Sagicor Financial Company Ltd.
Annual Report 2015

Plain-text annual report

A N N U A L R E P O R T 2 0 1 5 THE HINKSONS Port of Spain, Trinidad and Tobago (Cover Photo) There is that one big personality that most reflects the passion of a family. Ana Hinkson is a five year-old Trinidadian who wasn’t meant to be the focus of our story, but who best represents the loving moments between parents and their children, and siblings, that Sagicor values. Whether it’s the tenderness shared here with her brother Samuel, or the total submission of the family dog to her assertive commands, we were honoured to enter a quiet little sanctuary in Port-of-Spain, with the Hinksons, on an otherwise hectic Carnival Saturday in Trinidad. Michelle and Sean Hinkson are the adults in this story. Their four children keep them busy, but they always find time for special moments on the Savannah. Sagicor came highly recommended to them as a young couple, and when they decided to discuss their goals with an advisor, they started with their properties. Michelle explained that they were able to secure a mortgage, and loans to renovate and maintain their growing investments. The Hinksons also have life insurance with Sagicor, so they can provide for their family in the future. They are saving for their children’s academic goals, too. “We love these children, and one of the things that drives us is making sure they get the best education,” adds Michelle. Levi, Shay, Samuel and Ana will grow up understanding the importance of moments like these with family, and also with the added security of wise financial guidance. MEET THE REAL PEOPLE BEHIND OUR SUCCESS. OUR CLIENTS. Throughout this Annual Report, you will see how our clients’ lives are filled with moments that range from life-changing events to everyday occasions, and everything else in between. They remind us of how precious and diverse life can be for each of us. Moments like these add up, and for 175 years, Sagicor has been committed to turning them into years of stability and growth for our clients. Sagicor Financial CorporationOUR VISION To be a great company, committed to improving the lives of people in the communities in which we operate. Sagicor Financial CorporationCONTENTS 6 About Sagicor 10 Chairman’s Statement • Financial Highlights 16 Corporate & Social Responsibility 40 Human Capital Report 48 Operating & Financial Review 64 Board of Directors 70 Corporate Governance 84 Executive Management 92 Index of Financial Statements • Financial Statements • Notes 214 Shareholder Information • Advisors & Bankers • Offices ABOUT SAGICOR THE MURPHYS St. Philip, Barbados Sometime in July of 2013, the island of Barbados passionately rallied around the story of young Zane Murphy. Zane suffered an accident that resonated with the wider Barbadian community. Friends and strangers from across the island heard his story after an initial call to donate blood, and Barbadians responded overwhelmingly. This led to a growing online community, fed by concern for the young and energetic symbol of hope that Zane represents, and served by a mother who recognised the need from a concerned public to share the Murphys’ burden. Four years later, there’s still a bit of magic to Zane’s progress. To see his energy as any other five-year-old is true motivation. His passion for farm life and a doting family signals a blessed future for this young boy. Today, for Zane’s parents, Mark and Dr Maddy Murphy, and big brother Matthew, farm life continues to be a lesson in moments that matter most. As a lecturer in Public Health at the University of the West Indies, Maddy understands the importance of informed decision-making. So when the time came for her own family’s medical care, she turned to Sagicor. “Sagicor helped us make informed decisions so we wouldn’t have any surprises,” says Maddy. “So much so that when we’ve had to use our insurance overseas for Zane, the hospitals commented on the ease of working with our insurance company.” Knowing their family’s ongoing medical needs will be covered makes it easier for the Murphys to plan for tomorrow. “We’re confident that Sagicor is looking out for the best interest of myself and my family. I’ve personally seen this in action,” adds Maddy. ABOUT SAGICOR Sagicor is a dynamic, indigenous Group which has been redefining financial youth development and sports, to a number of organisations and institutions. services in the Caribbean. Following a carefully crafted business strategy, Sagicor continues to provide significant support for the prevention of the company transformed from a local single-line life insurance company to non-communicable diseases by promoting healthy living, and improving a financial