisition.

(d) Divestitures

(b) Discontinued operation

The Group has agreed to sell Sagicor Europe Limited including its subsidiary Sagicor at Lloyd's
Limited and its interest in Lloyd's of London syndicate 1206. The sale will result in the closure of the
Sagicor Europe operating segment and therefore meets the criteria of a discontinued operation.
Consequently, the associated assets and liabilities have been classified separately in the statement of
financial position and the income, comprehensive income and cash flows have been classified as
discontinued operations with the 2011 comparatives restated accordingly.

The net assets of the discontinued operation are carried in balance sheet at the lower of carrying
value and fair value less costs to sell. If the latter is less than the former, an impairment is recorded in
the consolidated financial statements and is applied to the goodwill and intangible assets which form
part of the discontinued operation's assets.

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.

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.

(e) Pension and investment funds

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
Trust shall be applied towards the purchase of additional Company shares.

9
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

80 Notes to the Financial Statements Sagicor Financial Corporation
80
Amounts expressed in US$000

Year ended December 31, 2012

2.3 Foreign currency translation

(a) Functional and presentational currency

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.

2.3 Foreign currency translation (continued)

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.

The consolidated financial statements are presented in thousands of United States dollars, which is
the Group’s presentational currency.

(b) Reporting units

Income, other comprehensive income, movements in equity and cash flows are translated

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)
at average exchange rates for the year.
(ii)
(iii)

Assets and liabilities are translated at the exchange rates ruling on December 31.
Resulting exchange differences are recognised in other comprehensive income.

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:

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 policy 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.

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.

2012 closing

2012 average

2011 closing

2011 average

2.4 Segments

Barbados dollar

Eastern Caribbean dollar

Jamaica dollar

2.0000

2.7000

92.6766

Trinidad & Tobago dollar

6.3814

Pound sterling

0.61850

2.0000
2.7000

88.4376

6.4030

0.63056

2.0000
2.7000

86.3356

6.4094

0.6468

2.0000
2.7000

85.8396

6.4018

0.62112

The

Reportable operating segments have been defined on the basis of performance and resource
allocation decisions of the Group’s Chief Executive Officer.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

81
81

Year ended December 31, 2012

Amounts expressed in US$000

2.5 Investment property

2.6 Property, plant and equipment (continued)

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

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.

11
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

82 Notes to the Financial Statements Sagicor Financial Corporation
82
Amounts expressed in US$000

Year ended December 31, 2012

2.7 Intangible assets

(a) Goodwill

2.7 Intangible assets (continued)

The estimated useful lives of recognised intangible assets are as follows:

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.

Class of intangible asset Asset

Estimated useful life

Customer related

Customer relationships

4 - 20 years

Broker relationships

10 years

Marketing related

Trade names

Contract based

Technology based

Syndicate capacity

Licences

Software

4 – 10 years

Indefinite

15 years

2 – 10 years

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.

2.8

Financial assets

a) Classification

(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

The Group classifies its financial assets into four categories:

•
•
•
•

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.

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 CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

83
83

Year ended December 31, 2012

Amounts expressed in US$000

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 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 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.

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.

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.

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.

(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.

13
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

84 Notes to the Financial Statements Sagicor Financial Corporation
84
Amounts expressed in US$000

Year ended December 31, 2012

2.8 Financial assets (continued)

For an available for sale equity security or investment in an associated company, 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.

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.

(e) Securities purchased for re-sale

Securities purchased under agreements to resell are recognised initially at fair value and are
subsequently stated at amortised cost. Securities purchased for re-sale 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.

(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.

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. Fair values are obtained from
quoted market prices, discounted cash flow models and option pricing models as appropriate.

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.

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.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

85
85

Year ended December 31, 2012

Amounts expressed in US$000

2.8 Financial assets (continued)

2.10 Impairment of non-financial assets

(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.

(i) Financial assets held in trust under modified coinsurance arrangements

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.

2.9 Real estate developed or held for resale

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.

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.

Gains and losses realised on the sale of real estate are included in revenue at the time of sale.

The Group’s policy for the potential impairment of property, plant, equipment and, intangible assets 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.

2.11 Policy contracts

(a) Classification

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.

15
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

86 Notes to the Financial Statements Sagicor Financial Corporation
86

Year ended December 31, 2012

Amounts expressed in US$000

2.11 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:

•

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

•
•
•

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 2.21).

(b) Recognition and measurement

(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 and liability.

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
commercial policyholders insurance may include coverage for loss of earnings
arising from the
inability to use property which has been damaged or lost.

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.

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.

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.

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 reserving classes of insurance.

For each reserving class, claims data is aggregated separately to which particular statistical
techniques and common estimation factors are applied. For example, direct motor is divided into
sub-classes, injury and property damage. Injury claims are discounted because they satisfy the
criteria of being long-tail claims, while property damage claims are not discounted.

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.

the

financial statements, commissions, premium

Commissions and premium taxes payable are recognised on the same basis as premiums earned. At
the date of
taxes and acquisition-related
administrative expenses attributable to 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.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

87
87

Year ended December 31, 2012

Amounts expressed in US$000

2.11 Policy contracts (continued)

(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.

(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
automatic premium loan may settle the premium, or the contract may continue at a reduced value.

2.11 Policy contracts (continued)

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 2.12.

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.

(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.

17
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

88 Notes to the Financial Statements Sagicor Financial Corporation
88
Amounts expressed in US$000

Year ended December 31, 2012

2.11 Policy contracts (continued)

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 or maturity date of the contract, or on the annuity payment
date. Reserves for future policy liabilities are recorded as described in note 2.12.

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.

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
under reinsurance contracts held are included in
accounts payable and accrued liabilities and in 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.

(v)
Reinsurance contracts assumed

Reinsurance balances are measured consistently with the insurance liabilities to which they relate.

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.

(vii) Deposit administration and other investment contracts

Reinsurance contracts assumed include blocks of life and annuity policies assumed from third party
insurers. In some instances, the Group also administers these policies.

Deposit administration contracts are issued by an insurer to registered pension schemes for the
deposit of pension plan assets with the insurer.

(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.

Deposit administration liabilities are recognised initially at fair value and are subsequently stated at:

•

amortised cost where the insurer is obligated to provide investment returns to the pension

scheme in the form of interest;

•

fair value through income where the insurer is obligated to provide investment returns to the

pension scheme in direct proportion to the investment returns on specified blocks of assets.

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.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

89
89

Year ended December 31, 2012

Amounts expressed in US$000

2.11 Policy contracts (continued)

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.

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
these cases, the entire
contract liability is measured as set out in note 2.12.

(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.

2.12 Actuarial liabilities

(a) Life insurance and annuity contracts

The Canadian Asset Liability Method (CALM) is used for the determination of actuarial liabilities of
long-term insurance contracts. These liabilities consist of the 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.

2.12 Actuarial liabilities (continued)

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 insurer and industry experience and are
updated annually.

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 its actuarial liabilities. 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 fair value reserve for actuarial
liabilities has been established in the statement of equity for the accumulation of the related amounts
recorded in other comprehensive income.

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.

(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.

19
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

90 Notes to the Financial Statements Sagicor Financial Corporation
90

Year ended December 31, 2012

Amounts expressed in US$000

2.13 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 2.11(b) (vii) and in the following
paragraphs.

(a) Securities sold for re-purchase

Securities sold under agreements to repurchase are recognised initially at fair value and are
subsequently stated at amortised cost. Securities sold for re-purchase are treated as collateralised
financing transactions. The difference between the sale and re-purchase 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.

Loans and other debt obligations are recognised initially at fair value, being their issue proceeds, net
of transaction costs incurred. Subsequently, 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.

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,
leasing or portfolio investments are
classified as deposit and security liabilities and the associated cost is included in interest expense.

2.13 Financial liabilities (continued)

(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.

2.14 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.

2.15 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.

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.

2.17 Fees and other revenue

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.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

91
91

Year ended December 31, 2012

Amounts expressed in US$000

2.18 Employee benefits

(a) Pension benefits

2.18 Employee benefits (continued)

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.

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.

(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.

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.

(d) Equity compensation benefits

The Group has a number of share-based compensation plans in place for administrative, sales and
managerial staff.

(i) Equity-settled share-based transactions with staff

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.

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.

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 reserve for equity compensation benefits 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 reserve for equity compensation benefits are transferred to share capital or
minority interest either on the distribution of share grants or on the exercise of share options.

21
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

92 Notes to the Financial Statements Sagicor Financial Corporation
92

Year ended December 31, 2012

Amounts expressed in US$000

2.18 Employee benefits (continued)

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

2.19 Taxes

(a) Premium taxes

Insurers are subject to tax on premium revenues generated in certain jurisdictions. The principal rates
of tax are summarised in the following table.

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
value recognised in income during that period.

(iii) Measurement of the fair value of equity instruments granted

Premium tax rates

Barbados

Jamaica

Trinidad and Tobago

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.

Life insurance and
non-registered
annuities

Health
insurance

3% - 6%

15%

Nil

25%

Nil

Property and
casualty
insurance

3% - 5%

Nil

25%

Nil

United States of America

0.75% - 3.5%

(b)

Asset tax

During 2012, the Government of Jamaica introduced an asset tax on the total assets of financial
institutions and securities dealers in Jamaica.

(c)

Income taxes

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 2012 are set out in the next
table.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

93
93

Year ended December 31, 2012

Amounts expressed in US$000

2.19 Taxes (continued)

Income tax rates

Barbados

Jamaica

Trinidad and Tobago

United Kingdom

United States of America

(i) Current income taxes

Life insurance and
non-registered
annuities

5% of gross
investment income

15% of
investment income

15% - 25% of
investment income

24.5%
of net income

34% - 35%
of net income

Registered
annuities

Other lines of
business

Nil

n/a

34% - 35%
of net income

25% of
net income

15% - 33.33%
of net income

25%
of net income

24.5%
of net income

35%
of net income

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 Common and preference shares (continued)

(a) Common shares

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.

(b) Preference shares

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

The redemption value is recognised as a contractual liability, and is measured initially at its discounted
fair value. The discount rate reflects (i) the rate of interest applicable to a similar liability with a
contractual dividend rate, and (ii) the interest premium required by the shareholder for an instrument
with a non-contractual dividend. The liability component is disclosed in note 16.

The preference shareholders’ rights to receive dividends is recognised within shareholders’ equity,
and is measured initially as the residual fair value of the preference shares in their totality after
deducting the liability for the redemptive value. The equity component is initially recorded as a
preference share reserve in note 22.

Incremental costs directly attributable to the issue of the preference shares are allocated between the
liability for the redemption value and the equity reserve in proportion to their initial carrying amounts.
After initial recognition, the liability component is accreted to its ultimate redemption value using the
effective interest yield method, with the accretion being recorded as a finance cost in the statement of
income. After initial recognition, the preference share reserve is transferred to retained earnings pro-
rata to the dividends declared over the period to redemption.

23
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

94 Notes to the Financial Statements Sagicor Financial Corporation
94
Amounts expressed in US$000

Year ended December 31, 2012

2.20 Common and preference shares (continued)

2.21 Participating accounts (continued)

On the initial recognition of the preference shares, the conversion feature of the instrument was
deemed to have no value. Subsequently, when a number of preference shares are converted to
common shares, the associated liability for redemption will be extinguished and consequently will be
transferred to the share capital account for common shares. Additionally at conversion, the proportion
of the preference share reserve attributable to the converted number of preference shares will also be
transferred to the share capital account for common shares. In summary, the total transfer to the
share capital account for common shares will approximate the original consideration for the converted
number of preference shares less attributable issue costs.

On the declaration by the Company’s directors of common or preference share dividends payable, the
total value of the dividend is recorded as an appropriation of retained earnings.

2.21 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.

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
are included in the
allocation of Group net income to shareholders. Undistributed profits / (losses) remain in the
participating account in equity.

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.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

2.21 Participating accounts (continued)

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.

2.22 Statutory reserves

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.

2.23 Cash Flows

The following classifications apply to the cash flow statement.

Cash flows from operating activities consist of cash flows arising from revenues, benefits,
expenses, taxes, operating assets and operating liabilities. Cash flows from investing activities
consist of cash flows arising from long-term assets to be utilised in the business and in respect of
changes in subsidiary holdings, insurance business and associated company investments. Cash
flows from financing activities consist of cash flows arising from the issue, redemption and
exchange of equity instruments and notes and loans payable and from equity dividends payable to
holders of such instruments.

Cash and cash equivalents comprise:
•
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
commitments and which have maturities of three months or less from origination.

Cash equivalents are subject to an insignificant risk of change in value.

95
95

2.24 Future accounting developments and reporting changes

Certain new standards and amendments to existing standards have been issued but are not effective
for the periods covered by these financial statements. The changes in standards and interpretations
which may have a significant effect on future presentation, measurement or disclosure of the Group’s

Financial Statements are summarised in the following tables.

IFRS (Effective Date)

Subject / Comments

IFRS 7 –
Financial Instruments:
Disclosures
IAS 32 - Financial
Instruments Presentation
(January 1, 2014)

IFRS 9 –
Financial Instruments
(January 1, 2015)

Offsetting Financial Assets and Financial Liabilities

These amendments clarify the presentation of certain offsetting
requirements and amend the disclosure to include information on the
effect of netting arrangements.

Classification and measurement of financial instruments

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:

•
•

impairment methodology for financial assets
hedge accounting

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

96Notes to the Financial Statements Sagicor Financial Corporation
96
Amounts expressed in US$000

Year ended December 31, 2012

2.24 Future accounting developments and reporting changes (continued)

IFRS (Effective date)

Subject / Comments

IFRS (Effective Date)

Subject / Comments

Measurement

The option which allows the deferral of actuarial gains and losses
within the 10% corridor is withdrawn. On adoption of the revised
standard, unrecognised actuarial losses and gains will be taken to
retained earnings. Service costs and net interest on the net defined
benefit balance are to be included in income, while re-measurements
of the net defined benefit balance are to be included in other
comprehensive income.

IFRS 10 – Consolidated
Financial Statements

IFRS 11 –
Joint Arrangements

IFRS 12 – Disclosure of
Interests in Other Entities

(January 1, 2013)

IFRS 13 -
Fair Value Measurement
(January 1, 2013)

Consolidation and Interests in Other Entities

These new standards partially or wholly replace IAS 27, IAS 28 and
IAS 31 and:

IAS 19 –
Employee Benefits
(January 1, 2013)

for

requirements

Refine
the definition of control over entities and
consequently define interests that require consolidation.
joint
Introduce new accounting
arrangements.
Require enhanced disclosures about both consolidated
and unconsolidated entities so that users of financial
statements may evaluate the basis of control, restrictions
on assets and
from
involvements with unconsolidated entities and non-
controlling interests’ involvement in consolidated entities.

risk exposures

liabilities,

•

Fair Value

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.

The standard defines fair value, sets out a framework for measuring
fair value and requires disclosures about fair value measurements.

3.1 Impairment of financial assets

The standard applies to financial and non-financial assets and
liabilities that are measured at fair value. The fair value hierarchy
concept defined in IFRS 7 has been transferred to and enhanced by
this standard. The standard summarises the main valuation
techniques which should be applied.

Additional disclosures are required to support the Levels 1 to 3
classifications. Disclosures are also categorised according to assets /
liabilities which are recurring and which are non-recurring.

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.

(((

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

97
97

Year ended December 31, 2012

Amounts expressed in US$000

3.2 Recognition and measurement of intangible assets

3.4 Valuation of actuarial liabilities

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 after tax 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. The
assessment of whether goodwill is impaired can be highly sensitive to the inputs of cash flows, income
after tax, discount rate, growth rate or capital multiple, which are used in the computation. Further
details of the inputs used are set out in note 8.2.

(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.

(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.

27
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

98Notes to the Financial Statements Sagicor Financial Corporation
98
Amounts expressed in US$000

Year ended December 31, 2012

3.4 Valuation of actuarial liabilities (continued)

3.5 Estimation of property and casualty claim liabilities (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. Reserving for claims
payable, involves 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.

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.

The Group utilises a variety of standard actuarial reserving methods, including claims development,
expected claims ratio, Bornhuetter-Ferguson and frequency-severity methodologies, to estimate claim
liabilities. The Group also engages independent actuaries either to assist in making or to confirm the
claim liabilities recognised in the statement of financial position. 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,
claims expense 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, claims expense and commissions.

3.6 Carrying value of the net assets of discontinued operation

The assessment of fair value less costs to sell of the discontinued operation is subject to uncertainty.
the discontinued operation is a Lloyd's of London property and casualty insurance syndicate including
the distribution capability, the renewal rights of the existing insurance business, and the managing
agency platform. The Group has initiated an auction process, inviting interested and credible bidders.
The auction process is at an advanced stage and bidders have submitted non-binding indicative offers
to acquire the business. The fair value less costs to sell of the discontinued operation has been
determined based on the terms of sale offered and from the outstanding bids received. It is however
possible that the ultimate sale may result in a quantum of consideration which is significantly different
from the current assessment.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

99
99

Year ended December 31, 2012

Amounts expressed in US$000

4 SEGMENTS

4 SEGMENTS (continued)

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.

Sagicor Life Inc

Sagicor Life Inc
Segment Companies

Principal Activities

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.

Sagicor Capital Life Insurance
Company Limited

(1)

Sagicor Life Aruba NV

Country of
Incorporation

Effective
Shareholders’
Interest

Barbados

100%

Barbados

100%

Aruba

100%

Life and health insurance,
annuities and pension
administration services

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.

Capital Life Insurance Company
Bahamas Limited

Life insurance

The Bahamas

100%

(a) Sagicor Life Inc

These comprise Group subsidiaries conducting life, health and annuity insurance business, and
pension administration services in (i) Barbados, Eastern Caribbean, Dutch Caribbean, Bahamas and
Central America and (ii) Trinidad and Tobago. As these two segments are broadly similar in products,
services, distribution, administrative and regulatory environment, they are presented on an aggregated
basis in these financial statements. The companies are set out in the following two tables.

Sagicor Panamá, SA

Life and health insurance

Nationwide Insurance Company
Limited

Life insurance

Panamá

Trinidad &
Tobago

Associated Companies

RGM Limited

Property ownership and
management

Trinidad &
Tobago

FamGuard Corporation Limited

Investment holding company

Bahamas

100%

33%

20%

Principal operating company:
Family Guardian Insurance
Company Limited

Life and health insurance and
annuities

Bahamas

20%

Primo Holding Limited

Property investment

Barbados

38%

(1) Re-domiciled in Barbados on December 30, 2011; formerly incorporated in The Bahamas.

29
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

100 Notes to the Financial Statements Sagicor Financial Corporation
100
Amounts expressed in US$000

Year ended December 31, 2012

4 SEGMENTS (continued)

(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 Jamaica
Segment Companies

Principal Activities

Country of
Incorporation

Effective
Shareholders’
Interest

Sagicor Life Jamaica
Limited

Life and health insurance and
annuities

Jamaica

51% (1)

Sagicor Life of the
Cayman Islands Limited

Sagicor Pooled
Investment Funds Limited

Life insurance

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 Insurance
Brokers Limited

Sagicor International
Administrators Limited

Insurance brokerage

Jamaica

Insurance brokerage

Jamaica

Sagicor Insurance
Managers Limited

Captive insurance
management services

The Cayman
Islands

51% (1)

Sagicor Investments
Jamaica Limited (formerly
Pan Caribbean Financial
Services Limited)

Investment banking

Jamaica

44% (2)

4 SEGMENTS (continued)

Sagicor Life Jamaica
Segment Companies
(continued)

Sagicor Bank Jamaica
Limited (formerly
PanCaribbeanBank Limited)

Sagicor Property Services
Limited

Principal Activities

Country of
Incorporation

Effective
Shareholders’
Interest

Commercial banking

Jamaica

44% (2)

Property management

Jamaica

51% (1)

LOJ Holdings Limited

Insurance holding company

Jamaica

100%

(1) 59% prior to July 13, 2012.

(2) 51% prior to July 13, 2012. Through majority
ownership of Sagicor Life Jamaica, the Group
exercises control over these subsidiaries.

(c)

Sagicor Life USA

This segment comprises Sagicor’s life insurance operations in the USA and comprises the following.

Sagicor USA
Segment Companies

Principal Activities

Country of
Incorporation

Effective
Shareholders’
Interest

Sagicor Life Insurance
Company

Life insurance and annuities

USA - Texas

100%

Sagicor USA Inc

Insurance holding company

USA - Delaware

100%

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

101
101

Year ended December 31, 2012

Amounts expressed in US$000

4 SEGMENTS (continued)

(d) Sagicor Europe

4 SEGMENTS (continued)

(e) Head office function and other operating companies

This segment comprises the Sagicor at Lloyd’s insurance operations in the UK. As of December 31,
2012, this segment has been classified as a discontinued operation (see note 38).

These comprise the following:

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

UK – England
& Wales

Sagicor Corporate Capital
Limited (2)

Property and casualty
insurance

Sagicor Cayman Reinsurance
Company Limited

Property and casualty
reinsurance

Sagicor Corporate Capital
Two Limited (3)

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– England
& Wales

The Cayman
Islands

UK– England
& Wales

Sagicor Claims
Management Inc

Property and casualty
insurance claims management

USA -
California

Sagicor Europe Limited

Insurance holding company

The Cayman
Islands

(1) Effective voting interest is 93% (2011 - 86%). Refer to note 38.

(2) Lloyd’s of London corporate underwriting member participating in Syndicate 1206

(3) Lloyd’s of London corporate underwriting member participating in Syndicate 44

100% (1)

Other Group Companies Principal Activities

Country of
Incorporation

Effective
Shareholders’
Interest

Sagicor Financial
Corporation

Sagicor General
Insurance Inc

Sagicor Finance Inc

Sagicor Asset
Management (T&T)
Limited

Sagicor Asset
Management Inc

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%

Barbados Farms Limited

Farming and real estate
development

Barbados

77%

Mutual fund holding company

Barbados

100%

Sagicor Funds
Incorporated

Globe Finance Inc

Loan and lease financing, and
deposit taking

The Mutual Financial
Services Inc

Financial services holding
company

Sagicor Finance Limited

Group financing vehicle

Barbados

The Cayman
Islands

51%

73%

100%

31
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

102 Notes to the Financial Statements Sagicor Financial Corporation
102
Amounts expressed in US$000

Year ended December 31, 2012

4.1

Statement of income by segment

2012

Net premium revenue

Interest income

Other investment income

Fees and other revenues

Inter-segment revenues

Net policy benefits

Net change in actuarial liabilities

Interest expense

Administrative expenses

Commissions and premium and asset taxes

Finance costs

Depreciation and amortisation

Inter-segment expenses

Segment income / (loss) before taxes

Income taxes

Segment income before undernoted items

Group finance costs (1)

Net income/(loss) from continuing operations

Net income/(loss) attributable to shareholders
from continuing operations

Total comprehensive income/(loss)
to shareholders from continuing operations

attributable

Sagicor Life Inc

Sagicor Life
Jamaica

Sagicor USA

Head office
and other

Adjustments

Total

239,444

69,022

12,851

11,116

7,344

339,777

155,863

41,519

13,610

61,265

37,298

5,081

345

259,630

132,095

20,703

34,117

1,267

447,812

148,032

52,872

46,369

74,555

42,494

5,475

770

147,435

44,654

7,353

36,099

235,541

80,457

84,150

5,182

24,647

12,429

1,544

756

314,981

370,567

209,165

24,796

(4,716)

20,080

32,605

77,245

(9,670)

67,575

35,736

26,376

(8,420)

17,956

18,494

8,807

(313)

22,952

23,172

73,112

8,025

3,304

30,858

8,361

(243)

3,801

8,809

62,915

10,197

(1,644)

8,553

(18,158)

(9,605)

(11,943)

(24)

(31)

(31,783)

(31,838)

806

18,140

(10,680)

8,266

(40,104)

18,158

(21,946)

665,003

254,578

40,570

104,253

1,064,404

392,377

178,541

68,465

192,131

100,582

17,897

15,901

965,894

98,510

(24,450)

74,060

52,408

35,659

27,340

16,489

(11,811)

(22,001)

45,676

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

103
103

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

104
104

Year ended December 31, 2012

Amounts expressed in US$000

4.1 Statement of income by segment (continued)

4.2 Variations in segment income (continued)

(1) Group finance costs represent costs of borrowings and facilities initiated at Group level. These
include finance costs relating to the Sagicor 2016 senior notes, the Company’s preference shares and
a bank loan (repaid in 2011). Where material, these costs have been removed from the individual
segment which benefits from these borrowings and facilities.

(iv) 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.

(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, asset default 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.

4.2 Variations in segment income

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.

(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
for sale or loans and

receivables.

Therefore, significant gains and losses may be triggered by changes
in market prices and / or by
decisions to dispose of investments.

(ii) Allowances for impairment of financial investments

Significant impairment losses may be triggered by changes in market prices and economic conditions.

(iii) Gain on recapture of reinsurance contract held

Insurers within the Group may cede certain insurance risks and supporting assets to reinsurers. On
the recapture of the risks ceded under a reinsurance contract, the associated assets and liabilities
recaptured are measured in accordance with the Group's accounting policies and any difference
arising is recorded in income. The resulting gain or loss can be significant.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

105
105

Year ended December 31, 2012

Amounts expressed in US$000

4.2 Variations in segment income (continued)

The table below summarises by segment the individual line items within income from continuing operations which are impacted by the foregoing factors

Variations in income by segment

Sagicor Life
Inc

Sagicor Life
Jamaica

Sagicor USA

Head Office
and Other

Total

2012

Investment gains / (losses)

Allowances for impairment of financial investments

Gain on recapture of reinsurance contract held

Foreign exchange gains / (losses)

(Decrease) / increase in actuarial liabilities arising from changes in assumptions

2011

Investment gains / (losses)

Allowances for impairment of financial investments

Foreign exchange gains / (losses)

6,112

20,118

184

(228)

(6,535)

4,689

4,714

152

381

6,940

(2,377)

30,614

10,033

930

8,421

1,162

32,155

15,224

(2,160)

188

(Decrease) / increase in actuarial liabilities arising from changes in assumptions

(12,508)

(4,304)

5,373

(145)

337

(34)

1,790

558

34,506

2,064

32,155

6,678

6,312

34,933

15,493

1,082

(11,439)

35
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

106 Notes to the Financial Statements Sagicor Financial Corporation
106
Amounts expressed in US$000

Year ended December 31, 2012

4.3

Other comprehensive income

Variations in other comprehensive income may arise also from non-recurring or other significant factors. The most common are as follows.

(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.

(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.

(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.

The table below summarises by segment the individual line items within other comprehensive income from continuing operations which are impacted by the foregoing factors.

Variations in other comprehensive income by segment

Sagicor Life
Inc

Sagicor Life
Jamaica

Sagicor USA

Head Office
and other

Adjustments

Total

2012

Unrealised investment gains / (losses)

Changes in actuarial liabilities

Retranslation of foreign currency operations

2011

Unrealised investment gains / (losses)

Changes in actuarial liabilities

Retranslation of foreign currency operations

6,893

(1,786)

(197)

1,691

(422)

9,574

(18,158)

663

(2,258)

21,414

(20,492)

16,119

(13,150)

142

(272)

(38)

(55)

(717)

38,023

(22,278)

(18,121)

16,313

(11,459)

(3,435)

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

107
107

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

108Notes to the Financial Statements Sagicor Financial Corporation
108
Amounts expressed in US$000

Year ended December 31, 2012

4.5 Additions to non-current assets by segment

4.7 Geographical areas

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:

The Group operates in certain geographical areas which are determined by the location of the
subsidiary or branch initiating the business.

Sagicor Life Inc

Sagicor Life Jamaica

Sagicor USA

Head office and other

2012

9,153

6,162

1,259

7,398

(1)

2011

10,996

4,068

1,788

5,511

23,972

22,363

(1) Excludes asset additions totalling $3,154 in respect of the operation classified as discontinued in

2012.

4.6 Products and services

Total external revenues relating to the Group’s products and services are summarised as follows:

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 by geographical area are summarised in the following
table.

Barbados

Jamaica

Trinidad & Tobago

Other Caribbean

USA

External revenue

Non-current assets

2012

2011

2012

(1)

2011

138,593

407,110

132,967

150,092

235,642

1,064,404

141,760

410,413

120,370

129,310

142,640

944,493

190,765

180,325

81,715

72,471

29,132

3,130

90,861

62,933

42,318

3,434

377,213

379,871

2012

2011

(1) Excludes assets totalling 33,801 in respect of the operation classified as discontinued in 2012.

Life, health and annuity insurance contracts issued to individuals

653,619

545,511

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

257,691

253,627

32,380

101,368

19,346

36,444

99,251

9,660

1,064,404

944,493

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

109
109

Year ended December 31, 2012

Amounts expressed in US$000

5 INVESTMENT PROPERTY

6 INVESTMENT IN ASSOCIATED COMPANIES

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:

Balance, beginning of year

Additions at cost

Transfer to property, plant and equipment

Disposals and divestitures

Change in fair values

Effects of exchange rate changes

Balance, end of year

2012

2011

122,185

119,169

356

(1,500)

(1,630)

(2,536)

(1,651)

4,344

(251)

(796)

(281)

115,224

122,185

Investment property includes $27,159 (2011 - $16,206) which represents the Group’s proportionate
interest in joint ventures summarised in the following table.

The movements in the investment in associated companies during the year and the aggregate
balances and results of associated companies are summarised in the following table.

Movement during the year:

Investment, beginning of year

Dividends received

Share of:

Income before taxes

Amortisation of intangible assets identified on acquisition

Income taxes

Other comprehensive income / (loss)

Effects of exchange rate changes

Investment, end of year

Aggregate balances and results of associates:

Total assets

Total liabilities

Total revenue

Net income for the year

2012

2011

33,683

(1,005)

32,929

(1,655)

3,808

(177)

(271)

417

104

2,997

(177)

(176)

(121)

(114)

36,559

33,683

484,996

335,540

135,126

13,945

370,164

241,895

132,562

10,314

Description of property

Percentage ownership

Country

Barbados

Freehold lands

Freehold office buildings

Trinidad & Tobago

Freehold office building

50%

10% - 50%

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.

39
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

110Notes to the Financial Statements Sagicor Financial Corporation
110

Year ended December 31, 2012

Amounts expressed in US$000

7 PROPERTY, PLANT AND EQUIPMENT

Owner-occupied properties

Land

Land &
buildings

2012

Office
furnishings,
equipment &
vehicles

Operating
lease
vehicles &
equipment

Owner-occupied properties

Land

Land &
buildings

2011

Office
furnishings,
equipment &
vehicles

Operating
lease
vehicles &
equipment

Total

137,017

21,853

1,500

(504)

(76)

35,694

26,268

14,677

(504)

9,359

4,736

(207)

(1,396)

(1,603)

(21)

(196)

2,831

(7,174)

(557)

(544)

(2,413)

(10,478)

(1,170)

(544)

Total

131,407

14,947

(1,189)

24,339

10,202

(1,189)

(237)

8,915

4,081

(99)

(1,210)

(1,333)

3,352

(6,683)

(65)

(2,427)

(9,945)

(222)

62,459

664

237

(3)

521

(835)

(157)

Net book value, beginning of year

38,504

Additions at cost

Transfer from investment property

Transfer to intangible assets (note 8)

Other transfers

Transfers (to) real estate developed or
held for sale

Disposals and divestitures

(Depreciation) / appreciation in fair
values

Depreciation charge

Effects of exchange rate changes

Transfer to assets of discontinued
operation

(76)

62,886

2,440

1,500

(196)

(891)

(615)

Net book value, end of year

38,428

65,124

31,978

10,288

145,818

38,504

62,886

26,268

9,359

137,017

Represented by:

Cost or valuation

38,428

66,327

96,981

15,607

217,343

38,504

63,606

85,897

15,734

203,741

Accumulated depreciation

(1,203)

(65,003)

(5,319)

(71,525)

(720)

(59,629)

(6,375)

(66,724)

38,428

65,124

31,978

10,288

145,818

38,504

62,886

26,268

9,359

137,017

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 occupied office buildings.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

111
111

Year ended December 31, 2012

Amounts expressed in US$000

8 INTANGIBLE ASSETS

8.1 Analysis of intangible assets and changes for the year

2012

Goodwill

Customer &
broker
relationships

Syndicate
capacity &
licences

Software

Total

Goodwill

2011

Customer &
broker
relationships

Syndicate
capacity &
licences

Software

Total

Net book value, beginning of year

57,743

29,203

20,034

120,787

57,948

32,569

20,331

Additions at cost

Transfer from property, plant and equipment
(note 7)

Amortisation and impairment

Disposals and divestitures

Effects of exchange rate changes

Transfer to assets of discontinued operation

(1,473)

(1,502)

(4,430)

(3,040)

(1,392)

(46)

916

13,807

3,584

504

(3,810)

(33)

3,584

504

(6,896)

(1,506)

(1,889)

(3,970)

(20,904)

(5,668)

(34,972)

(205)

(3,130)

(236)

(49)

(248)

12,531

6,226

1,189

123,379

6,226

1,189

(6,006)

(9,185)

(133)

(822)

Net book value, end of year

50,338

20,801

Represented by:

Cost or valuation

Accumulated depreciation

8.2

Impairment of intangible assets

52,151

37,237

(1,813)

(16,436)

50,338

20,801

8,473

79,612

57,743

29,203

20,034

13,807

120,787

33,685

123,073

59,556

46,567

20,231

39,169

165,523

(25,212)

(43,461)

(1,813)

(17,364)

(197)

(25,362)

(44,736)

8,473

79,612

57,743

29,203

20,034

13,807

120,787

Goodwill arises from past acquisitions and is allocated to cash generating units (CGUs). Syndicate capacity is the only other intangible asset with an indefinite useful life. Goodwill and syndicate capacity are tested
annually for impairment. The recoverable amount of a CGU or an intangible asset with an indefinite useful life is determined as the higher of its value in use or its fair value less costs to sell. Annually, the
management of each operating segment or other operating company prepares financial projections for the next three years. Cash flows are extracted from these projections and are extrapolated to a terminal value.
For those CGU’s where the fair value less costs to sell methodology is used, the financial projections are used as inputs to determine maintainable earnings over time. The Group uses external data or obtains
independent professional advice in order to select the relevant discount factors, growth factors and earnings multiples which are to be applied to the relevant cash flows and earnings.

41
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

112Notes to the Financial Statements Sagicor Financial Corporation
112
Amounts expressed in US$000

Year ended December 31, 2012

8.2 Impairment of intangible assets (continued)

The Group initially determines after tax earnings multiples and discount rates to assess impairment, and then determines the pre-tax factors using an iterative method. The carrying values of goodwill and syndicate
capacity and the impairment test factors used were as follows:

2012

Goodwill

2011

Goodwill & syndicate capacity

Carrying
value

After tax
earnings
multiple

Pre tax
earnings
multiple

After tax
discount
factor

Pre tax
discount
factor

Residual
growth rate

Carrying
value

After tax
earnings
multiple

Pre tax
earnings
multiple

After tax
discount
factor

Pre tax
discount
factor

Residual
growth rate

Segment:

Sagicor Life Inc

27,120

10.7, 17.3

8.91, 14.05

Sagicor Life Jamaica

18,349

Sagicor Europe

Other companies

4,869

50,338

7.40

n/a

6.28

n/a

13.5%, 11.3% 15.4%, 13.2%

4.9%, 4.2%

27,077

10.1, 14.5

8.69, 12.34

21,561

23,774

4,869

77,281

7.40

n/a

6.25

n/a

11.8%

12.3%

2.5%

13.5%, 11.3% 15.2%, 13.2%

4.9%, 4.2%

Sensitivity

In recent years, the professional advisors have indicated a range of capital multiples in their report and the Group has selected the mid-point of the range. From 2012, the Group has moved from this practice and
adopted the highest multiple in the range for the Sagicor Life Inc segment as management believes that this choice better represents the requirements of investors who are located in the countries where the operating
segment conducts its business. The results are set out for the Sagicor Life Inc segment in the table below.

For the Sagicor Life Jamaica segment, the Group maintained the selection of the mid-point of the range and the sensitivity to changes in multiples and after tax earnings is set out in the table below.

Sagicor Life Inc segment

Sagicor Life Jamaica segment

After tax earnings multiples

10.7, 17.3

9.9, 16.3

9.3, 15.3

Reduction in forecast earnings

Range of applicable multiples

After tax earnings multiples

7.4

n/a

Excess of recoverable amount

Impairment

40,509

n/a

9,972

(680)

580

(17,031)

Excess of recoverable amount (of 51% interest)

62,473

Impairment (of 51% interest)

n/a

5.93

10%

nil

5.50

10%

n/a

(13,256)

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

113
113

Year ended December 31, 2012

Amounts expressed in US$000

9 FINANCIAL INVESTMENTS

9.1 Analysis of financial investments

2012

2011

Carrying
value

Fair
value

Carrying
value

Fair
value

Held to maturity securities:

Debt securities

20,004

21,835

19,874

21,776

9.1 Analysis of financial investments (continued)

Non-derivative financial assets at fair value through
income comprise:

Assets designated at fair value upon initial recognition

242,523

183,878

2012

2011

Debt securities comprise:

Government and government-guaranteed debt securities

1,622,960

1,808,509

Available for sale securities:

Debt securities

Equity securities

2,020,084

2,056,457

80,361

77,532

2,100,445

2,133,989

Collateralised mortgage obligations

Corporate debt securities

Other securities

196,103

161,999

1,237,510

1,072,238

67,349

64,194

3,123,922

3,106,940

Financial assets at fair value through income:

Debt securities

Equity securities

Derivative financial instruments (note 41.6)

Mortgage loans

Securities purchased for re-sale

116,941

113,732

85,193

52,081

40,212

177

85,193

52,081

40,212

177

28,980

15,201

40,674

492

28,980

15,201

40,674

492

Debt securities include $8,417 (2011 - $7,818) that contain options to convert to common shares of
the issuer.

Corporate debt securities include $17,977 (2011 - $20,451) in bonds issued by an associated
company.

294,604

199,079

Equity securities include $6,688 (2011 - $6,311) in mutual funds managed by the Group.

Loans and receivables:

Debt securities

Mortgage loans

Policy loans

966,893

996,087

916,877

962,761

224,140

224,673

232,306

232,832

125,297

137,324

124,626

134,856

Finance loans and finance leases

154,708

163,270

158,450

160,558

Securities purchased for re-sale

19,357

11,590

Deposits

135,878

295,375

Total financial investments

4,041,326

4,093,473

4,092,166

4,152,816

1,626,273

1,676,589

1,739,224

1,797,972

9.2 Pledged assets

Debt securities include $nil (2011 - $20,040) and policy loans include $nil (2011 - $20,671) in assets
held in trust for a reinsurer (note 20). The income from these assets accrued to the reinsurer.

Debt and equity securities include $100,261 (2011 - $111,891) as collateral for loans payable and
other funding instruments.

43
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

114 Notes to the Financial Statements Sagicor Financial Corporation
114
Amounts expressed in US$000

Year ended December 31, 2012

9.2 Pledged assets (continued)

9.4 Reclassification of financial investments

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
$6,353 (2011 - $5,984), and mortgages and mortgage backed securities having a total market value of
$146,733 (2011 - $131,258).

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, 2012, these pledged assets totalled $679,872 (2011 - $682,479). Of
these assets pledged as security, $42,551 (2011 – $90,705) 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.

As of December 31, 2011, deposits include $46,624 pledged as collateral for a letter of credit facility
(note 39).

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.