services group with a solid regional base, before expanding into access to and facilities for health-care in the region. Sagicor supports the international financial services market. education at the primary, secondary and tertiary level, and sponsors a After the company demutualised in 2002, Sagicor Financial Corporation was formed as a publicly-listed holding company. The word Sagicor means “wise As we move forward through these challenging times in the economic life of judgment”, and reflects the quality of the financial advice and services we our region and the rest of the world, Sagicor’s core business strategies will offer. Sagicor now operates in 22 countries in the Caribbean, the USA and continue to provide a wide range of financial products and services, while Latin America. committed to our vision, “To be a great company, committed to improving the lives of people in the communities in which we operate.” number of adult education and development activities. For 175 years, Sagicor’s business has been based on long-term relationships with its customers, employees, and communities, who entrust us with their SAGICOR MILESTONES financial well-being. Our name and reputation draw on the strength, stability In 2015, the Sagicor Group of Companies marked a very special moment - and financial prudence that are our heritage, and this identity defines the 175 years of financial service to the Caribbean and beyond. Our company flexibility that wise financial thinking can bring to our customers throughout began its journey in 1840 and throughout these pages (as shown below) we their lives. Through local expertise and in partnerships with world-class trace the emergence of the Barbados Mutual Life Assurance Society, our asset managers, reinsurers, together with sound risk management practices, expansion across the Caribbean and the development of the Sagicor Group Sagicor is able to provide wise financial advise, and continue to meet the of companies, a dynamic, global financial services Group. needs of our customers now and in the future. It is Sagicor’s view that the entire business of wealth-creation and protection is about social investment. For many decades, Sagicor provided financial support and voluntary assistance, primarily in the areas of health, education, The establishment of the Barbados Mutual Life Assurance Society, which thrived amidst an era of economic turmoil. The first policy was purchased on November 24, 1840. 1840 6 2015 Annual Report Sagicor Financial CorporationCELEBRATING 175 YEARS Everything can change in a second. It’s a good thing we’ve been around for 5.5 billion of them. Sagicor is celebrating 175 years of helping you enjoy the most precious moments, and get through the more difficult ones. As we move into the future, let’s work together to turn those seconds into years and decades of stability and growth. The Barbados Mutual Life Assurance Society was the only indigenous life insurance company established throughout the British Caribbean. By 1900, (BLMAS) had 9 branches in the Caribbean. 1900 2015 Annual Report 7 Sagicor Financial CorporationCHAIRMAN’S STATEMENT THE SAULS Soufriere, St. Lucia Petra and Zephaniah have their hands full with seven-year-old Lanna Niahlie and two-year-old Alazne Jewel. However, no matter how busy things get for the Sauls and their daughters, they take time to appreciate life’s blessings. “With two awesome girls, I find myself living in the moment, having fun at home or taking them to the beach, which they love,” says Petra. Being part of the Sagicor family has given the Sauls peace of mind for their future. “We have a wonderful Sagicor Advisor, and have been able to rely on Sagicor to give us a mortgage for our home,” states Petra. “In addition, I want to ensure that our children are better off than I was growing up, and that I can secure a good financial future for them. I believe Sagicor can help me achieve this.” CHAIRMAN’S STATEMENT Stephen McNamara, CBE Chairman the period at US $322.2 million, up from US $307.2 million in the prior year, representing an improvement of 4.9%. Fees and other revenue amounted to US $109.1 million, compared to US $83.3 million in 2014, an improvement of US $25.8 million or 31.0 %. Net investment income and Fees and other revenue include the impact of the RBC Royal Bank’s operation in Jamaica, which was acquired on June 27, 2014. Total benefits incurred from continuing operations held fairly steady at US $552.9 million, compared to US$542.2 million in 2014. Expenses (including agents’ and brokers’ commissions) increased to US $427.7 million, compared to US $385.9 million for the prior year, an increase of US $41.8 million, or 10.8%. The increase in expenses