Debt securities

Equity securities

Mortgage loans

Securities purchased for re-sale

2012

2011

72,414

106,058

77,045

40,212

177

25,576

40,674

492

In 2008, the Group reclassified certain securities from the available for sale classification to the loans
and receivables classification. The assets reclassified were primarily:

•

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.

2012

2011

Carrying
value

Fair
value

Carrying
value

Fair
value

Government debt securities maturing after
September 2018

53,033

53,642

56,403

50,642

Other debt securities

6,357

6,898

11,755

12,663

59,390

60,540

68,158

63,305

Cumulative net fair value loss, beginning of year

Net fair value gains / (losses) subsequent to restatement

189,848

172,800

Disposals

Effect of exchange rate changes

2012

2011

(11,449)

6,984

(42)

(276)

(4,885)

(7,555)

945

Sagicor
Financial
Corporation

Cumulative net fair value loss, end of year

(4,783)

(11,449)

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

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

Notes to the Financial Statements Sagicor Financial Corporation

Year ended December 31, 2012

Amounts expressed in US$000

115
115

9.4 Reclassification of financial investments (continued)

12 MISCELLANEOUS ASSETS AND RECEIVABLES

The net fair value gain or loss subsequent to restatement approximates the fair value gain or loss 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.

Pension plan assets (note 31)

Real estate developed or held for resale

Deferred policy acquisition costs

Prepaid and deferred expenses

Premiums receivable

2012

2011

Other assets and accounts receivable

2012

2011

2,615

17,234

6,025

8,663

35,712

35,080

105,329

3,356

15,468

62,115

29,733

150,225

39,661

300,558

56,683

25,080

20,323

600

169,159

115,801

41,608

4,741

102,686

331,309

Other accounts receivable include $9,315 (2011 – $4,705) due from managed funds.

(a) Real estate developed or held for resale

Real estate developed for resale includes $8,418 (2011 - $7,703) which is expected to be realised
within one year of the financial statements date.

The provision for unearned premiums and other items are expected to mature within one year of
the financial statements date.

(b) Deferred policy acquisition costs

11 INCOME TAX ASSETS

Deferred income tax assets (note 33)

Income and withholding taxes recoverable

2012

2011

1,674

31,399

33,073

17,803

23,903

41,706

Income and withholding taxes recoverable are expected to be recovered within one year of the
financial statements date.

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:

Gross amount

Balance, beginning of year

Expensed

Additions

Effect of exchange rate changes

Transfer to assets of discontinued operation

Balance, end of year

2012

62,115

(108,554)

93,889

2,276

(43,701)

6,025

2011

60,486

(131,726)

134,070

(715)

62,115

45
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

116
116

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

117
117

Year ended December 31, 2012

Amounts expressed in US$000

13.2 Movement in actuarial liabilities (continued)

(a) Recapture of reinsurance contract held

During the year, Sagicor Life Insurance Company recaptured the 62.5% share of a block of life
insurance and annuity contracts it had previously ceded to ScottishRe Life Corporation. In return for
the recapture of insurance liabilities, SLIC received assets which included financial investments held
in trust under the terms of the reinsurance contract. The effects of this transaction in the financial
statements are set out below.

Assets acquired on recapture of reinsurance contract

Cash and cash equivalents

Financial investments

Adjustments to net insurance assets on recognition of the recapture:

Reinsurers' share of actuarial liabilities

Amounts due to reinsurers

Other liabilities

Gain on recapture of reinsurance contract (note 26)

Income tax expense

Gain on recapture of reinsurance contract, net of income tax

2012

3,826

94,231

98,057

(101,105)

38,226

(3,023)

(65,902)

32,155

(11,254)

20,901

The gain on recapture reflects the difference in the pricing of the reinsurance contract on a USA
statutory insurance basis and the measurement of reinsured liabilities in accordance with note 2.12.
As a result, the assets transferred on the recapture exceeded carrying value of the reinsured liabilities.

13.3 Assumptions – life insurance and annuity contracts

(a)

Process used to set actuarial assumptions and margins for adverse deviations

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.

Any recent changes in actuarial standards and practice are also incorporated in the current valuation.

(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.

Annually, insurers update studies of recent mortality experience. The resulting experience is
compared to external mortality studies including the Canadian Institute of Actuaries (CIA) 1997 - 2004
tables. Appropriate modification factors are selected and applied to underwritten
and non-
underwritten business respectively. Annuitant mortality is 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

Policyholders may allow their policies to lapse prior to the maturity date either by choosing not to pay
premiums or by surrendering their policy for its cash value. Lapse studies are updated annually by
insurers to determine the persistency of the most recent period. Assumptions for lapse experience
are generally based on five-year averages.

47
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

118Notes to the Financial Statements Sagicor Financial Corporation
118

Year ended December 31, 2012

Amounts expressed in US$000

13.3 Assumptions – life insurance and annuity contracts

(d) Assumptions for investment yields

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 long-term government
bonds. It is established for each geographic area and is summarised in the following table.

Ultimate rate of return

2012

2011

Barbados

Jamaica

Trinidad & Tobago

Other Caribbean

USA

5.25%

5.0%

5.25%

7.0%

5.0%

4.5% - 5.5%

5.0% - 5.5%

2.95%

4.0%

(e) Assumptions for operating expenses and taxes

Policy acquisition and policy maintenance expense costs for the 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 are updated annually
and are applied on a per policy basis.

Taxes reflect assumptions for future premium taxes and income taxes levied directly on investment
income (see note 32). For income taxes levied on net income, actuarial liabilities are adjusted for
policy related recognised deferred tax assets and liabilities.

13.3 Assumptions – life insurance and annuity contracts (continued)

(f) Asset defaults

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, where
appropriate, for assets backing the actuarial liabilities, e.g. for investment property, 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 provisions for adverse deviations being included in the
actuarial liabilities as set out in the following table.

Provisions for adverse deviations

2012

2011

Mortality and morbidity

Lapse

Investment yields and asset default

Operating expenses and taxes

Other

79,456

55,994

76,613

19,005

3,472

67,813

48,553

67,814

18,511

234,540

202,691

13.4 Assumptions – health insurance contracts

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.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

119
119

Year ended December 31, 2012

Amounts expressed in US$000

14 OTHER INSURANCE LIABILITIES

14.2 Policy benefits payable (continued)

14.1 Analysis of other insurance liabilities

Dividends on deposit and other policy balances

Policy benefits payable

Provision for unearned premiums

14.2 Policy benefits payable

2012

2011

70,032

83,814

33,353

187,199

69,726

494,198

224,756

788,680

Gross liability

Reinsurers’ share

2012

2011

2012

2011

Movement for the year:

Balance, beginning of year

494,198

355,395

115,801

57,907

Policy benefits assumed on acquisition

Policy benefits incurred

654,443

764,429

68,053

121,966

Policy benefits paid

(629,362)

(620,742)

(64,140)

(61,549)

Recapture of reinsurance contract held

(932)

Effect of exchange rate changes

5,448

(4,884)

2,473

(2,523)

Transfers to discontinued operation

(440,952)

(96,175)

Gross liability

Reinsurers’ share

Balance, end of year

83,814

494,198

25,080

115,801

2012

2011

2012

2011

Analysis of policy benefits payable:

Life insurance and annuity benefits

58,450

55,396

Health claims

2,632

3,021

Property and casualty claims:

Notified outstanding claims

14,698

262,506

Claims incurred but not reported

8,034

173,275

9,744

3,257

8,321

3,758

9,930

2,025

66,500

37,346

14.3 Provision for unearned premiums

Gross liability

Reinsurers’ share

2012

2011

2012

2011

Analysis of the provision:

Property and casualty insurance

32,378

223,889

20,323

41,608

83,814

494,198

25,080

115,801

Health insurance

975

867

Claims discount included in property
and casualty claims payable

Discount rate percentages (1)

16,154

0.1 – 3.7

2,089

0.1 – 3.7

(1) The discount rates reflect the achievable yield over 10 years of the insurer’s investment portfolio.

33,353

224,756

20,323

41,608

The provision for unearned premiums is expected to mature within a year of the financial
statements’ date.

49
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

120 Notes to the Financial Statements Sagicor Financial Corporation
120
Amounts expressed in US$000

Year ended December 31, 2012

14.3 Provision for unearned premiums (continued)

16 NOTES AND LOANS PAYABLE

Gross liability

Reinsurers’ share

2012

2011

2012

2011

Movement for the year:

2012

2011

Carrying
value

Fair
value

Carrying
value

Fair
value

Balance, beginning of year

224,756

240,138

41,608

40,909

7.5% senior notes due 2016

145,865

156,245

145,217

156,017

Premiums written

Premium revenue

377,410

519,399

105,014

119,478

(421,261)

(532,787)

(108,176)

(118,486)

6.5% convertible redeemable
preference shares due 2016

93,636

99,696

87,313

90,072

Effect of exchange rate changes

7,907

(1,994)

909

Transfers to discontinued operation

(155,459)

(19,032)

(293)

Balance, end of year

33,353

224,756

20,323

41,608

15 INVESTMENT CONTRACT LIABILITIES

At amortised cost:

Deposit administration liabilities

Other investment contracts

At fair value through income:

Unit linked deposit administration
liabilities

2012

2011

Carrying
value

Fair
value

Carrying
value

Fair
value

119,589

122,523

242,112

119,589

113,434

128,079

109,125

111,744

247,668

222,559

225,178

104,084

93,000

346,196

351,752

315,559

318,178

Finance lease payable

2,055

241,556

257,996

232,530

246,089

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. Financial covenants in respect of these notes
are summarised in note 46.3(b).

Details of the 6.5% convertible redeemable preference shares due 2016 are set out in note 21.2. The
initial liability for their redemption value was $87,586 and issue costs were $2,989. The initial fair
value of the subscription proceeds was determined by discounting the ultimate redemption value
($120,000), at a rate of 6.5% for 5 years. The discount rate was determined as the estimated interest
rate of 5.71% for 5 year borrowings, plus a premium of 0.79% attributable to the non-contractual
nature of the dividends. The subsequent finance cost recognised is the amortisation of the difference
between the ultimate redemption value and the initial carrying value, calculated on an effective
interest method for the 5 years to maturity.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

121
121

Year ended December 31, 2012

Amounts expressed in US$000

17 DEPOSIT AND SECURITY LIABILITIES

18 PROVISIONS

2012

2011

Carrying
value

Fair
value

Carrying
value

Fair
value

245,675

198,008

591,064

1,954

250,822

210,228

591,654

1,954

261,524

194,104

612,981

3,657

268,825

187,871

602,735

3,657

1,036,701

1,054,658

1,072,266

1,063,088

Pension plans and other retirement benefits (note 31)

Cash-settled compensation benefits

Other provisions

19 INCOME TAX LIABILITIES

At amortised cost:

Other funding instruments

Customer deposits

Securities sold for re-purchase

Bank overdrafts

At fair value through income:

Structured products

9,216

Derivative financial instruments
(note 41.6)

46,512

3,184

8,115

3,184

8,115

Deferred income tax liabilities (note 33)

55,728

11,299

Income taxes payable

2012

2011

43,168

245

37,429

6,677

43,413

44,172

2012

2011

26,373

7,240

33,613

22,705

8,465

31,170

Income taxes payable are expected to be settled within a year of the financial statements’ date.

1,092,429

1,110,386

1,083,565

1,074,387

Other funding instruments consist of loans from banks and other financial institutions and include
balances of $131,009 (2011 - $130,307) 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
capitalize on current market trends.

Collateral for other funding instruments and securities sold under agreements to resell is set out in
note 9.2.

51
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

122Notes to the Financial Statements Sagicor Financial Corporation
122
Amounts expressed in US$000
Year ended December 31, 2012

20 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

21 COMMON AND PREFERENCE SHARES

2012

2011

The Company is authorised to issue:

Amounts due to policyholders
(1)

Amounts due to reinsurers

Amounts due to managed funds

Other accounts payable and accrued liabilities

16,191

15,995

1,349

80,890

25,537

66,975

875

101,000

• an unlimited number of common shares,
• an unlimited number of preference shares, and
• an unlimited number of convertible redeemable preference shares.

In each case the shares are without nominal or par value.

(1) Includes $nil (2011 - $40,711) in respect of assets held in trust (see note 9.2).

114,425

194,387

21.1 Common shares

2012

2011

Number
in 000’s

Share
capital

Number
in 000’s

Share
capital

Issued and fully paid:

Balance, beginning of year

303,917

301,600

291,341

281,801

Allotments arising from:

Share issue

(1)

12,576

19,799

Balance, end of year

303,917

301,600

303,917

301,600

Treasury shares:

Shares held for LTI and ESOP,
end of year (note 30.1)

(3,028)

(5,542)

(2,966)

(5,552)

Total

300,889

296,058

300,951

296,048

The common shares are listed on the Barbados, Trinidad & Tobago and London stock exchanges.

(1) Share issue at US $1.63 or Barbados $3.26 per share on July 18, 2011. Price protection rights

in relation to the new share issue are disclosed in note 46.3(c).

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

123
123

Year ended December 31, 2012

Amounts expressed in US$000

21.2 Convertible redeemable preference shares

21.3 Dividends (continued)

On July 18, 2011, the Company issued 120,000,000 convertible redeemable preference shares with
the following features:
•
• Annual dividend rate of 6.5%, dividends to be declared by the Company’s directors’ and payable

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

half yearly on May 15 and November 15;

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

• Redeemable on July 18, 2016 at issue price, if not converted before.

The subscription consideration was $120,000 and after deducting issue costs, the net consideration
totalled $115,906. The preference shares are accounted for as a compound financial instrument (see
note 2.20(b)) and at issue date were recognised in the statement of financial position as a financial
liability of $84,597 (note 16) and as equity of $31,309 (note 22).

The preference shares are listed on the Barbados and Trinidad & Tobago stock exchanges. Put
option rights in respect of the preference shares are disclosed in note 46.3(c).

21.3 Dividends

The dividends declared paid during the year in respect of the Company’s convertible redeemable
preference shares and common shares are set out in the following table.

Dividends declared and paid:

Preference shares

Common shares

2012

2011

Per share

Total Per share

Total

6.50 ¢

4.0 ¢

7,800

2.12 ¢

(1)

12,035

4.0 ¢

19,835

2,544

11,784

14,328

(1) Prorated amount from issue date to November 15.

The dividends declared after the date of the financial statements in respect of the Company’s
convertible redeemable preference shares and common shares are set out in the following table.

2012

2011

Per share

Total Per share

Total

Dividends proposed:

Preference shares - May 15

Common shares - final for current year

3.25 ¢

2.0 ¢

3,900

3.25 ¢

6,018

2.0 ¢

9,918

3,900

6,019

9,919

21.4 Restrictions on common share dividends

On June 2, 2011, the Company’s Articles of Incorporation were amended to impose the following
limitations on the payment of common share dividends.

(i)

(ii)

For any 6 month period that the convertible redeemable preference shares are not paid,
dividends on common shares shall be suspended for that period plus the next 6 month period,
and the Company shall not repurchase any of its common shares, except when pursuant to
the LTI pan and ESOP.

The Company shall not pay any dividends on its common shares, in respect of the 2011
financial year or thereafter, or repurchase any of its common shares, other than a repurchase
pursuant to the LTI plan and ESOP, if the cumulative amount of such dividends and
repurchases after July 31, 2011 would exceed 50% of the cumulative amount of Group net
income from January 1, 2011.

53
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

124
124

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

125
125

Year ended December 31, 2012

Amounts expressed in US$000

23 PARTICIPATING ACCOUNTS

24 PREMIUM REVENUE

The movements in the participating accounts during the year and the amounts in the financial
statements relating to participating accounts were as follows:

Closed participating
account

Open participating
account

2012

2011

2012

2011

Life insurance

Annuity

Health insurance

Movement for the year:

Property and casualty insurance

66,157

63,227

Balance, beginning of year

4,147

6,585

(1,946)

(2,238)

757,223

691,208

Total comprehensive income / (loss)

(1,874)

(2,438)

(10,412)

545

Return of transfer to support profit
distribution to shareholders

(248)

(253)

Balance, end of year

2,273

4,147

(12,606)

(1,946)

Financial statement amounts:

Assets

Liabilities

Revenues

Benefits

Expenses

Income taxes

101,164

100,520

241,414

246,167

98,891

13,263

13,180

1,766

258

96,373

254,020

248,113

9,380

10,179

1,477

154

31,343

36,005

5,288

634

30,007

22,927

5,948

580

Gross premium

Ceded to reinsurers

2012

2011

2012

2011

362,563

353,467

38,910

36,897

187,684

142,043

140,819

132,471

361

5,164

47,785

92,220

322

3,369

46,070

86,658

55
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

126Notes to the Financial Statements Sagicor Financial Corporation
126
Amounts expressed in US$000
Year ended December 31, 2012

25 NET INVESTMENT INCOME

25 NET INVESTMENT INCOME (continued)

2012

2011

Further details of interest income and investment gains are set out in the following table.

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

254,578

249,310

2,297

5,437

3,071

5,380

34,506

34,933

3,808

128

2,997

727

300,754

296,418

2,064

1,607

1,935

5,606

15,493

1,702

1,527

18,722

Net investment income

295,148

277,696

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 classification.

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.

Interest income:
(1)

Debt securities

Mortgage loans

Policy loans

Finance loans and finance leases

Securities purchased for re-sale

Deposits

Other balances

Net investment gains / (losses):

Debt securities

Equity securities

Investment property

Other financial instruments

2012

2011

206,502

195,752

19,611

8,878

15,145

781

3,670

(9)

22,302

7,998

16,494

1,228

5,452

254,578

249,310

29,471

5,871

(2,489)

1,653

34,506

26,322

13,824

(839)

(4,374)

34,933

(1) Includes $1,922 (2011 - $1,750) from an associated company.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

127
127

Year ended December 31, 2012

Amounts expressed in US$000

26 FEES AND OTHER REVENUE

28 INTEREST EXPENSE

2012

2011

2012

2011

Insurance contracts

Investment contracts

Other funding instruments

Customer deposits

Securities sold for re-purchase

Other items

2,810

17,992

6,513

7,297

31,774

2,079

68,465

3,934

19,262

6,822

7,366

30,803

2,808

70,995

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 classification.

The capital and income returns of most financial liabilities designated at fair value through income
accrue directly from the capital and income returns of financial assets designated at fair value through
income. Therefore, the related interest expense does not affect the net income of the Group.

Fee income – assets under administration

Fee income – deposit administration and policy funds

Commission income on insurance and reinsurance contracts

Gain on recapture of reinsurance contract held (note 13.2(a))

Other fees and commission income

Foreign exchange gains

Other operating and miscellaneous income

Gain arising on acquisition of insurance business (note 37)

14,590

1,090

14,086

32,155

15,813

6,678

17,472

2,369

15,838

1,282

15,627

15,011

1,082

13,407

104,253

62,247

27 POLICY BENEFITS AND CHANGE IN ACTUARIAL LIABILITIES

Gross benefit

Ceded to reinsurers

2012

2011

2012

2011

Life insurance benefits

180,560

163,664

17,717

17,893

Annuity benefits

Health insurance claims

Property and casualty claims

124,207

111,810

109,740

16,218

99,877

20,612

9,363

3,076

8,192

Total policy benefits

430,725

395,963

38,348

9,894

2,480

11,463

41,730

Change in actuarial liabilities

169,033

107,137

(9,508)

(9,398)

Total policy benefits and change in
actuarial liabilities

599,758

503,100

28,840

32,332

57
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

128 Notes to the Financial Statements Sagicor Financial Corporation
128
Amounts expressed in US$000

Year ended December 31, 2012

29 EMPLOYEE COSTS

30.1 The Company (continued)

Included in administrative expenses, commissions and related compensation are the following:

The movement in restricted share grants during the year is as follows:

2012

2011

2012

2011

Administrative staff salaries, directors’ fees and short-term benefits

82,101

77,021

Employer contributions to social security schemes

Equity-settled compensation benefits (note 30.1 to 30.3)

Employer contribution to defined contribution pension schemes

Costs – defined retirement benefits (note 31 (b))

6,345

5,783

662

10,589

105,480

5,789

4,045

537

9,208

96,600

30 EQUITY COMPENSATION BENEFITS

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.

(a)

LTI plan – restricted share grants

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.

Number of
grants
‘000

Weighted
average
price

Number of
grants
‘000

Weighted
Average
price

Balance, beginning of year

1,413

US$1.44

752

US$1.45

Grants issued

Grants vested

1,521

US$1.09

1,101

US$1.44

(316)

US$1.27

(440)

US$1.45

Balance, end of year

2,618

US$1.25

1,413

US$1.44

Grants issued may be satisfied out of new shares issued by the Company or by shares acquired in the
market. The shares acquired in the market and distributed during the year were as follows:

2012

2011

Number
in 000’s

$000

Number
in 000’s

$000

Balance, beginning of year

Shares acquired

Shares distributed

Balance, end of year

300

(204)

112

249

(181)

317

(301)

459

(435)

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

129
129

Year ended December 31, 2012

Amounts expressed in US$000

30.1 The Company (continued)

(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. Options vest over four years, 25% each on the first four
anniversaries of the grant date. Options are exercisable up to 10 years from the grant date.

The movement in share options for the year and details of the share options and assumptions used in
determining their pricing are as follows:

2012

2011

Number of
options
‘000

Weighted
average
exercise
price

Number of
options
‘000

Weighted
average
exercise
price

Balance, beginning of year

Options granted

Options lapsed/forfeited

Balance, end of year

9,899

1,538

US $1.92

US $1.53

(182)

US $1.94

11,255

US $1.86

Exercisable at the end of the year

6,419

US $2.06

Share price at grant date

US $1.48 – 2.50

Fair value of options at grant date

US $0.39 – 0.69

Expected volatility

Expected life

Expected dividend yield

Risk-free interest rate

19.3% - 35.8%

7.0 years

2.6% - 3.1%

4.8% – 6.8%

7,342

2,557

9,899

4,658

US $2.07

US $1.48

US $1.92

US $2.13

US $1.48 – 2.50

US $0.39 – 0.69

19.3% - 35.8%

7.0 years

2.8% - 3.1%

4.8% – 6.8%

30.1 The Company (continued)

The expected volatility of options is based on statistical analysis of monthly share prices over the 7
years prior to grant date.

From 2006, 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. During 2012, the rules were
amended so that vesting will take place in four equal annual instalments commencing one year after
the award. The change will come into effect during 2013.

The shares acquired by the Trustees during the year were as follows:

2012

2011

Number
in 000’s

$000

Number
in 000’s

$000

Balance, beginning of year

2,950

5,528

2,381

4,629

Shares acquired

Shares distributed

(34)

(78)

569

899

Balance, end of year

2,916

5,450

2,950

5,528

30.2

Sagicor Life Jamaica Limited

(a) Long-term incentive plan

Effective May 1, 2003, Sagicor Life Jamaica 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.

59
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

130Notes to the Financial Statements Sagicor Financial Corporation
130
Amounts expressed in US$000

Year ended December 31, 2012

30.2 Sagicor Life Jamaica Limited (continued)

Sagicor Life Jamaica introduced a new Long Term Incentive (LTI) plan effective January 2007, which
replaced the previous Stock Option plan. Under the LTI plan, stock options are granted each year
following the measurement year.

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 Sagicor Life Jamaica 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.

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 $.

2012

2011

Number of
options
‘000

Weighted
average
exercise
price

Number of
options
‘000

Weighted
average
exercise
price

48,122

7,968

(8,165)

(3,335)

44,590

25,821

J$6.18

J$7.52

J$5.98

J$6.99

J$6.39

J$6.49

40,917

17,393

(6,937)

(3,251)

48,122

25,494

J$6.23

J$6.51

J$6.44

J$8.10

J$6.18

J$6.56

Balance, beginning of year

Options granted

Options exercised

Options lapsed/forfeited

Balance, end of year

Exercisable at the end of the year

Sagicor
Financial
Corporation

Further details of share options and the assumptions used in determining their pricing are as follows:

2012

2011

Fair value of options outstanding

J$44,590,000

J$48,122,000

Share price at grant date

J$4.20 – 7.92

J$4.20 – 9.00

Exercise price

J$4.20 – 7.92

J$4.20 – 9.00

Standard deviation of expected share price returns

25.0%

39.0%

Remaining contractual term

Risk-free interest rate

1 - 6 years

7.65%

12.6%

The expected volatility is based on statistical analysis of daily share prices over three years.

(b) Employee share purchase plan

Sagicor Life Jamaica 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 $748
(2011 – $719).

30.3 Sagicor Investments Jamaica Limited

Sagicor Investments Jamaica 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 Sagicor Investments Jamaica
before the options vest. Options vest over four years at 25% on each anniversary date of the grant.

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

131
131

Year ended December 31, 2012

Amounts expressed in US$000

30.3 Sagicor Investments Jamaica Limited (continued)

31 EMPLOYEE RETIREMENT BENEFITS

The movement in share options are set out in the following table. J$ represents Jamaica $.

2012

2011

Number of
options
‘000

Weighted
average
exercise
price

Number of
options
‘000

Weighted
average
exercise
price

12,956

3,808

J$16.54

J$21.44

11,393

3,138

J$16.01

J$18.00

(1,605)

J$15.68

(1,275)

J$14.68

Balance, beginning of year

Options granted

Options exercised

Options lapsed / forfeited

(680)

J$17.92

(300)

J$21.75

Balance, end of year

14,479

J$17.76

12,956

J$16.54

Exercisable at the end of the year

8,384

J$17.36

6,935

J$17.41

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.

(a)

Amounts recognised in the financial statements

Fair value of retirement plan assets

Present value of funded retirement obligations

Present value of unfunded retirement obligations

Unrecognised actuarial losses

Other

2012

2011

108,240

105,127

(123,460)

(109,083)

(15,220)

(40,839)

16,178

(672)

(3,956)

(38,635)

8,518

Amounts recognised in the financial statements

(40,553)

(34,073)

Further details of share options and the assumptions used in determining their pricing are as follows:

Represented by:

2012

2011

Amounts held on deposit by the Group as deposit
administration contracts

Fair value of options outstanding

J$ 14,479,000

J$ 12,956,000

Share price at grant date

J$ 12.20 – 26.48

J$ 13.00 – 21.05

Exercise price

J$ 12.20 – 26.48

J$ 12.20 – 20.50

Standard deviation of expected share price returns

Weighted average remaining contractual term

39.7%

3 years

30.0%

3 years

Risk-free interest rate

7.73% - 13.24%

11.54% - 13.24%

The expected volatility is based on statistical analysis of daily share prices over one year.

Other recognised liabilities

Total recognised liabilities (note 18)

Recognised assets (note 12)

(28,075)

(25,101)

(15,093)

(43,168)

2,615

(12,328)

(37,429)

3,356

(40,553)

(34,073)

61
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

132 Notes to the Financial Statements Sagicor Financial Corporation
132

Year ended December 31, 2012

Amounts expressed in US$000

31 EMPLOYEE RETIREMENT BENEFITS (continued)

The net benefit defined obligation and experience adjustments for the last 5 years are as follows:

Present value of
retirement obligations

2012

2011

2010

2009

2008

Movement in retirement plan assets

2012

2011

(164,299)

(147,718)

(134,913)

(110,952)

(107,289)

Plan assets, beginning of year

105,127

94,059

Fair value of plan assets

108,240

105,127

94,059

81,062

75,883

Expected return on plan assets

Net obligation

(56,059)

(42,591)

(40,854)

(29,890)

(31,406)

Actuarial gains and losses

Experience adjustment on:

Plan liabilities

Plan assets

555

257

3,216

(1,252)

2,394

(759)

(2,238)

(811)

(9,565)

9,952

(b) Amounts recognised in the income statement

Current service cost

Interest cost

Net actuarial (gains) / losses recognised during the year

Past service cost

Curtailment gain

Expected return on retirement plan assets

Total cost

2012

2011

5,689

12,102

457

1,718

474

(9,851)

10,589

5,492

11,705

247

1,703

(9,978)

9,208

The actual return on retirement plan assets was $8,439 (2011 – $11,835).

Contributions made by the Group

Contributions made by plan participants

Benefits paid

Other

Effects of exchange rate changes

9,851

(1,431)

5,296

3,050

(6,256)

(1,412)

(5,985)

9,978

439

3,981

3,625

(5,969)

(370)

(616)

Plan assets, end of year

108,240

105,127

For the next financial year, the total employer contributions are estimated at $5,832 (2011 -
$5,231).

Distribution of the plan assets

2012

2011

Equity unit linked pension funds under management

Other assets

Total plan assets

102,246

5,994

97,977

7,150

108,240

105,127

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

133
133

Year ended December 31, 2012

Amounts expressed in US$000

31 EMPLOYEE RETIREMENT BENEFITS (continued)

(d) Movement in retirement obligations

(e) Principal assumptions

Retirement obligations, beginning of year

147,718

134,913

Pension benefits

Barbados

Jamaica

Trinidad

2012

2011

The principal actuarial assumptions by geographic area used for 2012 were as follows:

Other
Caribbean

Current service cost

Interest cost

Contributions made by employees

Actuarial gains and losses

Benefits paid

Past service cost

Curtailments

Other

Effects of exchange rate changes

Retirement obligations, end of year

7,168

12,102

3,037

6,135

(7,340)

1,718

474

(157)

(6,556)

6,912

11,705

2,814

(3,457)

(7,048)

1,703

845

(708)

Discount rate

7.75% - 7.80%

10.50%

5.50%

4.25% - 7.80%

Expected return on plan assets

7.75% - 7.80%

9.50%

5.50%

4.25% - 7.80%

Future salary increases

3.00% - 6.50%

7.00%

4.00%

2.00% - 5.50%

Future pension increases

2.50%

2.00%

1.00%

0.25%-2.50%

Future changes in National Insurance
Scheme Ceilings

3.50%

4.00%

3.50%

Other retirement benefits

Barbados

Jamaica

164,299

147,718

Discount rate

7.75%

10.50%

Pension plans have purchased annuities from insurers in the Group to pay benefits to plan retirees. These
obligations are included in actuarial liabilities in the statement of financial position and are excluded from
the table above.

Expected return on plan assets

Future salary increases

Long term increase in health costs

4.25%

9.50%

7.00%

8.00%

The effect of a change of 1% in the assumption for long-term increase in health costs as of December
31, 2012 is estimated as follows:

Revised service cost

Revised interest cost

Revised accumulated retirement benefit

Effect of 1%
decrease

Effect of 1%
increase

435

854

8,986

676

1,169

12,052

63
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

134Notes to the Financial Statements Sagicor Financial Corporation
134
Amounts expressed in US$000

Year ended December 31, 2012

32 INCOME TAXES

32 INCOME TAXES (continued)

Group companies operating in Caribbean countries are largely taxed according to the taxation rules of
the country where the operations are carried out. The principal rates of taxation are summarised in
note 2.19(c). The income tax expense and the income subject to taxation in the statement of income
are set out in the following table.

Income tax on the total income subject to taxation differs from the theoretical amount that would arise
is as follows:

2012

2011

Income tax expense:

Current tax

Deferred tax

Share of tax of associated companies

Sources of income subject to tax:

Investment income subject to direct taxation

Net income subject to direct taxation

Total income subject to taxation

2012

2011

Total income subject to taxation

179,641

171,371

16,015

8,164

271

24,450

106,764

72,877

179,641

19,451

2,210

176

21,837

112,831

58,540

171,371

Taxation at the applicable rates on income subject to tax

38,428

35,689

Adjustments to current tax for items not subject to / allowed for tax

(21,399)

(19,791)

Other current tax adjustments

Adjustments for current tax of prior periods

Movement in unrecognised deferred tax asset

Deferred tax relating to the origination of temporary differences

Deferred tax relating to changes in tax rates or new taxes

Deferred tax that arises from the write down / (reversal of a write
down) of a tax asset

Other taxes

(255)

(275)

5,464

6,185

(16)

(15)

377

(5)

(277)

(1,300)

2,795

24,450

591

21,837

In addition to the above, the income tax on items in other comprehensive income is set out in note 35.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

135
135

Year ended December 31, 2012

Amounts expressed in US$000

33 DEFERRED INCOME TAXES

33 DEFERRED INCOME TAXES (continued)

2012

2011

Analysis of deferred income tax liabilities

2012

2011

Analysis of deferred income tax assets:

Pensions and other retirement benefits

Unrealised losses on financial investments

Unused tax losses

Off-settable tax liabilities in respect of policy liability timing
differences and other items

490

1,453

1,093

522

16,238

Accelerated tax depreciation

Policy liabilities taxable in the future

Pensions and other retirement benefits

Accrued interest

(953)

(1,101)

Unrealised gains on financial investments

Other items

Total deferred income tax assets (note 11)

Deferred income tax assets to be recovered within one year

684

1,674

1,473

1,051

17,803

1,533

Off-settable tax assets in respect of unused tax losses and
other items

Other items

Total (note 19)

2,370

28,923

1,549

28,306

1,293

1,707

23,558

23,265

(31,130)

(35,264)

1,326

26,373

3,142

22,705

Deferred income tax liabilities to be settled within one year

9,978

9,223

Unrecognised tax balances:

Tax losses

Potential deferred income tax assets

Expiry period for unrecognised tax losses:

2012

2013

2014

2015

2016

2017

After 2017

No specified expiry date

169,366

43,174

150,481

38,440

2,601

9,181

14,370

18,807

21,078

94,324

9,005

1,262

2,592

9,178

14,382

18,836

19,496

75,743

8,992

169,366

150,481

65
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

136 Notes to the Financial Statements Sagicor Financial Corporation
136

Year ended December 31, 2012

Amounts expressed in US$000

34 EARNINGS PER COMMON SHARE

34 EARNINGS PER COMMON SHARE (continued)

The basic earnings per common share is computed by dividing earnings attributable to common
shareholders by the weighted average number of shares in issue during the year, after deducting
treasury shares. Earnings attributable to common shareholders recognise the impact on net income
of the Company’s convertible redeemable preference shares (note 21.2).

The table below derives the adjusted earnings attributable to common shareholders, the adjusted
weighted average number of common shares, and the fully diluted earnings per common share.

2012

2011

The table below derives the earnings attributable to common shareholders and the basic earnings per
common share.

Earnings attributable to common shareholders

8,836

471

Net income attributable to common shareholders

Finance costs attributable to preference share subscription

Amortisation of issue expenses allocated to
preference share reserve

Preference share dividends declared

Earnings attributable to common shareholders

2012

2011

10,374

6,483

973

2,114

Weighted average number of shares in issue in thousands

301,690

294,768

LTI restricted share grants

ESOP shares

1,113

2,930

897

2,302

Adjusted weighted average number of shares in issue

305,733

297,967

(221)

(72)

Fully diluted earnings per common share

2.9 ¢

0.2 ¢

(7,800)

(2,544)

8,836

471

Attributable to:

Continuing operations

Discontinued operation

16.8 ¢
(13.9) ¢

15.1 ¢
(14.9) ¢

Weighted average number of shares in issue in thousands

301,690

294,768

Basic earnings per common share

2.9 ¢

0.2 ¢

By substituting net income with total comprehensive income, the amounts deriving basic total
comprehensive earnings per common share from continuing operations are set out below.

Attributable to:

Continuing operations

Discontinued operation

16.8 ¢
(13.9) ¢

15.1 ¢
(14.9) ¢

The computation of diluted earnings per common share recognises the dilutive impact of LTI share
grants and share options (note 30.1), ESOP shares grants (note 30.1), and the convertible
redeemable preference shares. In computing diluted earnings per share, the income attributable to
common shareholders is adjusted by the dilutive impact of the convertible preference shares and the
weighted average number of common shares is adjusted by the dilutive impacts of the aforementioned
share grants, options and preference shares.

2012

2011

Total comprehensive income attributable to common shareholders

45,676

45,275

Total comprehensive earnings attributable to common shareholders

44,138

44,771

Weighted average number of shares in issue in thousands

301,690

294,768

Basic total comprehensive earnings per common share
from continuing operations

14.6¢

15.2 ¢

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

137
137

Year ended December 31, 2012

Amounts expressed in US$000

35 OTHER COMPREHENSIVE INCOME

The following additional information is provided in respect of items in other comprehensive income (OCI) from continuing operations.

OCI tax
expense

20112

After tax OCI is attributable to

Shareholders

Participating
policyholders

Minority
interests

Total

OCI tax
expense

2011

After tax OCI is attributable to

Shareholders

Participating
policyholders

Minority
interests

Total

Items that may be reclassified subsequently
to income:

Available for sale assets:

Unrealised gains / (losses) arising on
revaluation

(9,596)

32,919

1,251

3,853

38,023

(8,419)

15,034

530

749

16,313

(Gains) / losses transferred to income

3,246

(9,087)

(4,041)

(13,128)

(2,011)

(3,532)

(1,483)

(5,015)

Net change in actuarial liabilities

11,035

(21,027)

(1,251)

(22,278)

7,080

(10,929)

Retranslation of foreign currency operations

Other items

(19)

(9,681)

(19)

4,666

(6,895)

239

(8,679)

(18,121)

(19)

(2,425)

(8,867)

(15,523)

(3,350)

(1,852)

(530)

(15)

(11,459)

(995)

(3,435)

(1,729)

(3,596)

Items that will not be reclassified
subsequently to income:

Unrealised gains / (losses) arising on revaluation
of owner occupied property

163

(319)

(156)

(345)

2,282

727

3,009

4,707

(6,732)

239

(9,186)

(15,679)

(3,695)

430

(15)

(1,002)

(587)

67
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

138Notes to the Financial Statements Sagicor Financial Corporation
138
Amounts expressed in US$000

Year ended December 31, 2012

36 CASH FLOWS

36.1 Operating activities

36.1 Operating activities (continued)

The gross changes in investment property, debt securities and equity securities are as follows.

2012

2011

2012

2011

Adjustments for non-cash items, interest and dividends:

Interest and dividend income

Net investment gains

Net increase in actuarial liabilities

Gain on recapture of insurance portfolio

Interest expense and finance costs

Depreciation and amortisation

Increase in provision for unearned premiums

Other items

Net increase in investments and operating assets:

Investment property

Debt securities

Equity securities

Mortgage loans

Policy loans

Finance loans and finance leases

Securities purchased for re-sale

Deposits

Other assets and receivables

(256,875)

(252,381)

(34,506)

178,541

(32,155)

86,362

15,901

212

(3,924)

(46,444)

(34,933)

116,535

86,925

17,694

1,335

16,179

(48,646)

1,274

(375)

(142,401)

(356,190)

(50,219)

6,995

(913)

2,893

(3,413)

(5,513)

(7,633)

309

20,432

(2,098)

(14,802)

740

59,384

(1,004)

(198,930)

(293,604)

Investment property:

Disbursements

Disposal proceeds

Debt securities:

Disbursements

Disposal proceeds

Equity securities:

Disbursements

Disposal proceeds

Net increase in operating liabilities:

Insurance liabilities

Investment contract liabilities

Other funding instruments

Deposits

Securities sold for re-purchase

Other liabilities and payables

(356)

1,630

1,274

(626)

251

(375)

(915,967)

(1,470,776)

773,566

1,114,586

(142,401)

(356,190)

(116,964)

66,745

(50,219)

4,251

37,631

(13,591)

15,528

(27,019)

(2,816)

13,984

(73,130)

73,439

309

2,797

21,501

31,221

20,713

46,869

(13,533)

109,568

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

139
139

Year ended December 31, 2012

Amounts expressed in US$000

37 SUBSIDIARY ACQUISITION AND OWNERSHIP CHANGES

On July 13, 2012, the Group sold an interest in Sagicor Life Jamaica Limited totalling 8% to the major
minority shareholder, 0.2% to the Sagicor Life Jamaica LTI plan and an insignificant amount of shares
to the market of the Jamaica Stock Exchange. The net proceeds on sale totalled $35,416 representing
cash consideration, and gave rise to a net gain to shareholders of $4,862 which has been booked to
retained earnings, and net movements in shareholders' equity reserves of $1,028.