reflected expenses incurred with the inclusion of the operation and integration of the RBC Royal Bank’s Jamaica banking operation for the entire year, compared I am pleased to report on the 2015 financial performance of the Sagicor to six months in 2014. Higher asset taxes also impacted the year’s expenses. Group. Consistent with prior years, the Group’s 2015 financial statements have been presented with continuing operations being separated from On August 11, 2015, Sagicor refinanced its total debt with the issuance of the discontinued run-off operations of Sagicor Europe. The continuing US $320.0 million seven-year Senior Notes, repayable in 2022. The notes operations comprise our businesses in the Caribbean and the USA. carry a fixed rate of interest of 8.875% payable semi-annually, and can be The Sagicor Group experienced strong performance, with net income for the Senior Notes, Convertible Redeemable Preference Shares and Short-Term year closing at US $76.8 million, compared to US $73.9 million for 2014, an Notes which mature in May 2016. Consequently, on September 10, 2015, the repurchased after four years. The notes were issued to refinance the existing increase of 3.9%. company redeemed the US $150.0 million 7.50% 2016 Senior Notes at a price of US $160.5 million, and has pre-funded the redemption of the Convertible Net income from continuing operations attributable to shareholders was Redeemable Preference Shares and the other Short-Term Notes. US $56.3 million, compared to the prior year result of US $53.7 million. Earnings per common share from continuing operations was US 18.2¢, and As a result of the issuance of the Senior Notes in August 2015, the Group’s finance represented an annualised return on common shareholders’ equity of 11.7%. cost increased to US $37.2 million, compared to US $22.5 million for the prior year. Total revenue increased to US $1,104.2 million, compared to the prior year Firstly, US $6.8 million were incurred related to the early redemption of the amount of US $1,045.2 million, an increase of US $59.0 million or 5.6%. US $150.0 million Senior Notes, which were due to mature in May 2016. Secondly, Net premium revenue closed at US $673.9 million, compared to US $625.6 financing costs of US $11.8 million arose from the pre-funding of redemptions of million for the prior year, an increase of US $48.3 million or 7.7%. The Group the Convertible Redeemable Preference Shares and the Short-Term Notes, also experienced premium growth in all segments. Net investment income closed due to mature in mid-2016, and the above-mentioned Senior Notes. Included in finance cost are additional costs which arose for two further reasons. 10 2015 Annual Report Sagicor Financial CorporationTotal comprehensive income showed a loss of US $0.6 million, compared to of the US $150.0 million 7.5% 2016 senior notes, and pre-funding the a profit in the prior year of US $80.6 million. Other comprehensive income redemption of the Convertible Redeemable Preference Shares and other showed a loss of US $77.4 million, compared to a profit of US $6.7 million Short-term Notes, the debt to capital ratio increased from 27.9% at the end in the prior year. During 2015, the Group experienced mark-to-market of 2014 to 39.1% for 2015. The debt to capital ratio will return to lower levels, declines on financial assets associated with our international portfolios. (approximately 35%) when the Convertible Redeemable Preference shares These changes resulted from volatility in international bond prices, reflecting and the other Short-term Notes, which mature in May 2016, are redeemed. concerns over global economic growth, and uncertainty surrounding the Federal Reserve’s monetary policy. The Jamaica dollar declined against On March 21, 2016, the company early redeemed the other Short-term Notes the US dollar by 4.8% for 2015, compared to 7.8% for 2014, contributing to of US $43.4 million due May 12, 2016, and issued new notes in the amount of currency retranslation losses of US $15.7 million. US $75.0 million, due April 14, 2017. The new notes were issued at a rate of The discontinued operation represents our UK business, which was sold on 5.0% per annum. December 23, 2013. The terms of the sale required the Sagicor Group to The Board has declared dividends of US 3.25 cents per preference share and retain an interest in the 2011, 2012 and 2013 underwriting years of account, US 2.0 cents per common share, payable on May 15. subject to a limit denominated in pounds sterling. This business experienced a loss of US $21.6 million, (US $26.4 million for 2014), resulting from adverse The economic environment in which the Sagicor Group operates continues movements in