On September 28, 2012, Sagicor Life Insurance Company (SLIC) completed its acquisition of PEMCO
Life Insurance Company (PEMCO Life), a life insurance company based in the State of Washington,
USA. The fair values of the net assets acquired, the purchase consideration, and the gain arising on
acquisition are set out below.

36.2 Investing activities

Property, plant and equipment:

Purchases

Disposal proceeds

36.3 Financing activities

Other notes and loans payable:

Proceeds

Repayments

2012

2011

(21,591)

(14,625)

1,748

2,155

(19,843)

(12,470)

2012

2011

2,055

(32,797)

Net assets acquired:

Financial investments

Miscellaneous assets and receivables

36.4 Cash and cash equivalents

Cash resources

Call deposits and other liquid balances

Bank overdrafts

Other short-term borrowings

Cash and cash equivalents of discontinued operation (note 38)

2012

2011

Cash resources

Policy liabilities

183,996

126,568

Income tax liabilities

44,382

(1,954)

99,181

(3,657)

(31,927)

(15,527)

19,067

213,564

58,094

264,659

Accounts payable and accrued liabilities

Total net assets

Share of net assets acquired

Purchase consideration and related costs

Gain arising on acquisition (note 26)

Fair Value

Acquiree's
carrying value

8,825

2,405

769

(5,724)

(114)

6,161

8,994

122

769

2,321

(1,868)

(108)

10,230

(7,861)

2,369

69
Sagicor
Financial
Corporation

The gain on acquisition reflects the pricing of the transaction which valued the insurance liabilities on a
USA statutory insurance basis. The fair value of the insurance liabilities acquired have been
determined consistently with the Company's accounting policies as set out in note 2.12. PEMCO Life
was merged with SLIC effective December 31, 2012.

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

140Notes to the Financial Statements Sagicor Financial Corporation
140
Amounts expressed in US$000
Year ended December 31, 2012

DISCONTINUED OPERATION

38 Discontinued operation (continued)

The operations of the Sagicor Europe operating segment are presented as discontinued operations
in these financial statements. The assets and liabilities held for sale of the discontinued operation
are as follows:

Financial investments include $48,918 in deposits which are pledged as collateral for a letter of credit
facility (note 39).

Of the balances in the foregoing table, only financial investment debt securities totalling $188,425 are
carried at fair value. These are classified as Level 1 financial instruments (see note 41.5(b)).

Included in insurance liabilities are property and casualty benefits payable of $440,952 and provision
for unearned property and casualty premium of $155,459. The corresponding reinsurers' share of
property and casualty policy benefits payable totalling $96,175 and reinsurers' share of unearned
property and casualty premium totalling $19,032 are both included in reinsurance assets.

The non-current assets of the discontinued operation totalled $35,515 (2011 - $33,801) and the
additions to non-current assets for the year ended December 31, 2012 totalled $1,821 (2011 -$3,154).

Assets

Property, plant and equipment

Intangible assets

Financial investments

Reinsurance assets

Income tax assets

Miscellaneous assets and receivables

Cash resources

Liabilities

Insurance liabilities

Provisions

Accounts payable and accrued liabilities

2012

544

24,727

346,735

116,653

12,037

186,319

18,717

705,732

603,807

3,271

23,899

630,977

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

141
141

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

142
142

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

143
143

Year ended December 31, 2012

Amounts expressed in US$000

38 Discontinued operation (continued)

(a) Insurance risks of discontinued operation

The principal activity of the discontinued operation is the participation in property and casualty
insurance business at a Lloyd's of London syndicate. In addition to the insurance risks outlined in
note 42, Sagicor Europe's syndicate at Lloyd's is subject to risk management standards which
reflect the insurance, financial and operational risks pertinent to the business and how they are
identified, quantified, measured, assessed and managed. The risk management process has the
following features:

• The use of appropriate and reliable tools, including risk indicators, risk and control self

assessments and stress and scenario testing.

• Executive Directors, management and staff are accountable for managing risk in line with

established roles and responsibilities.

• Compliance with relevant legislation, regulatory requirements, guidance and codes of

practice.

• Assurance that the syndicates are managing all significant risks.

Insurance and other risks are recorded within the risk register with the prime risks stresses to
calculate the syndicate’s capital requirements.

The Corporation of Lloyd’s oversees the operations of all syndicates. Lloyd’s uses various tools to
control and monitor insurance risk, including:

• Setting guidelines for catastrophe exposure and reinsurance usage,
• Setting realistic disaster scenarios to assist in the measurement and management of

catastrophe exposures at syndicate level,

• Establishing and monitoring underwriting standards, including claims and exposure

management principles,

• Reviewing annual underwriting year business plans and determining appropriate capital

requirements.

In the submission of annual plans, consideration is given to cycle management, historical and
projected performance, reinsurance ceded, syndicate specific issues and franchise guidelines. The
key risks assessed are:

• Exposures (premium and loss ratios),
• Catastrophe losses and realistic disaster scenarios,
• Claims reserves.

Syndicates submit quarterly returns and performance is benchmarked against plan.

The preparation and submission of the 2013 annual plan incorporated a transition to Solvency II
standards. Milestones were established by Lloyd's for the transition and involved developing
Solvency II compliant models to document and measure risks.

(b) Capital adequacy of discontinued operation

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 which are 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
dependent on both the identification and subsequent analysis of
individual risks by management. The risk register is subject to regular
review and is updated to
reflect the changes in the syndicate’s risk profile. The risk classes comprise insurance, credit,
market, liquidity, Group and
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.

73
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

144Notes to the Financial Statements Sagicor Financial Corporation
144
Amounts expressed in US$000
Year ended December 31, 2012

38 Discontinued operation (continued)

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, banker’s irrevocable standby letters of credit or reinsurance
financing. 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 2013 underwriting year incorporated a transition to Solvency II and included the development of
a Solvency Capital Requirement.

The FaL requirements for the Syndicates at the beginning of each underwriting are as follows:

Financial covenants in respect of the banker's letters of credit facility are summarised in the
following table.

Covenant

Description

Tangible net
worth (1)

The Sagicor Group is required to maintain a tangible net worth greater than
$250,000 at all times, such covenant to be tested annually. As of December 31,
2012 and 2011, the Group satisfied this requirement.

Interest
coverage
ratio (1)

Financial
strength (2)

The Sagicor Group is required to maintain an interest coverage ratio of at least 5:1
at all times, such covenant to be tested annually. For the years ended December
31, 2012 and 2011, the Group’s interest coverage ratio was 5.5:1 and 4.8:1
respectively.

Sagicor Life Inc is required to maintain minimum financial strength ratings of BBB-
from Standard & Poor’s and of B+ from A.M. Best. Sagicor Life Inc has
maintained the required financial strength ratings for the year and up to the date of
issue of these financial
statements.

The covenant described in note 46.3(b) is incorporated into the letter of credit
facility.

Underwriting year

2013 - £000

2012 - £000

2011 - £000

Permitted liens

FaL requirement:

Syndicate 1206

Syndicate 44

Represented by:

Banker’s letters of credit

Financial investments

Reinsurance financing

Solvency surplus

164,878

4,910

169,788

52,100

36,551

82,498

152,004

5,199

157,203

52,100

31,619

78,750

238

137,241

4,438

141,679

52,100

31,622

78,750

171,149

162,707

162,472

(1) As defined in the letter of credit agreement.
Failure to satisfy these covenants may result in an event of default in which case the bank may

cancel the facility; the facility currently has a four year notice period with Lloyd’s of London.

(2) There is a further requirement of no material adverse change in the financial condition of Sagicor

Life Inc.

Failure to satisfy the ratings and / or material adverse change criteria may result in the bank

requiring the Group to fully collateralise the facility.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

145
145

Year ended December 31, 2012

Amounts expressed in US$000

39 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 (1)
(2)

Letter of credit facility

2012

2011

8,994

84,236

93,230

12,495

80,550

93,045

(1) 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.

(2)

Collateral for this facility totalled $48,918 (2011 - $46,624) and the associated financial
covenants are disclosed in note 38(b).

(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.

39 CONTINGENT LIABILITIES (continued)

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 in 2004 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.

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 remains in discussions with the FSC on the
matter; however to date, no final decision has been agreed. The cost, if any, of resolving this issue
cannot be quantified at this time.

Further, over the past few years, the Group improved the review process for Universal Life policies.
Where a policy has insufficient funds, the policyholder is given a number of options to improve the
fund. These include reducing the coverage, increasing the premium or converting to another plan. The
improvements to the Universal Life policy review process and corrective measures taken by
policyholders have significantly reduced any exposure.

75
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

146Notes to the Financial Statements Sagicor Financial Corporation
146
Amounts expressed in US$000

Year ended December 31, 2012

40 RELATED PARTY TRANSACTIONS

41 FINANCIAL RISK

Certain related party transactions and balances are included in notes 5, 9, 12, 20, 26, 30 and 44 of the
financial statements.

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

2012

2011

Salaries, directors’ fees and other short-term benefits

Equity-settled compensation benefits

Pension and other retirement benefits

19,044

4,247

2,688

25,979

16,186

4,541

1,580

22,307

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
default, liquidity and market risks. Market risks arise from changes in interest rates, equity prices,
currency exchange rates or other market factors. The principal insurance risks are identified in notes
42 and 43.

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 amounts disclosed in this note and in notes 42 and 43, exclude amounts in the statement of
financial position classified as assets of discontinued operation and as liabilities of discontinued
operation.

Balance, beginning of year

Advances

Repayments

Effects of exchange rate changes

Transfer to assets of discontinued operation

Balance, end of year

Mortgage
loans

Other loans

Total loans

3,964

1,333

(324)

4,975

424

854

(839)

(16)

(3)

420

4,388

2,187

(1,163)

(14)

(3)

5,395

Interest rates prevailing during the year

5% - 8.25%

5% - 17.7%

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

147
147

Year ended December 31, 2012

Amounts expressed in US$000

41.1 Credit risk

41.1 Credit risk (continued)

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 Group applies this rating scale to three categories of exposures:

• Investment portfolios, comprising debt securities, deposits, securities purchased for re-sale, and cash

balances;

• Lending portfolios, comprising mortgage, policy and finance loans and finance leases;
• Reinsurance exposures, comprising reinsurance assets for life, annuity and health insurance (see

note 43.3) or realistic disaster scenarios for property and casualty insurance (see note 42.3).

The 3 default grades are used for lending portfolios while investment portfolios and reinsurance
exposures use one default grade: 8.

The Group has developed an internal credit rating standard. 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.

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.

Category

Sagicor
Risk
Rating

Investment
grade

Non-
investment
grade

Watch

Default

Classification

S&P

Moody’s

Fitch

AM Best

Minimal risk

AAA, AA

Aaa, Aa

AAA, AA

aaa, aa

Low risk

Moderate risk

BBB

Acceptable risk

Average risk

Baa

BBB

bbb

Special mention

Substandard

Doubtful

Loss

DDD

Investment portfolios

Lending portfolios

Reinsurance assets

Other financial assets

2012

2011

$000

3,463,330

544,357

82,363

122,873

81.6

12.8

1.9

2.9

3,599,059

556,056

289,701

205,087

76.9

11.9

6.2

4.3

Total financial statement exposures

4,212,923

99.2

4,649,903

99.3

Loan commitments

Total off financial statement exposures

21,073

8,993

30,066

0.5

0.3

0.8

17,465

12,495

29,960

0.4

0.3

0.7

Total

4,242,989

100.0%

4,679,863

4,6799,808

100.0%

The amounts in respect of customer guarantees and letters of credit represent"potential claims against"
customers in the event of a call on customer guarantees and letters of"credit issued by the Group.

Higher risk

CCC, CC

Caa, Ca

CCC, CC

ccc, cc

Customer guarantees and letters of credit

55"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""

"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""#$%&'()"*&+$+'&$,"-().()$/&(+

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

148 Notes to the Financial Statements Sagicor Financial Corporation
148
Amounts expressed in US$000

Year ended December 31, 2012

41.1 Credit risk (continued)

The Group’s largest exposures to individual counterparty credit risks as of December 31, 2012 and
2011 are set out below. The individual ratings reflect the rating of the counterparty listed below, while
the amounts include exposures with subsidiaries of the counterparty.

41.1 Credit risk (continued)

(a)

Investment portfolios

The results of the risk rating of investment portfolios are as follows:

Sagicor
Risk
Rating

2012

Sagicor
Risk
Rating

2011

Investment portfolios

Risk
Rating

Classification

2012

2011

Exposure
$000

Exposure
%

Exposure
$000

Exposure
%

Investment portfolios:

Government of Jamaica

Government of Trinidad and Tobago

Government of Barbados

The Bank of Nova Scotia

Government of USA

The Federal National Mortgage Association

The Federal Home Loan Mortgage
Corporation

CIBC

Lending portfolios:

Value Assets International S.A. and Egret
Limited

Reinsurance assets:

Scottish Re (U.S.) Inc (1)

Washington National Insurance Company (2)

964,133

135,768

281,570

67,213

31,760

86,054

64,689

46,638

1,122,561

143,613

182,740

130,307

102,452

72,394

58,174

61,897

52,546

54,247

49,284

104,112

53,238

(1) The reinsurance asset held in the name of Scottish Re was 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 $nil (2011 -
$147,782). In 2012, the reinsurance contract was recaptured (see note 13.2(a)).

(2) The reinsurance asset arises from reinsurance assumed on a block of life insurance policies .

Minimal risk

Low risk

Moderate risk

Acceptable risk

472,923

640,588

688,242

450,759

Average risk

1,136,269

Higher risk

Special mention

Substandard

39,772

3,103

4,247

TOTAL RATED EXPOSURES

3,435,903

UN-RATED EXPOSURES

27,427

14%

18%

20%

13%

33%

99%

638,481

679,735

764,604

179,571

1,297,212

16,712

4,055

4,903

18%

19%

21%

36%

3,585,273

100%

13,786

TOTAL

3,463,330

100%

3,599,059

100%

Investment portfolio assets are mostly unsecured except for securities purchased under agreement to
resell for which title to the securities is transferred to the Group for the duration of each agreement.

#$%&'()"*&+$+'&$,"-().()$/&(+"

56"

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

149
149

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

150 Notes to the Financial Statements Sagicor Financial Corporation
150
Amounts expressed in US$000

Year ended December 31, 2012

41.1 Credit risk (continued)

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.
Accumulated allowances for impairment reflect the Group’s assessment of total individually impaired
assets at the date of the financial statements. The following tables set out the carrying values of debt
securities, mortgage loans, finance loans and finance leases, analysed by past due or impairment
status.

Debt
securities

Mortgage
loans

Finance
loans &
leases

2012

Neither past due nor impaired

3,107,172

173,060

116,082

Past due up to 3 months, but not impaired

11,927

56,458

33,820

Past due up to 12 months, but not impaired

Past due up to 5 years, but not impaired

Past due over 5 years, but not impaired

250

174

9,516

5,763

6,731

104

Total past due but not impaired

12,390

78,468

33,924

Impaired assets

Total carrying value

4,360

12,824

4,702

3,123,922

264,352

154,708

Accumulated allowances on impaired assets

Accrued interest on impaired assets

2,492

2,704

398

3,143

Debt
securities

Mortgage
loans

Finance
loans &
leases

2011

Neither past due nor impaired

3,060,640

184,501

126,485

Past due up to 3 months, but not impaired

Past due up to 12 months, but not impaired

Past due up to 5 years, but not impaired

Past due over 5 years, but not impaired

34,233

470

3,082

53,269

11,438

7,121

5,473

23,333

1,403

Total past due but not impaired

37,816

77,301

24,741

Impaired assets

Total carrying value

8,484

11,178

7,224

3,106,940

272,980

158,450

Accumulated allowances on impaired assets

Accrued interest on impaired assets

9,961

2,486

309

3,764

The Group is also exposed to impaired premiums receivable. Property and casualty insurers
frequently provide settlement terms to customers and intermediaries which extend up to 3 months.
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.

(d) 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.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

151
151

Year ended December 31, 2012

Amounts expressed in US$000

41.1 Credit risk (continued)

(e) Renegotiated assets

41.2 Liquidity risk (continued)

(a) Insurance liabilities

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.

The Group’s monetary 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.

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.

2012

Expected discounted cash flows

Maturing
within
1 year

Maturing
1 to 5
years

Maturing
after
5 years

Total

Asset liability matching is a tool used by the Group to mitigate liquidity risks
particularly in operations
with significant maturing short-term liabilities. For long-term insurance 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.

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.

Investment property may be held to back insurance liabilities. As these assets are relatively illiquid,
the insurers hold less than 5% of their total assets in investment property.

Actuarial liabilities

123,584

415,676

1,501,647

2,040,907

Other insurance liabilities

85,276

13,177

55,393

153,846

Total

2011

208,860

428,853

1,557,040

2,194,753

Actuarial liabilities

105,910

354,577

1,415,990

1,876,477

Other insurance liabilities

272,061

188,662

103,201

563,924

Total

377,971

543,239

1,519,191

2,440,401

81
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

152
152

Notes to the Financial Statements Sagicor Financial Corporation

Year ended December 31, 2012

Amounts expressed in US$000

41.2 Liquidity risk (continued)

(b) Financial liabilities and commitments

Contractual cash flow obligations of the Group in respect of its financial liabilities and commitments are summarised in the following table. 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.

2012 - Contractual un-discounted cash flows

2011 - Contractual un-discounted cash flows

On demand
or within
1 year

1 to 5
years

After
5 years

Total

On demand
or within
1 year

1 to 5
years

After
5 years

Total

Financial liabilities:

Investment contract liabilities

Notes and loans payable

Deposit and security liabilities:

Other funding instruments

Customer deposits

Structured products

Securities sold for re-purchase

Derivative financial instruments

Bank overdrafts

Accounts payable and accrued liabilities

292,711

11,972

197,734

160,947

2,018

601,348

21,706

1,954

120,479

34,865

299,589

47,736

35,654

8,525

342

25,719

20,375

9,965

14,882

347,951

311,561

255,435

211,483

10,543

601,690

47,425

1,954

280,669

11,250

213,949

159,067

618,036

5,211

3,657

987

121,466

163,936

30,877

308,963

51,066

35,020

1,055

128

2,608

5,628

Total financial liabilities

1,410,869

452,430

46,209

1,909,508

1,455,775

435,345

Off financial statement commitments:

Loan commitments

Non-cancellable operating lease and rental payments

Guarantees, acceptances and other financial facilities

Total off financial statements commitments

6,402

5,895

4,133

16,430

13,835

12,678

4,506

31,019

836

6,511

355

7,702

21,073

25,084

8,994

55,151

13,024

3,858

7,277

24,159

3,296

7,703

4,831

15,830

10,261

15,755

14,894

3,162

296

28,842

73,210

1,145

7,569

387

9,101

321,807

320,213

280,770

208,981

4,217

618,164

8,115

3,657

198,406

1,964,330

17,465

19,130

12,495

49,090

Total

1,427,299

483,449

53,911

1,964,659

1,479,934

451,175

82,311

2,013,420

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

153
153

Year ended December 31, 2012

Amounts expressed in US$000

41.2 Liquidity risk (continued)

The contractual maturity periods of monetary financial assets and the expected maturity periods of monetary insurance assets are summarised in the following table. Amounts are stated at their carrying values
recognised in the financial statements. For this disclosure, monetary insurance assets comprise policy loans and reinsurance assets.