claims reserves. The company has now fully provided for this to show signs of improvement. The Board and Management continue to contingent exposure and no further adverse exposure to underwriting losses adapt our strategies as we deliver quality products to our customers and will be incurred. competitive returns to our shareholders. On behalf of the Board of Sagicor, I wish to thank our Shareholders and Customers for their continued support. In the statement of financial position as at December 31, 2015, assets amounted to US $6.4 billion, compared to US $6.2 billion in the prior year. Liabilities closed at US $5.7 billion, compared to US $5.4 billion in the prior year. Sagicor’s Group equity totalled US $739.2 million, compared to US $773.5 million in the prior year, and was impacted by mark-to-market declines on financial investments. Stephen McNamara Chairman The Group’s debt, which is included in other liabilities, was US $475.5 million. April 8, 2016 Following the issue of the senior notes on August 11, 2015, the redemption Mutual Asset Management Inc, and Mutual Funds Inc. are established with great success. By year-end, the Fund had net assets of $19.7 million and 1600 shareholders. 1997 2015 Annual Report 11 Sagicor Financial CorporationFINANCIAL HIGHLIGHTS Amounts in US$ millions unless otherwise stated NET INCOME 1 56 54 60 45 30 15 0 15 10 5 0 SHAREHOLDER RETURNS COMMON DIVIDENDS 12 12 BOOK VALUE PER SHARE Amounts in US cents 166 173 300 200 100 0 2015 2014 2015 2014 2015 2014 1 from continuing operations Basic earnings per share 1 18.2¢ 17.3¢ Return on shareholder’s equity 1 11.7% 11.2% 2015 2014 NET INCOME1 REVENUE BENEFITS GROUP RESULTS 1 98 100 125 100 75 50 25 0 1500 1000 500 0 1,104 1,045 553 542 1000 500 0 2015 2014 2015 2014 2015 2014 1 from continuing operations 12 2015 Annual Report Sagicor Financial Corporation Amounts in US$ millions unless otherwise stated GROUP FINANCIAL POSITION ASSETS OPERATING LIABILITIES EQUITY & DEBT CAPITAL (TOTAL CAPITAL) 5,139 5,062 7000 6,400 6,180 3500 0 6000 3000 0 1,213* 1,072 1500 1000 500 0 2015 2014 2015 2014 2015 2014 * Includes US $120 million Convertable Redeemable Preference Shares due 2016 SEGMENT RESULTS 2015 2014 Debt to Capital 39.2% 27.9% MCCSR 221% 273% SAGICOR LIFE INC - NET INCOME SAGICOR GROUP JAMAICA- NET INCOME SAGICOR USA - NET INCOME 71 50 80 60 40 20 0 100 50 0 80 77 20 10 0 12 7 2015 2014 2015 2014 2015 2014 2015 2014 Revenue 471 362 Assets 1,904 1,773 2015 2014 Revenue 511 486 Assets 2,513 2,495 2015 2014 Revenue 78 153 Assets 1,701 1,743 2015 Annual Report 13 Sagicor Financial Corporation CORPORATE & SOCIAL RESPONSIBILITY THE McCLURES Tampa Bay, USA After earning a Master’s degree in Chemistry and working in the fiberglass industry for 20 years, Denice McClure decided it was time for a life-altering change. So Denice traded her lab coat for a yoga mat, and traveled across the United States, training to become a yoga teacher. With a master’s certification and three young children, Denice left her life in Cleveland and moved to Tampa to open a yoga studio. Her teenage daughter, Christie, also a yoga master, teaches at the studio, and sons Jack and Jared help out at the front desk. In addition to modeling a healthy lifestyle, Denice wanted to ensure her children’s educational needs would be met if anything unexpected happened. Sagicor agent and friend, Dawn Hudson, explored all of Denice’s options. With Sagicor, she found a life insurance plan that fits her needs, and discovered the company’s values also fit her own. Through yoga, the McClures spend every moment they can helping others – one downward-facing dog at a time. IN OUR COMMUNITIES Health The Caribbean is the region of the Americas worst affected by the epidemic of non-communicable, chronic diseases. The human and economic cost burden of conditions, such as diabetes, stroke and cancer is not sustainable in the long term, and this is at the route of Sagicor’s continued support in this area. By promoting healthy living, and improving access to, and facilities for healthcare in the region, Sagicor is playing its part in the eradication of chronic diseases, which currently contribute to almost 50 percent of disability-adjusted life years lost in the Caribbean. HEALTH Healthy Caribbean Coalition - Sagicor Life Inc - Barbados An extension of a Memorandum of Understanding (MOU), originally established in 2012, was formalised between Sagicor Life Inc (SLI) and the Healthy Caribbean Coalition (HCC). Funding provided through this partnership supports the continued work of a Secretariat and management team to undertake the professional and administrative functions of the HCC. The HCC is a civil society alliance established