Debt securities

Mortgage loans

Policy loans

Finance loans and finance leases

Securities purchased for re-sale

Deposits

Derivative financial instruments

Reinsurance assets: share of actuarial liabilities

Reinsurance assets: other

Premiums receivable

Other assets and accounts receivable

Cash resources

Total

2012 – Contractual or expected discounted cash flows

2011 – Contractual or expected discounted cash flows

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

304,367

894,282

1,925,273

3,123,922

421,159

879,013

1,806,768

3,106,940

22,428

14,759

68,233

19,497

134,423

27,683

6,422

21,614

35,712

34,382

183,996

34,910

14,219

57,550

371

24,398

17,327

3,830

377

207,014

96,319

28,925

1,084

32,934

236

321

264,352

125,297

154,708

19,534

135,878

52,081

56,683

25,680

35,712

35,080

183,996

19,878

6,482

65,511

12,082

282,538

7,234

15,118

56,035

150,225

36,588

184,662

47,570

14,241

54,177

11,842

7,671

51,030

51,639

2,753

205,532

103,903

38,762

995

296

103,011

12,868

320

272,980

124,626

158,450

12,082

295,375

15,201

169,159

120,542

150,225

39,661

184,662

873,516

1,047,301

2,292,106

4,212,923

1,257,512

1,119,936

2,272,455

4,649,903

83
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

154 Notes to the Financial Statements Sagicor Financial Corporation
154
Amounts expressed in US$000

Year ended December 31, 2012

41.3

Interest rate risk

41.3

Interest rate risk (continued)

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 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.

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:

• minimum annuity rates which are guaranteed to be applied at some future date;
• minimum guaranteed death benefits which are applicable when the performance of an

interest bearing or unit linked fund falls below expectations;

• minimum guaranteed returns in respect of cash values and universal life investment

accounts.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

155
155

Year ended December 31, 2012

Amounts expressed in US$000

41.3

Interest rate risk (continued)

The table following summarises the exposures to interest rates on the Group’s monetary 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.

Total

153,846

346,196

241,556

245,675

198,008

9,216

46,512

1,954

Exposure
within
1 year

Exposure
1 to 5
years

2012

Exposure
after
5 years

Not
exposed to
interest

42,473

292,524

4,979

33,822

55,393

19,788

51,001

664

243,827

(2,935)

Exposure
within
1 year

Exposure
1 to 5
years

2011

Exposure
after
5 years

Not
exposed to
interest

237,565

279,237

5,062

27,895

54,660

266,637

8,357

236,553

(4,023)

Other insurance liabilities

Investment contract liabilities

Notes and loans payable

Deposit and security liabilities:

Other funding instruments

Customer deposits

Structured products

Securities sold for re-purchase

197,426

157,514

585,923

42,236

31,715

5,708

318

5,724

7,970

289

809

3,508

4,823

3,369

591,064

609,043

204,615

154,203

3,657

42,657

30,938

116

11,477

7,973

2,775

990

3,184

3,822

8,115

109,017

114,425

194,369

194,387

Derivative financial instruments

43,143

Bank overdrafts

Accounts payable and accrued liabilities

1,954

5,408

Total

1,283,886

405,748

88,875

169,943

1,948,452

1,488,338

343,221

82,467

475,939

2,389,965

85
Sagicor
Financial
Corporation

Total

563,924

315,559

232,530

261,524

194,104

3,184

612,981

8,115

3,657

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

156Notes to the Financial Statements Sagicor Financial Corporation
156
Amounts expressed in US$000

Year ended December 31, 2012

41.3

Interest rate risk (continued)

The table following summarises the exposures to interest rate and reinvestment risks of the Group’s monetary 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.

Exposure
within
1 year

Exposure
1 to 5
years

2012

Exposure
after
5 years

Not
exposed to
interest

Total

Exposure
within
1 year

Exposure
1 to 5
years

2011

Exposure
after
5 years

Not
exposed to
interest

Total

542,794

764,741

1,766,182

50,205

3,123,922

666,613

779,874

1,604,613

55,840

3,106,940

26,498

92,925

13,643

54,248

19,472

133,522

137

1,777

97,020

30,698

13,993

57,140

371

45,695

264

136,495

93,949

42,209

759

236

139,056

165,554

4,234

3,712

1,111

264,352

125,297

154,708

19,534

79,786

5,653

66,883

12,017

46,907

14,496

53,959

1,226

6,386

25,444

35,575

33,039

86,976

135,878

277,498

11,811

52,081

25,680

35,712

35,080

2,829

34,835

715

415

183,996

119,042

359

106,512

142,052

100,858

36,423

670

4,564

4,235

3,619

1,185

272,980

124,626

158,450

12,082

5,396

295,375

12,372

81,049

15,201

120,542

149,510

150,225

38,870

65,620

39,661

184,662

982,036

912,902

2,039,830

387,026

4,321,794

1,266,286

907,500

1,889,197

524,273

4,587,256

Debt securities

Equity securities

Mortgage loans

Policy loans

Finance loans and leases

Securities purchased for re-sale

Deposits

Derivative financial instruments

Reinsurance assets: other

Premiums receivable

Other assets and accounts receivable

Cash resources

Total

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

157
157

Year ended December 31, 2012

Amounts expressed in US$000

41.3

Interest rate 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 in respect of continuing operations.

Sagicor Investments Jamaica Limited and Sagicor Bank Jamaica Limited

Financial assets:

Debt securities

Mortgage loans

Policy loans

Finance loans and finance leases

Securities purchased for re-sale

Deposits

Financial liabilities

Investment contract liabilities

Notes and loans payable

Other funding instruments

Deposits

Securities sold for re-purchase

2012

2011

7.1%

7.6%

8.1%

10.2%

5.1%

2.4%

7.2%

7.9%

2.6%

3.8%

5.4%

7.6%

8.1%

11.5%

6.2%

2.9%

8.3%

8.6%

2.8%

4.2%

5.3%

a) Sensitivity

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 43.4. 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"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"in the following paragraphs."""

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 the above
companies which operate in Jamaica.

The sensitivity of income is the effect of the assumed changes in interest rates on income based on
floating rate debt securities 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.

2012

2011

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%

(2,930)

5,712

- 1%

- 0.5%

2,413

8,727

+ 4%

+ 2.5%

12,400

(15,865)

+ 1%

+ 0.5%

(2,413)

(9,071)

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 amounts 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.
"

65"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""

"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""#$%&'()"*&+$+'&$,"-().()$/&(+

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

158 Notes to the Financial Statements Sagicor Financial Corporation
158
Amounts expressed in US$000

Year ended December 31, 2012

41.4 Foreign exchange risk (continued)

2012

US$ 000 equivalents of balances denominated in

Barbados $

Jamaica $

Trinidad $

Eastern
Caribbean $

US $

Other
Currencies

Total

ASSETS

Financial investments(1)

Reinsurance assets

Receivables (1)

Cash resources

Other assets (2)

Total assets of continuing operations

LIABILITIES

Actuarial liabilities

Other insurance liabilities(1)

Investment contracts

Notes and loans payable

Deposit and security liabilities

Provisions

Accounts payable and accruals

Other liabilities (2)

Total liabilities of continuing operations

Net position

454,135

650,945

298,187

105,539

2,135,364

231,602

3,875,772

6,739

9,818

11,398

482,090

210,765

692,855

1,097

31,091

12,423

695,556

212,306

907,862

406,386

316,058

64,951

34,969

16,199

65,719

15,739

30,288

634,251

14,367

648,618

44,237

20,080

74,214

300,716

11,046

24,681

746,795

7,501

754,296

153,566

10,023

8,984

34,713

351,907

90,688

442,595

286,238

25,472

109,957

2,174

8,902

11,522

444,265

19,799

464,064

1,843

8,290

5,694

121,366

29,551

150,917

43,626

8,901

39,525

10,261

1,145

8,271

59,492

5,851

95,700

2,296,407

76,631

2,373,038

905,565

26,477

79,848

225,357

654,747

734

33,786

3,169

6,758

24,068

265,597

10,759

276,356

82,363

70,792

183,996

4,212,923

630,700

4,843,623

83,034

2,040,907

7,965

7,683

153,846

346,196

241,556

58,812

1,092,429

5,847

5,877

43,413

114,425

111,729

1,926,514

169,218

4,032,772

2,615

20,965

114,344

1,947,479

(21,469)

36,573

425,559

1,719

170,937

105,419

66,966

4,099,738

743,885

(1) Monetary balances

(2) Non-monetary balances, income tax balances and retirement plan assets

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

159
159

Year ended December 31, 2012

Amounts expressed in US$000

41.4 Foreign exchange risk (continued)

2011

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

Deposit and security liabilities

Provisions

Accounts payable and accruals

Other liabilities (2)

Total liabilities

Net position

Barbados $

Jamaica $

Trinidad $

Eastern
Caribbean $

UK £

US $

Other
Currencies

Total

US$ 000 equivalents of balances denominated in

370,443

786,116

309,268

106,598

5,637

17,047

10,106

403,233

212,963

616,196

1,129

24,372

9,557

821,174

158,255

979,429

10,215

9,364

34,868

363,715

83,145

446,860

396,429

306,089

264,960

64,067

34,254

13,078

58,299

13,248

6,601

585,976

14,824

600,800

15,396

20,260

73,461

377,336

9,857

41,698

828,701

13,850

842,551

136,878

25,328

98,988

3,215

7,443

11,168

411,102

18,880

429,982

16,878

2,077

8,044

5,303

122,022

29,679

151,701

41,373

9,496

35,208

10,046

807

6,792

103,722

3,442

107,164

44,537

67,514

69,918

49,183

29,960

216,575

109,259

325,834

2,854

181,124

9,558

6,677

20,486

220,699

76,825

297,524

28,310

2,053,524

292,191

3,985,654

195,317

54,481

60,963

2,364,285

96,002

2,460,287

789,036

143,756

66,782

219,452

614,214

433

83,995

1,917,668

85,592

2,003,260

457,027

5,408

27,395

33,905

358,899

24,867

383,766

75,736

119,893

6,866

10,897

5,707

23,647

242,746

42,513

285,259

98,507

289,701

189,886

184,662

4,649,903

714,170

5,364,073

1,876,477

563,924

315,559

232,530

1,083,565

44,172

194,387

4,310,614

255,926

4,566,540

797,533

(1) Monetary balances

(2) Non-monetary balances, income tax balances and retirement plan assets

89
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

160 Notes to the Financial Statements Sagicor Financial Corporation
160
Amounts expressed in US$000

Year ended December 31, 2012

41.4 Foreign exchange risk (continued)

(a) Sensitivity

JMD currency risk

The Group is exposed to currency risk in its operating currencies whose values have noticeably
fluctuated against the United States dollar (USD).

The effect of a 10% depreciation in the JMD relative to the USD arising from JMD reporting units as of
December 31, 2012 and for the year then ended are considered in the following table.

The exposure to currency risk may result in three types of risk, namely:

•

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).

•

Currency risk of reported results of foreign operations

•

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 or retained earnings.

Amounts denominated in

JMD

USD

Total
amounts

Effect of a 10%
depreciation

Financial position:

Assets

Liabilities

Net position

Represented by:

905,900

754,131

151,769

783,469

1,689,369

566,418

1,320,549

217,051

368,820

Currency risk of the Group’s investment in foreign operations

Income statement:

Revenue

Benefits

Expenses

Income taxes

Net income

Represented by:

315,945

52,189

368,134

(169,475)

(18,342)

(187,817)

(128,061)

(6,092)

(134,153)

(9,761)

8,648

27,755

(9,761)

36,403

Currency risk relating to the future cash flows of monetary balances

Currency risk of reported results of foreign operations

(90,590)

(75,413)

(15,177)

(8,849)

16,948

12,806

976

21,881

22,745

(864)

21,881

The operating currency whose value noticeably fluctuate against the USD is the Jamaica dollar (JMD).
The theoretical impact of JMD currency risk on reported results and of the Group’s investment in
foreign operations is considered in the following section.

A 10% appreciation in the JMD relative to the USD would have equal and opposite effects to those
disclosed above.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

Year ended December 31, 2012

Amounts expressed in US$000

161
161

41.5 Fair value of financial instruments

41.5 Fair value of financial instruments (continued)

(a) Financial instruments carried at amortised cost

(ii)

Level 2 – inputs that are observable for the instrument, either directly or indirectly

The carrying values of the Group’s non-traded financial assets and financial liabilities carried at
amortised cost approximate their fair value, except as disclosed in notes 9, 15, 16 and 17.

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.

A financial instrument is classified as Level 2 if:

•

The fair value is derived from quoted prices of similar instruments which would be classified
as Level 1; or
The fair value is determined from quoted prices that are observable but there is no data
available to substantiate frequent market trading of the instrument.

The techniques and methods described in 41.5 (a) for non traded financial assets and liabilities may
also be used in determining the fair value of Level 2 instruments.

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.

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.

(iii) Level 3 – inputs for the instrument that are not based on observable market data.

(b) Financial instruments carried at fair value

Financial instruments carried at fair value in the financial statements are measured according to a fair
value hierarchy which reflects the significance of market inputs in the valuation. This hierarchy is
described and discussed in sections (i) to (iii) below.

(i)

Level 1 – unadjusted quoted prices in active markets for identical instruments.

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 instrument is not classified as Level 1.

A financial instrument is classified as Level 3 if:

•

The fair value is derived from quoted prices of similar instruments that are observable and
which would be classified as Level 2; or
The fair value is derived from inputs that are not based on observable market data.

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.

Level 3 assets designated include mortgage loans and securities purchased for re-sale for which the
full income return and capital returns accrue to holders of unit linked policy and deposit administration
contracts. These assets are valued with inputs other than observable market data.

The techniques and methods described in 41.5 (a) for non traded financial assets and liabilities may
also used in determining the fair value of Level 3 instruments.

91
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

162
162

Notes to the Financial Statements Sagicor Financial Corporation

Year ended December 31, 2012

Amounts expressed in US$000

41.5 Fair value of financial instruments (continued)

The following tables present the financial assets and financial liabilities carried at fair value by level of the fair value hierarchy.

Available for sale securities:

Debt securities

Equity securities

Investments at fair value through income:

Debt securities

Equity securities

Derivative financial instruments

Mortgage loans

Securities purchased for re-sale

Total assets

Total assets by percentage

Policy liabilities:

Unit linked deposit administration liabilities

Deposit and security liabilities:

Structured products

Derivative financial instruments

Total liabilities

Total liabilities by percentage

Sagicor
Financial
Corporation

2012

2011

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

294,056

39,863

333,919

23,161

6,678

1,690,840

31,516

1,722,356

93,780

70,907

45,892

29,839

210,579

363,758

1,932,935

15%

81%

35,188

8,982

44,170

2,020,084

80,361

2,100,445

116,941

7,608

6,189

40,212

177

54,186

98,356

85,193

52,081

40,212

177

294,604

2,395,049

100%

470,805

49,717

520,522

19,205

14,742

1,548,210

19,170

1,567,380

88,030

10,834

6,894

33,947

105,758

37,442

8,645

46,087

6,497

3,404

8,307

40,674

492

59,374

2,056,457

77,532

2,133,989

113,732

28,980

15,201

40,674

492

199,079

554,469

1,673,138

105,461

2,333,068

24%

72%

100%

104,084

46,512

150,596

94%

9,216

46,512

55,728

159,812

100%

1,291

93,000

6,824

99,824

96%

3,184

8,115

11,299

104,299

100%

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

163
163

Year ended December 31, 2012

Amounts expressed in US$000

41.5 Fair value of financial instruments (continued)

Balances totalling $10,018 have been transferred from Level 1 to Level 2 in 2012. There have been no other material transfers between Level 1 and Level 2 instruments during 2012 and 2011.

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. Reasonable changes in inputs which
could be applied to the valuations of Level 3 instruments designated at fair value are largely offset in income, since the changes in fair value are borne by contract holders. The following table presents the
movements in Level 3 instruments for the year.

2012

Available
for sale
securities

Investments
at fair value
through
income

Derivative
instruments

Total
assets

2011

Total
assets

2012

2011

Structured
products

Total
liabilities

46,087

2,663

51,067

15,633

8,307

3,612

105,461

117,932

3,184

5,655

21,908

31,513

Balance, beginning of year

Additions

Issues

Transfers in

Fair value changes recorded in
income

Fair value changes recorded in other
comprehensive income

Settlements

Effect of exchange rate changes

Balance, end of year

Fair value changes recorded in income
for instruments held at end of year

Disposals and divestitures

(5,232)

(18,389)

(7,579)

(31,200)

(40,681)

3,203

165

2,042

5,410

(3,427)

713

(2,594)

44,170

(479)

47,997

(193)

6,189

(3,266)

(639)

98,356

105,461

6,250

(218)

9,216

(218)

9,216

(2,427)

(44)

3,184

(230)

360

93
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

164 Notes to the Financial Statements Sagicor Financial Corporation
164
Amounts expressed in US$000

Year ended December 31, 2012

41.5 Fair value of financial instruments (continued)

41.6 Derivative financial instruments and hedging activities (continued)

The Group is exposed to equity price risk arising from changes in the market values of its equity
securities. The Group mitigates this risk by establishing overall limits of equity holdings for each
investment portfolio and by maintaining diversified holdings within each portfolio of equity securities.

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.

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 contract or notional amounts of derivatives and their fair
values are set out below.

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, 2011 on total comprehensive income before tax (TCIBT) are as
follows.

2012

Available for sale equities

Carrying value

20% change
on TCIBT

Listed on Caribbean stock exchanges and markets

Listed on US stock exchanges and markets

Listed on other exchanges and markets

24,279

35,801

20,281

80,361

4,856

7,160

4,056

16,072

41.6 Derivative financial instruments and hedging activities

The Group's derivative activities give rise to open positions in portfolios of derivatives. These
positions are managed to ensure that they remain within acceptable risk levels, with matching deals
being utilised to achieve this where necessary. When entering into derivative transactions, the Group
employs its credit risk management procedures to assess and approve potential credit exposures.

Derivatives held for trading:

Currency forwards

Cross currency swap

Equity indexed options

2011

Derivatives held for trading:

Currency forwards

Exchange traded funds – short sale

Foreign exchange collar option

Equity indexed options

Interest rate swap

Contract /
notional
amount

Fair value

Assets

Liabilities

2,644

42,643

2,775

2,644

42,643

43,394

120,040

6,663

474

165,327

52,081

46,512

275

1,292

75,380

20,008

96,955

6,573

298

5,799

2,829

6,503

1,291

321

15,201

8,115

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

165
165

Year ended December 31, 2012

Amounts expressed in US$000

41.6 Derivative financial instruments and hedging activities (continued)

(i) Currency forwards and swaps

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 gross basis. Inforce at
December 31, 2012 is a contract to buy US dollars and sell Euros which expires in November 2014.

(ii) Cross currency swap

For certain universal life and annuity insurance contracts, an insurer has purchased custom call
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 insurer has regarding the options
is mitigated by ensuring that the counterparty is sufficiently capitalized. 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.

A Group company entered into a currency swap with an initial notional principal amount of Euro 45
million maturing in February 2015. Under the terms of this swap, the Group company pays Euro at a
rate of 5% and receives 4.26% in US dollars on the notional principal amount.

42 INSURANCE RISK – PROPERTY & CASUALTY CONTRACTS

The Group company obtains principal and interest in Euros on a promissory note included in debt
securities classified as financial assets at fair value through income in note 9 .

Property and casualty insurers in the Group are exposed to insurance risks such as underwriting,
claims, availability of reinsurance and claims liability estimation, and to credit risk in respect of
reinsurance counterparties.

(iii) 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.

Sagicor General Insurance is the principal insurer within the Group's continuing operations that issues
property and casualty insurance contracts. It operates mainly in Barbados and Trinidad and Tobago
and has experienced management, supported by external professional expertise, which manages all
aspects of insurance risk.

The principal insurance risks affecting property and casualty contracts are disclosed below. These
apply to both direct insurance written and reinsurance assumed by insurers.