to combat non-communicable, chronic diseases and their associated risk factors and conditions. Globe-athon - Sagicor Life Inc - Barbados SLI shared title sponsorship of the 2015 Barbados ‘Globe-athon 5K Walk & Run to End Women’s Cancers’ event with Sagicor General Insurance. In 1 September, Barbadians walked in support of the Barbados Cancer Society’s fight to reduce the incidence and impact of gynaecological cancers. Over 2,000 participants were registered, an increase on the previous year’s attendance. Sagicor staff and family supported the event, with approximately 150 persons registering through the company. World Health Day The global campaign for World Health Day heralded a regional message from the Barbados location to its regional staff, group clients, brokers and service providers. Staff also received an email with health tips, while brokers, clients and service providers received a group insurance advertisement. The advertisement was designed to raise awareness for the global effort, as well as reinforce Sagicor’s commitment to its main pillar of corporate and social responsibility - health. Health Fair - Sagicor Life (Eastern Caribbean) Inc - St Lucia 2 Sagicor’s clients and the general public were welcomed at a free health 1. (L- R) Edward Clarke, COO, Sagicor Life Inc and General Manager, Barbados event, which offered health checks and one-on-one health information Operations; Professor Sir Trevor Hassell, President of the Healthy Caribbean Coalition, sessions. Sagicor Advisors were also on hand to conduct financial check- and Maisha Hutton, Manager of the Healthy Caribbean Coalition, after signing an ups, and exhibitors included non-profit organisations, providing support and extension to the MOU between Sagicor Life Inc and HCC. advice on cancer, diabetes, nutrition, reflexology, counselling and fitness. 2. Runners at the beginning of the 2015 Globe-athon Walk & Run to End Women’s Cancers. 2015 Annual Report 17 Sagicor Financial CorporationHealth Symposium - Sagicor Life Inc - Belize Hospital (ACH) fund-raising efforts. In 2015, during the hospital’s annual As part of its commitment to the provision of access to affordable quality Radiothon, the company made its annual donation, and staff members from healthcare in a global environment where healthcare costs continue Tampa, Florida volunteered to work the phone banks, taking donations from to rise, Sagicor partnered with Diversified Life Solutions and hosted those in the community pledging their support. All Radiothon proceeds a Health Symposium in September 2015. The two-day event featured benefit All Children’s Hospital’s facilities and the care of its young patients. hospital exhibits, along with information-packed sessions and networking opportunities related to urology, oncology, cardiology, neurology, paediatrics The American Cancer Society - Sagicor Life Insurance Company - USA and endocrinology. Day One focused on the local medical fraternity, while “Making Strides Against Breast Cancer”, a 5k walk in Arizona hosted by the Day Two focused on information for Sagicor’s policyholders and plan administrators. The event better empowered medical practitioners to provide patients with the best options available. Sigma Run - Sagicor Group Jamaica Limited - Jamaica Approximately 24,000 persons participated in the region’s largest corporate run. The event, hosted by Sagicor Group Jamaica Limited (SGJ), raised funds for the Cornwall Regional Hospital’s Neo Natal Unit and the Jamaica Kidney Kids Foundation (JKKF). The JKKF was presented with a peritoneal dialysis machine and other dialysis supplies to strengthen their service delivery to kidney patients, while the Cornwall Regional Hospital Neo Natal Unit received equipment and supplies. Phoenix Children’s Hospital - Sagicor Life Insurance Company - USA n 2015, the Phoenix Children’s Hospital (PCH) in Arizona partnered with a local television station and a local radio station to host its annual Telethon and Radiothon. Sagicor Life Insurance Company (SLIC) supported both PCH fund-raisers in the form of monetary donations and volunteer time. The company designated funds, and employees from the Scottsdale Arizona office volunteered to work on the phone banks, answering calls and taking donations. PCH is one of the ten largest children’s hospitals in the United States. PCH also operates within communities around the state with specialty and urgent care centers. Phoenix Children’s Hospital would not be possible without support from companies and individuals all across the state. 