95
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

166 Notes to the Financial Statements Sagicor Financial Corporation
166
Amounts expressed in US$000

Year ended December 31, 2012

42.1 Underwriting risk

42.2 Claims risk

Risks are priced to achieve an adequate return on capital on the insurer’s business as a whole. This
return is expressed as a premium target return. Budgeted expenses and reinsurance costs are
included in the pricing process. Various pricing methodologies are used and are generally applied by
class of insurance. The principal methodologies are:

• Benchmark exposure rates,
• Historic experience.

All methods produce a technical price, which is compared against the market to establish a price
margin.

Pricing techniques are subject to constant review from independent pricing audits, claims patterns,
underwriters’ input, market developments and actuarial best practice. There are minimum pricing
margins for each class of business.

Annually, the overall risk appetite is reviewed and approved. The risk appetite is defined as the
maximum loss the insurer is willing to incur from a single event or proximate cause. Risks are only
underwritten if they fall within the risk appetite. Individual risks are assessed for their contribution to
aggregate exposures by nature of risk, by geography, by correlation with other risks, before
acceptance. Underwriting a risk 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.

Inaccurate pricing or inappropriate underwriting of insurance contracts, which may arise from poor
pricing or lack of underwriting control, can lead to either financial loss or reputational damage to the
insurer.

Incurred claims are triggered by an event and may be categorised as:

•

attritional losses, which are expected to be of reasonable frequency and are less than

established threshold amounts;

• large losses, which are expected to be relatively infrequent, are greater than established

•

threshold amounts;
catastrophic losses, which are an aggregation of losses arising from one incident or
proximate cause, affecting one or more classes of insurance. 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. In addition, from the pricing methodology used for risks, it is
assumed that at any particular date, there are claims incurred but not reported (IBNR).

Claims risk is the risk that incurred claims may exceed expected losses. Claims risk may arise from

•
•
•
•

invalid claim submissions;
the frequency of incurred claims;
the severity of incurred claims;
the development of incurred claims.

Claims 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 may be illustrated by the distribution of
premium revenue by geographical location and by type of risks assumed. This is set out in the
following table.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

167
167

Year ended December 31, 2012

Amounts expressed in US$000

42.2 Claims risk (continued)

42.3 Reinsurance risk

Region

Barbados

2012
premium

Gross

Net

Property

Motor

Accident &
liability

14,286

1,381

6,054

2,819

Trinidad and Tobago

Gross

14,151

16,154

Other Caribbean

Total

Net

Gross

Net

Gross

Net

854

6,018

355

8,019

802

388

34,455

23,010

2,590

11,226

Total

23,044

5,654

35,776

11,737

7,337

981

66,157

18,372

2,704

1,454

5,471

2,864

517

238

8,692

4,556

Concentration of risk is mitigated through risk selection, line sizes, 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 and floods and events triggering multi coverage
corporate liability claims are considered to be the potential sources of catastrophic losses arising from
insurance risks.

To limit the potential loss for single policy claims and for aggregations of catastrophe claims, 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

•
•
•

the credit risk of holding a recovery from 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.

The Group selects reinsurers which have well established capability to meet their contractual
obligations and which generally have a Sagicor credit risk rating of 1 or 2. Insurers also place
reinsurance coverage with various reinsurers to limit their exposure to any one reinsurer.

The reinsurance programmes are negotiated annually with reinsurers for coverage generally over a 12
month period. It is done by class of insurance, though for some classes there is aggregation of
classes and / or subdivision of classes by the location of risk.

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.

A realistic disaster scenarios modelled for 2012 is presented below and results in estimated gross and
net losses. Amounts are stated in currency 000’s.

For other insurance risks, insurers limit their exposure by event or per person by excess of loss or
quota share treaties.

A Barbados and St. Lucia windstorm having a 250 year return
period.

$396,673

$7,500

Gross loss

Net loss

The occurrence of one or more catastrophic events in any year may have a material impact on the
reported net income of the Group.

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 by Sagicor General are summarised in the
following tables. However, these arrangements are not exhaustive and do not represent a complete
schedule of all reinsurance arrangements for each line of insurance business written.

97
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

168 Notes to the Financial Statements Sagicor Financial Corporation
168
Amounts expressed in US$000

Year ended December 31, 2012

42.3 Reinsurance risk (continued)

SAGICOR GENERAL

The reinsurance recoveries derived from the foregoing are assigned internal credit ratings as follows:

Type of risk

Retention by insurers - currency amounts in thousands

Property

• maximum retention of $4,500 for a single event;
• maximum retention of $7,500 for a catastrophic event;
• quota share retention to maximum of 30% in respect of treaty limits;
• quota share retention is further reduced to a maximum of $750 per

event.

Motor and liability

• maximum retention of $750 for a single event;
• quota share retention a maximum of 50% in respect of treaty limits;
•

treaty limits apply.

Miscellaneous accident

• maximum retention of $75 for a single event;
•

treaty limits apply.

Engineering business

• maximum retention of $250 for a single risk;
•

treaty limits apply for material damage and for liability claims.

Property, motor, and
engineering

• 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.

•

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.

In order to assess the potential reinsurance recoveries on the occurrence of a catastrophic insurance
event, the Sagicor credit risk ratings of the reinsurance recoverable are assessed using the following
realistic disaster scenario:

• 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.

Risk
Rating

Classification

Exposure
$000

Exposure
%

Minimal risk

Low risk

Moderate risk

Acceptable risk

Average risk

Higher risk

Special mention

Substandard

297,972

420,783

41%

59%

TOTAL

718,755

100%

42.4 Estimation of claim liabilities

Due to the inherent uncertainties in estimating claim liabilities described above and in note 3.5, 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.

The disclosures are by accident year. Accident year is the financial period in which the claim is
incurred.

Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

169
169

Year ended December 31, 2012

Amounts expressed in US$000

42.4 Estimation of claim liabilities (continued)

SAGICOR GENERAL - BY ACCIDENT YEAR

Prior years
(1)

2008

2009

2010

2011

2012

Total

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

Gross liability recognised

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

4,079

Total recoverable recognised from reinsurers

2,083

Net (favourable) unfavourable development

(1) Claims development of prior years is not included.

16,952

16,239

16,087

16,136

16,395

15,338

15,030

15,174

16,008

18,290

17,812

17,539

17,956

17,355

16,008

17,539

17,355

(14,637)

(13,259)

(14,238)

(13,256)

1,758

557

9,410

9,523

9,378

9,392

9,517

(8,535)

982

(107)

2,749

(670)

8,209

8,022

7,997

8,380

(7,020)

1,360

(171)

3,301

751

10,667

10,366

10,272

(8,154)

2,118

395

4,099

601

9,579

8,975

(6,994)

1,981

604

16,078

84,614

16,078

(9,407)

6,671

83,375

(64,797)

22,657

1,239

8,230

46,095

8,230

(4,748)

3,482

45,374

(35,451)

12,006

721

99
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

170
170

Notes to the Financial Statements Sagicor Financial Corporation

Year ended December 31, 2012

Amounts expressed in US$000

42.5 Sensitivity of incurred claims

43.1 Contracts without investment returns (continued)

The impact on claims expense of incurring a maximum likely loss from a catastrophic insurance event
is disclosed in the table of realistic disaster scenarios in the foregoing note 42.2. The impact on gross
claims from continuing operations of increasing the total claims liability by 5% for un-reinsured losses
is illustrated in the following table.

(a)

Product design and pricing risk

Product design and pricing risk arises from poorly designed or inadequately priced contracts and can
lead to both financial loss and reputational damage to the insurer.

2012

2011

Claims
liability

5%
increase in
liability

Claims
liability

5%
increase in
liability

Risks are priced to achieve an adequate return on capital on the insurer’s business as a whole. 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. Pricing
inadequacy may arise either from the use of inadequate experience and statistical data in deriving
pricing factors or from market softening conditions.

Direct property

Direct motor

Direct accident and liability

Reinsurance assumed

900

15,896

5,517

419

795

276

2,797

14,652

5,813

140

733

291

22,732

1,137

23,345

1,168

The underwriting process has established 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.

(b) Mortality and morbidity risk

43 INSURANCE RISK – LIFE, ANNUITY & HEALTH CONTRACTS

Insurers are exposed to insurance risks such as product design and pricing, mortality and morbidity,
lapse, expense, reinsurance, and actuarial liability estimation in respect of life, annuity and health
contracts. Disclosure of these risks is set out in the following sections.

43.1 Contracts without investment returns

These contracts are principally term life, critical illness and health insurance. Individual term life and
critical illness products are generally long-term contracts while group term life and health insurance
products are generally one year renewable. The principal insurance risks associated with these
contracts are product design and pricing and mortality 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 and the associated risk is that of increased disability
and medical claims. Insurance claims are triggered by the incurrence 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
may result in future adjustments to the pricing or re-pricing of these contracts.

Critical illness claims arise from the diagnosis of a specific illness incurred by the policy beneficiary.
The Group annually reviews its critical illness claims experience and compares it to industry statistics.
This review may result in future adjustments to the pricing or re-pricing of these contracts.

The concentration risks of term life and critical illness contracts are included in the related disclosure
on other long-term contracts in note 43.2(b).

Sagicor
Financial
Corporation

100

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

171
171

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

172
172

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

173
173

Year ended December 31, 2012

Amounts expressed in US$000

43.3 Reinsurance risk

43.4 Sensitivity arising from the valuation of actuarial liabilities (continued)

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 for new business a Sagicor credit risk rating of 1 or 2 is usually selected.
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.

Insurers have limited 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 following table.

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 $500

Life insurance contracts with groups

Retention per individual life to a maximum of $378

43.4 Sensitivity arising from the valuation of actuarial liabilities

The estimation of actuarial liabilities is sensitive to a number of assumptions. Changes in those
assumptions could have a significant effect on the valuation results which are discussed below.

The valuation of actuarial liabilities of life insurance and annuity contracts is sensitive to:

•
•
•
•

the economic scenario used in CALM,
the investments allocated to back the liabilities,
the underlying assumptions used (note 13.3 (b) to (f)), and
the margins for adverse deviations (note 13.3 (g)).

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 scenarios developed and tested by
insurers were as follows.

Sensitivity

Scenario

Worsening
rate of lapse

High interest
rate

Low interest
rate

Worsening
mortality and
morbidity

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.

rates

were

Lapse
doubled.

Assumed increases in the
investment portfolio yield
rates of 0.25% per year for
5 years, with
the rates
remaining constant
thereafter.

Assumed decreases
in
investment portfolio yield
rates of 0.25% per year for
5 years, with
the rates
remaining constant
thereafter.

increases

in
Assumed
the
investment portfolio
yield rates of 0.5% for 10
years.

A 1%
increase was
applied to the investment
portfolio rate.

Assumed decreases
in
investment portfolio yield
rates of 0.5% per year
for 10 years.

A 1% decrease was
applied to the investment
portfolio rate.

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

life

insurance
For
products only, the base
assumed
rates were
increased annually by
3% cumulatively over the
next 5 years.

Higher
expenses

Policy unit maintenance expense rates were increased by 5% per year for 5 years
above those reflected in the base scenario.

103
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

174 Notes to the Financial Statements Sagicor Financial Corporation
174

Year ended December 31, 2012

Amounts expressed in US$000

43.4 Sensitivity arising from the valuation of actuarial liabilities (continued)

43.5 Dynamic capital adequacy testing (DCAT)

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

2012

2011

2012

2011

2012

2011

Base net actuarial
liability

823,715

785,729

424,308

403,926

723,137

508,715

Scenario

increase in liability

Worsening rate
of lapse

79,214

64,660

45,106

44,540

19,077

16,881

High interest rate

(124,698)

(94,935)

(81,408)

(75,447)

(41,925)

(28,115)

Low interest rate

160,513

132,801

120,139

111,371

48,167

32,223

Worsening mortality /
morbidity

25,937

25,538

27,030

27,997

14,618

8,048

Higher expenses

26,811

26,164

18,136

19,936

4,812

2,784

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
under specific scenarios.

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

•

•
•

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 some insurers within the Group.

Sagicor
Financial
Corporation

104

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

175
175

Year ended December 31, 2012

Amounts expressed in US$000

FIDUCIARY RISK

46 CAPITAL MANAGEMENT

The Group provides investment management and pension administration services to investment and
pension funds 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 and
unit trusts which are not included in the Group’s financial statements. The investments and cash
under administration are summarised in the following table.

2012

2011

The Group's objectives when managing capital, which is a broader concept than equity in the
statement of financial position, are:

•

•
•

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.

Pension and insurance fund assets

1,318,748

1,247,709

46.1 Capital resources

Mutual fund, unit trust and other investment fund assets

439,731

364,749

The principal capital resources of the Group are as follows:

1,758,479

1,612,458

45 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.

Shareholders’ equity

Minority interest

Notes and loans payable

2012

2011

601,605

227,368

241,556

607,135

188,197

232,530

Total financial statement capital resources

1,070,529

1,027,862

Letter of credit facilities, net of collateral assets

Total off financial statement resources

35,318

33,926

To satisfy the above requirements, invested assets and cash totalling $1,371,876 (2011 - $1,361,659)
have been deposited with regulators or are held in trust to the order of regulators.

Total capital resources

1,105,847

1,061,788

In some countries where the Group operates, there are exchange controls or other restrictions on the
remittance of funds out of those countries.

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.

105
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

176 Notes to the Financial Statements Sagicor Financial Corporation
176
Amounts expressed in US$000

Year ended December 31, 2012

46.2 Capital adequacy

46.2 Capital adequacy (continued)

The capital adequacy of the principal operating subsidiaries is discussed in this section. That of the
discontinued operation is discussed in note 38 (b).

(i) Sagicor Life Jamaica

(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. Jamaica and the USA have recognised capital adequacy
standards.

The consolidated MCCSR for the Sagicor Group as of December 31 has been estimated as 250%
(2011 – 269%). This is the principal standard of capital adequacy used to assess the overall strength
of the Sagicor Group. However, because of the variations in capital adequacy standards across
jurisdictions, the consolidated result should be regarded as applicable to the Group as a whole and
not necessarily applicable to each individual segment, insurance subsidiary or insurance subsidiary
branch.

Sagicor Life Jamaica is governed by the Jamaican MCCSR regime which requires an insurer to
maintain a minimum ratio of 150%. For the years ended December 31, 2012 and 2011, this ratio was
163% and 160% respectively.

(ii) Sagicor Life Insurance Company (USA)

A risk-based capital (RBC) formula and model were adopted by the National Association of Insurance
Commissioners (NAIC) of the United States. RBC is designed to assess minimum capital
requirements and raise the level of protection that statutory surplus provides for policyholder
obligations. The RBC formula for life insurance companies measures four major areas of risk: (i)
underwriting, which encompasses the risk of adverse loss developments and property and casualty
insurance product mix; (ii) declines in asset values arising from credit risk; (iii) declines in asset values
arising from investment risks, including concentrations; and (iv) off-balance sheet risk arising from
adverse experience from non-controlled assets such as reinsurance guarantees for affiliates or other
contingent liabilities and reserve and premium growth. If an insurer's statutory surplus is lower than
required by the RBC calculation, it will be subject to varying degrees of regulatory action, depending
on the level of capital inadequacy.

The RBC methodology provides for four levels of regulatory action. The extent of regulatory
intervention and action increases as the ratio of surplus to RBC falls. The least severe regulatory
action is the "Company Action Level" (as defined by the NAIC) which requires an insurer to submit a
plan of corrective actions to the regulator if surplus falls below 200% of the RBC amount.

Sagicor Life Insurance Company looks to maintain at least 300% of the Company Action Level, and
has maintained these ratios as of December 31, 2012 and 2011 respectively.

Sagicor
Financial
Corporation

106

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

177
177

Year ended December 31, 2012

Amounts expressed in US$000

46.2 Capital adequacy (continued)

46.3 Financial covenants (continued)

(b) Sagicor Investments Jamaica Limited and Sagicor Bank Jamaica Limited

(b) 7.5% senior notes due 2016

Capital adequacy and the use of regulatory capital are monitored monthly by 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 hold the minimum level of regulatory capital, and to maintain a minimum ratio
of total regulatory capital to the risk-weighted assets.

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 capital adequacy ratios. During 2012 and 2011, all applicable
externally imposed capital requirements were complied with.

Sagicor
Investments
Jamaica

Sagicor Bank
Jamaica

2012

2011

2012

2011

17%

10%

21%

10%

21%

10%

26%

10%

Actual capital base to risk weighted assets

Required capital base to risk weighted assets

46.3 Financial covenants

(a) Letter of credit facilities

Financial covenants relating to letter of credit facilities are discussed in note 38(b).

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 permitted lien covenant, which will not allow the Company nor 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.

Permitted liens are 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 whose outstanding principal amounts in
aggregate outstanding principal amount do not exceed 10% of the consolidated net tangible assets
(as is defined in the indenture). As of December 31, 2012 and 2011, the Group satisfied this
requirement.

On March 31, 2011, the Company entered into subscription and policy agreements with IFC,
regarding the latter’s participation in the issue of new common and convertible redeemable
preference shares. Pursuant to the aforementioned agreements, on July 18, 2011, 12,269,938
common shares and 78,339,530 convertible redeemable preference shares were issued to IFC. The
financial covenants included in these agreements are summarised as follows.

(i) Price protection rights

IFC has been granted price protection rights to in relation to the common shares held. If within a 2
year period of the subscription date, the Company issues or sells any shares, except as pursuant to
any employee stock incentive plan, at a price less than Barbados $3.26 per share, the Company shall
compensate IFC by the issue to IFC of additionally fully-paid true-up shares to place IFC in the
position as if it had subscribed at the lower price.

107
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

178Notes to the Financial Statements Sagicor Financial Corporation
178
Amounts expressed in US$000

Year ended December 31, 2012

46.3 Financial covenants (continued)

(ii) Put option

IFC has been granted the right to require the Company to purchase IFC’s holding of convertible
redeemable preference shares in the event that the Company is in breach of any of the policy
reporting or IFC policy covenants. The Company may nominate a third party to purchase the shares.
The purchase must take place within 10 and 60 days of the date of notice. If the Company either fails
to purchase or does not arrange a third party purchase, IFC may sell the shares to a third party and
the Company is required to pay a late payment charge of 6.5% per annum.

47 EVENTS AFTER DECEMBER 31, 2012

47.1 The Jamaica National Debt Exchange (NDX) programme

On February 12, 2013, the Government of Jamaica (GOJ) announced a public invitation to participate
in its National Debt Exchange (NDX) programme in respect of specific debt instruments. The NDX
involves the voluntary exchange of the majority of existing GOJ domestic debt instruments for new
debt instruments having longer maturities and lower coupon rates.

Group companies Sagicor Life Jamaica (SLJ), Sagicor Investments Jamaica Limited (SIJ) and Sagicor
Bank Jamaica Limited (SBJ) have agreed to participate in the programme.

The financial impact of the exchange on total comprehensive income in 2013 and beyond is
dependent on how the market prices the new notes. Assuming the fair value of the new notes is at
par, there would be a negative impact on total comprehensive income.

The NDX programme also had a negative impact on SLJ’s the investment yield assumption used to
compute the December 31, 2012 actuarial liabilities and therefore on the SLJ segment income for
2012.

47.1 The Jamaica National Debt Exchange (NDX) programme (continued)

Details of the debt instruments exchanged initially by the Group are summarised in the following table.

Face value of instruments exchanged:

542,145

80,840

JMD denominated
instruments

USD denominated
instruments

Reduction in average coupon interest rates:

SLJ

SIJ and SBJ

12.49% to 11.49%

6.75% to 5.25%

8.28% to 7.66%

7.05% to 5.25%

Increase in average durations:

SLJ

SIJ and SBJ

6.44 to 7.33 years

9.12 to 9.13 years

0.74 to 1.55 years

1.66 to 5.84 years

The face values of debt instruments exchanged by the Group in respect of funds under management
totalled $430,904.

Subsequent to the initial exchange, the Group exchanged additional selected securities with a face
value of approximately $32,000.

47.2 Credit risk ratings and letter of credit facilities

Consequent to the announcement of the Jamaica NDX programme, the Sagicor risk rating for GOJ
debt instruments held has been amended from 5 to 6 (details in note 41.1) . Consequent to the
change in rating of GOJ instruments, the Standard and Poor's financial strength credit rating for
Sagicor Life Inc has been amended from BBB- to BB+. As a consequence, the Group is required to
fully collateralize the letter of credit facility set out in note 38(b). The Company has requested and the
bank has agreed to grant an extension for full collateralization until June 30, 2013 on the basis that
the Company is in the process of completing the sale of Sagicor Europe Limited.

Sagicor
Financial
Corporation

108

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

Notes to the Financial Statements Sagicor Financial Corporation

179
179

Year ended December 31, 2012

Amounts expressed in US$000

47.3 BAICO Eastern Caribbean Insurance Portfolio

47.3 BAICO Eastern Caribbean Insurance Portfolio (continued)

Sagicor Life Inc acquired the British American Insurance Company Limited (BAICO) Eastern
Caribbean insurance portfolio.

As consideration for the transfer, Sagicor paid BAICO a sum of $9,490, representing the Life Business
Consideration of $5,600 and the value of regular policy loans within the transferred insurance portfolio.

On June 29, 2012, the Judicial Managers of BAICO together with the Governments of the Eastern
Caribbean Currency Union (ECCU) entered into an agreement to sell the traditional life insurance
business of BAICO to Sagicor Life Inc.

The insurance portfolio being acquired by Sagicor is made up of group pensions and the following
traditional life policies issued by BAICO in Anguilla, Antigua, Dominica, Grenada, Montserrat, Saint
Lucia, St Kitts & Nevis, and St Vincent and the Grenadines:

• Universal Life policies

• Term Life

• Whole Life

• Endowment

• Home Service Life.

Approximately 17,500 policyholders will benefit from this agreement in which all valid and inforce life
policies as at the effective date transfer to Sagicor without any amendment or change to the
respective policy, allowing policyholders to benefit from the terms they historically agreed with BAICO.

All necessary approvals for the scheme of transfer from the relevant Courts and insurance regulators
in The Bahamas (where BAICO is incorporated) and throughout the ECCU countries have been
received and the entire business described above was formally transferred to Sagicor Life Inc. on
March 15, 2013.

A recapitalisation amount representing cash equivalent to the actuarial liability for future policy
benefits of the policies transferred has been established under the terms of the transfer agreement.
The recapitalisation amount, which has been met by a combination of funding from BAICO and the
ECCU governments, is estimated at $38,000 has been transferred to Sagicor together with the
insurance policies.

The obligation to pay certain unpaid amounts to policyholders under these policies (being claims,
maturities, surrenders and bonuses) has been assumed by Sagicor with the transfer of the insurance
portfolio, and the ECCU Governments have agreed to arrange funding for the payment of these in
accordance with the terms of the policies. The payment of claims will be subject to the claimant
meeting the requirements of the policy terms, and signing an appropriate release.

The ECCU Governments are mindful that, during the three year period from 2009 to 2012, due to the
uncertainty about BAICO’s future, many policyholders may have stopped paying their premiums. In
many cases, this will have resulted in them allowing their policies to lapse. The governments propose
to assist holders of lapsed Home Service Life, Whole Life, Endowment and Universal Life policies by
either settling forfeited policy benefits or assisting with the reinstatement of policies.

Sagicor Life Inc. is a registered insurer in all of the ECCU countries involved in the transaction.
Sagicor has demonstrated its commitment to the ECCU region by:

• Agreeing to set up an ECCU Consultative Committee, to play an oversight role (including
compliance, anti-money laundering, capital adequacy and corporate governance) in relation to the
performance of the Business;

• Placing its ECCU business into a separate ECCU-based entity within 12 months of completion of the
transaction; and

• Committing to listing at least 25% of the shares of the ECCU Entity on the Eastern Caribbean
Securities Exchange within two years of its commencement of operations.

109
Sagicor
Financial
Corporation

Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2012 Amounts expressed in US $000

contribute

Every contribution moves us forward, no matter its size.

182 2012 Annual Report

sHAReHolDeR InFoRMATIon

DIvIDenDs

An interim dividend of US 2 cents per common share, approved for the half-year ended June 30, 2012, was paid on November 15, 2012 to the
holders of common shares, including depositary interest holders, whose names were registered on the books of the Company at the close of
business on October 22, 2012. A final common dividend of US 2 cents per common share, payable on May 15, 2013, was approved for the financial
year ended December 31, 2012 to the holders of common shares, including depositary interest holders, whose names were registered on the books
of the Company at the close of business on April 15, 2013. The total dividend on common shares for the 2012 financial year amounted to US 4 cents
per share.

An interim dividend of US 3.25 cents per convertible redeemable preference share was paid on November 15, 2012 to the holders of convertible
redeemable preference shares, whose names were registered on the books of the Company at the close of business on October 22, 2012. A final
dividend of US 3.25 cents per convertible redeemable preference share, payable on May 15, 2013, was approved for the financial year ended
December 31, 2013 to the holders of convertible redeemable preference shares, whose names were registered on the books of the Company at the
close of business on April 15, 2013. The total convertible redeemable preference dividend for the 2012 financial year amounted to US 6.50 cents per
share.

The following Shareholders own more than 5% and 3% respectively of the capital of the Company as at December 31, 2012:

International Finance Corporation:

National Insurance Board, Barbados:

Republic Bank Limited – 1162:

Common Shares

Convertible Redeemable
Preference Shares

Number of Shares

Percentage

Number of Shares

Percentage

12,269,938

18,950,000

10,998,300

4.04%

6.24%

3.62%

78,339,530

10,000,000

4,000,000

65.28%

8.33%

3.33%

The total number of issued shares as at December 31, 2012 and as at December 31, 2011 is set out below. No new shares were issued in 2012.

Common Shares

Convertible Redeemable Preference Shares

As at
31-Dec-12

As at
31-Dec-11

As at
31-Dec-12

As at
31-Dec-11

303,917,020

120,000,000

Sagicor Financial Corporation
2012 Annual Report 183

lonG TeRM InCenTIve plAn (lTI)

The Tables below show grants of restricted stock and stock options as at December 31, 2012 under the LTI for Executives.

Award Year

Value attributable to Stock Grant

Awards Made and
in Effect

Vested

Not Vested

Restricted stock

As of December 31, 2012

2006 – 2008

US$ 1.98, 2.01, 2.50

2009

2010

2011

2012

US$ 1.58, 2.50

US$ 1.60

US$ 1.48

US$ 1.53

1,314,920

1,094,845

1,039,089

1,130,448

1,486,080

6,065,382

1,314,920

1,064,185

641,547

284,455

142,053

3,447,160

30,660

397,542

845,993

1,344,027

2,618,222

Allocated for settlement of tax

Total converted to shares

Vested in
2012

1,628

77,726

94,246

142,053

315,653

(99,478)

216,175

Sagicor Financial Corporation
184 2012 Annual Report

Award Year

Exercise Price
of
Stock Option

Awards Made
and in Effect

stock options

As of December 31, 2012

Vested

Exercised

Not Exercised

Not Vested

2006

2007

2008

2009

2010

2011

2012

US$ 1.98

US$ 2.01

US$ 2.50

US$ 1.60

US$ 1.48

US$ 1.53

771,037

120,443

650,594

1,757,294

72,839

1,684,455

1,224,471

1,493,607

1,120,206

2,176,442

1,088,223

2,605,003

1,420,462

651,256

373,401

1,224,471

1,120,206

1,088,223

1,088,219

651,256

1,953,747

1,420,462

Vested in
2012

306,117

373,402

544,111

651,256

11,448,316

6,612,487

193,282

6,419,205

4,835,829

1,874,886

Sagicor Financial Corporation
2012 Annual Report 185

AnAlysIs oF CoMMon sHAReHolDInG

Common Shareholders by Size of Holding

number of Common shareholders by size of Holding as at December 31, 2012 (with 2011 Comparison)

Size of Holding

Number of
Shareholders

Percentage of
Shareholders

Total Shares Held

Percentage of Shares
Held

1 - 1,000

2012

6,383

2011

6,491

1,001 - 2,500

15,285

15,439

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

7,161

4,148

2,997

707

225

7,252

4,180

3,045

701

223

2012

17.28

41.39

19.39

11.23

8.12

1.91

0.61

0.06

2011

17.38

41.33

19.42

11.19

8.15

1.88

0.60

0.06

2012

2011

2012

2011

3,871,773

3,943,827

25,365,443

25,623,946

24,863,373

25,176,454

29,640,145

29,874,915

43,181,562

43,882,707

33,569,614

33,306,340

63,776,716

63,785,367

79,648,394

78,323,464

1.27

8.35

8.18

9.75

14.21

11.05

20.98

26.21

1.30

8.43

8.28

9.83

14.44

10.96

20.99

25.77

Total

36,928

37,352

100.00

303,917,020 303,917,020

100.00

Sagicor Financial Corporation
186 2012 Annual Report

Common Shareholders by Country of Residence

number of Common shareholders by Country of Residence and by Type as at December 31, 2012

Country

Directors, Management,
Staff, Advisors

Companies

Individuals

Total

Trinidad and Tobago

Barbados

Eastern Caribbean

Other Caribbean

Other

Total

Shareholders

109

189

358

0.30

0.51

0.07

0.04

0.06

0.97

713

276

1,075

1.93

0.75

0.09

0.12

0.02

2.91

15,331

11,675

7,150

167

1,172

41.52

31.62

19.36

0.45

3.17

16,153

12,140

7,210

224

1,201

43.74

32.87

19.52

0.61

3.25

35,495

96.12

36,928

100.00

number of Common shareholders by Country of Residence and by Type as at December 31, 2011

Country

Directors, Management,
Staff, Advisors

Companies

Individuals

Total

Trinidad and Tobago

Barbados

Eastern Caribbean

Other Caribbean

Other

Total

Shareholders

172

310

0.22

0.46

0.07

0.04

0.83

720

264

1,146

1.93

0.71

0.15

0.17

0.12

3.07

15,568

11,895

7,218

163

1,052

41.68

31.85

19.32

0.44

2.82

16,370

12,331

7,300

240

1,111

43.83

33.01

19.54

0.64

2.97

35,896

96.10

37,352

100.00

Common Shares held by Country of Residence

Sagicor Financial Corporation
2012 Annual Report 187

number of Common shares Held by Country of Residence and by Type as at December 31, 2012

Country

Directors, Management,
Staff, Advisors

Companies

Individuals

Total

Trinidad and Tobago

Barbados

Eastern Caribbean

Other Caribbean

Other

Total

2,037,688

9,141,668

64,528

1,530,253

576,286

13,350,423

0.67

3.01

0.02

0.50

0.19

4.39

72,878,227

23.98

78,514,045

25.83

153,429,960

50.48

40,818,555

13.43

55,506,507

18.26

105,466,730

34.70

487,215

3,899,762

12,966,494

0.16

1.28

4.27

20,196,355

598,245

4,701,192

6.65

0.20

1.55

20,748,098

6,028,260

18,243,972

6.83

1.98

6.00

131,050,253

43.12

159,516,344

52.49

303,917,020

100.00

number of Common shares Held by Country of Residence and by Type as at December 31, 2011

Country

Directors, Management,
Staff, Advisors

Companies

Individuals

Total

Trinidad and Tobago

Barbados

Eastern Caribbean

Other Caribbean

Other

Total

1,776,247

3,814,925

79,783

539,905

422,326

6,633,186

0.58

1.26

0.03

0.18

0.14

2.18

71,562,431

23.55

78,752,220

25.91

152,090,898

41,430,546

13.63

61,220,581

20.14

106,466,052

580,875

4,490,028

13,358,668

0.19

1.48

4.40

20,510,383

1,086,618

4,291,484

6.75

0.36

1.41

21,171,041

6,116,551

18,072,478

50.04

35.03

6.97

2.01

5.95

131,422,548

43.24

165,861,286

54.57

303,917,020

100.00

Sagicor Financial Corporation
188 2012 Annual Report

AnAlysIs oF ConveRTIBle ReDeeMABle pReFeRenCe sHAReHolDInG

Preference Shareholders by Size of Holding

number of preference shareholders by size of Holding as at December 31, 2012 (with 2011 Comparison)

Size of Holding

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

Number of
Shareholders

2012

2011

416

189

262

106

417

190

264

108

417

1,163

Percentage of
Shareholders

Total Shares Held

Percentage of Shares
Held

2012

36.21

16.45

22.80

9.23

6.01

5.83

2.87

0.61

2011

35.86

16.34

22.70

9.29

6.10

6.28

2.92

0.52

2012

2011

2012

2011

227,809

378,404

380,904

1,205,810

1,214,810

919,598

939,598

1,259,995

1,309,995

4,069,549

4,398,549

13,224,000

13,940,000

98,714,835

97,588,335

0.19

0.32

1.00

0.77

1.05

3.39

11.02

82.26

0.19

0.32

1.01

0.78

1.09

3.67

11.62

81.32

100.00

120,000,000 120,000,000

100.00

Total

1,149

Preference Shareholders by Country of Residence

number of preference shareholders by Country of Residence and by Type as at December 31, 2012

Country

Directors, Management,
Staff, Advisors

Companies

Individuals

Total

Shareholders

USA

Trinidad and Tobago

Barbados

Total

1.13

3.57

4.70

0.09

6.18

3.74

115

10.01

413

566

980

0.09

35.94

49.26

85.29

497

650

0.17

43.26

56.57

1,149

100.00

Sagicor Financial Corporation
2012 Annual Report 189

number of preference shareholders by Country of Residence and by Type as at December 31, 2011

Country

Directors, Management,
Staff, Advisors

Companies

Individuals

Total

Shareholders

USA

Trinidad and Tobago

Barbados

Total

0.00

0.95

3.10

4.04

0.09

5.42

3.53

435

576

105

9.03

1,011

0.00

37.40

49.53

86.93

509

653

0.09

43.77

56.15

1,163

100.00

Preference Shares held by Country of Residence

number of preference shares Held by Country of Residence and by Type as at December 31, 2012

Country

Directors, Management,
Staff, Advisors

Companies

Individuals

Total

USA

Trinidad and Tobago

Barbados

Total

78,339,530

65.28

1,000

615,000

2,273,848

2,888,848

0.51

1.89

2.41

14,381,007

11.98

4,779,704

19,490,770

16.24

119,141

112,211,307

93.51

4,899,845

0.00

3.98

0.10

4.08

78,340,530

65.28

19,775,711

16.48

21,883,759

18.24

120,000,000

100.00

number of preference shares Held by Country of Residence and by Type as at December 31, 2011

Country

Directors, Management,
Staff, Advisors

Companies

Individuals

Total

USA

Trinidad and Tobago

Barbados

Total

663,000

360,348

1,023,348

0.00

0.55

0.30

0.85

78,339,530

65.28

12,496,307

10.41

7,200,404

18,761,240

15.63

2,179,171

109,597,077

91.33

9,379,575

0.00

6.00

1.82

7.82

78,339,530

65.28

20,359,711

16.97

21,300,759

17.75

120,000,000

100.00

Sagicor Financial Corporation
communicate

Listening and speaking are invaluable skills,
but only when used together.

192 2012 Annual Report

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 SRL

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
First Citizens Bank (Barbados) Limited
CIBC FirstCaribbean International Bank Limited
RBC Royal Bank (Trinidad & Tobago) Limited
RBC Royal Bank (Barbados) Limited
The Bank of Nova Scotia

Sagicor Financial Corporation
2012 Annual Report 193

oFFICes

sagicor Corporate Head office

sAGICoR FInAnCIAl CoRpoRATIon
Cecil F de Caires 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
Young Street
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 Streets
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
Frenches
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 General Insurance Branch Offices
Barbados
Mall Internationale
Haggatt Hall
St Michael
Tel: (246) 431-2886
Fax: (246) 426-8245

Sagicor Financial Corporation
194 2012 Annual Report

Sagicor Financial Centre
Lower Collymore Rock
St Michael
Tel: (246) 467-7650
Fax: (246) 428-6269

Building #2
Chelston Park
Culloden Road
St Michael
Tel: (246) 431-2886

Antigua
Sagicor Life Inc
Sagicor Financial Centre
9 Factory Road
PO Box 666
St Johns
Tel: (268) 480-5500
Fax: (268) 480-5520

Trinidad and Tobago
122 St Vincent Street
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 Streets
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
Cecil F de Caires Building
Wildey, St Michael,
Barbados
Tel: (246) 467-7500
Fax: (246) 436-8829
Email: info@sagicor.com

sAGICoR AsseT MAnAGeMenT InC
Cecil F de Caires Building
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

BARBADos FARMs lIMITeD
Bulkeley
St George
Barbados
Tel: (246) 427-5299
Fax: (246) 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 Financial Corporation
2012 Annual Report 195

sAGICoR CApITAl lIFe InsURAnCe CoMpAny
lIMITeD
Sagicor Financial Centre
Lower Collymore Rock
St Michael
Barbados
Tel: (246) 467-7500
Fax: (246) 436-8829

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: (599) 9 461-2081
Fax: (599) 9 461-1675
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

eMployee BeneFITs ADMInIsTRAToRs lTD
28-48 Barbados Avenue
Kingston 5, Jamaica
Tel: (876) 929-8920(-9)
Fax: (876) 960-1927
Website: www.sagicorjamaica.com

CApITAl lIFe InsURAnCe CoMpAny BAHAMAs
lIMITeD
C/o Family Guardian Insurance Company Limited
East Bay & Shirley Street
PO Box SS-6232
Nassau, NP
Bahamas
Tel: (242) 393-4000
Fax: (242) 393-1100
Email: info@familyguardian.com

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 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
Tel: (876) 929-9182-6
Fax: (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

Sagicor Financial Corporation
196 2012 Annual Report

HeAlTH CoRpoRATIon JAMAICA lTD

sAGICoR InsURAnCe BRoKeRs lIMITeD

sAGICoR JAMAICA InvesTMenTs lIMITeD
Pan Caribbean Building
60 Knutsford Boulevard
Kingston 5, Jamaica
Tel: (876) 929-5583-4
Fax: (876) 926-4385
Email: options@gopancaribbean.com
Website: www.gopancaribbean.com

sAGICoR BAnK JAMAICA lIMITeD

sAGICoR UsA, InC
4010 W. Boy Scout Blvd, Suite 800
Tampa, Florida 33607, USA
Tel: (813)-287-1602
Fax: (813)-287-7420

sAGICoR lIFe InsURAnCe CoMpAny
4010 W. Boy Scout Blvd, Suite 800
Tampa, Florida 33607, USA
Tel: (813) 287-1602
Fax: (813) 287-7420

4343 N. Scottsdale Road, Suite 300
Scottsdale, Arizona, 85251
USA
Tel: 1-800-531-5067
Fax: (345) 949-8262
Website: www.sagicorlifeusa.com

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
Email: info@sagicor.eu
Website: www.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

sAGICoR synDICATe HolDInGs lIMITeD

sAGICoR synDICATe seRvICes lIMITeD

sAGICoR ClAIMs MAnAGeMenT InC

sAGICoR CoRpoRATe CApITAl lIMITeD

sAGICoR CopoRATe CApITAl Two lIMITeD

RGM lTD
Albion Plaza Energy Centre,
22-24 Victoria Avenue,
Port of Spain,
Trinidad
Tel: (868) 625-6505 ext. 26
Fax: (868) 624-7607
Mobile: (868) 678-3181
Direct: (868) 624-6975
Email: gpd@rgm.co.tt

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
Email: sul@sagicor.eu
Website: www.sagicorunderwriting.com

Sagicor Financial Corporation
Cover Design: GREY
Layout and Artwork: GENESIS Graphics
Pre-Press and Printing: COT Media Group