3 All Children’s Hospital - Sagicor Life Insurance Company - USA For the last several years, SLIC’s staff have participated in the All Children’s 4 18 2015 Annual Report Sagicor Financial Corporation5 6 7 American Cancer Society, attracted more than 500 teams with over 5,000 participants. These walks formed the largest network of breast cancer awareness events in the US, and one of the 500 teams that participated was Team Sagicor Life, who walked for survivors, loved ones, people who are currently battling cancer and for people who have touched our lives with the diagnosis of breast cancer. Each step was one step closer to a cure, helping to raise over US $400,000 for breast cancer research. The Tampa Bay Lightning - Sagicor Life Insurance Company - USA In March 2015, the National Hockey League’s Tampa Bay Lightning held its 14th annual Bolt Run at the Tampa Bay Times Forum. The event consisted of 5K, 5-mile and 1-mile fun runs that featured pre and post-race parties on the Forum’s plaza. The Bolt Run was partly-sponsored by SLIC, with all proceeds going to the Leukemia and Lymphoma Society. More than 2,400 runners gave their support to the cause. SLIC is a corporate sponsor of the Tampa Bay Lightning, and enjoys in-arena signage during the 41-game home season. 2015 was an especially good year for the team, as they made it to the Stanley Cup Finals, extending their season and Sagicor’s sponsorship until June. 3. (L- R) Jeannette Barrow, Portfolio Manager, Sagicor Life Inc; Patricia Brathwaite-Marshall, Vice President, Group Insurance, Sagicor Life Inc; Dr Luis Linares, Hope International; Harrison Pilgrim, Diversified Life Solutions; Patricia Carrera de Rodriguez, Hope International; and Abel Simpson, Sagicor Agency Manager in Belize, pose for a group photo. 4. The starting line at the 2015 Sigma Run. 5. SLIC staff volunteering at the 2015 Phoenix Children’s Hospital Telethon. 6. Volunteers at the phone banks accepting pledges for the All Children’s Annual Fund-Raiser. 7. The Sagicor information stand at the 14th Annual 5K and 5 mile Bolt Run. 2015 Annual Report 19 Sagicor Financial CorporationIN OUR COMMUNITIES Education Sagicor shares the belief that an investment in education is the most powerful investment in our future, and that the only thing more expensive than investing in education, is not investing in education. Sagicor’s support to educational programmes guides people on the path towards good health and empowerment, with the view that, over time, education reduces poverty and boosts economic growth. Education can also increase a person’s chances of having a healthy life, reduce maternal deaths, combat diseases such as HIV and AIDS, as well as many other issues in society. EDUCATION Sagicor Visionaries Challenge The Abram Zuil Secondary School from Guyana emerged as national winners out of 34 projects. The team, headed by team leader, Athina Indar, and Science, Technology, Engineering and Mathematics (STEM) education supervising teacher, Jerome Rajpersaud, presented their project on Rice is a vital part of Sagicor’s educational CSR programme. Through the Husk Particle Board, which showed that rice husk can be made into a low implementation of the Sagicor Visionaries Challenge, STEM affects what is cost, durable building material, while reducing the carbon dioxide emissions nearest and dearest to us - our children. STEM is essential to their future in that result from the burning of the rice husk, an agricultural waste product. the technological age in which they live and will grow up, offering their best career options, and their key to wise decisions. By extension, STEM is vital In Belize, Bishop Martin High School copped the national title with its to the future of the Caribbean region, as it shapes our everyday experiences, winning project - Mayan Power for Modern Times. This project was headed and is at the core of our natural world. For these reasons, the Sagicor by team leader Maria Pech, with Wilson Mendoza, the supervising teacher. Visionaries Challenge was developed and launched. The project aimed to increase awareness and usability of Chaya in Belizean This Group-wide initiative provides students with an opportunity to work preparation. Chaya, native to Mexico, is a fast-growing perennial shrub that diets by creating a database, blog and instructional videos on Chaya with a teacher at their school to identify a problem facing their community produces large, dark green leaves. and, using STEM, develop an effective, innovative and sustainable solution. Students compete against other students throughout the Caribbean and The Belizean team also won the People’s Choice Award, where more than from Florida, USA. 51,000 participants voted for their best Sagicor Visionaries Challenge Project An account of our regional winners and their projects is below: for 2015. In Antigua & Barbuda, Christ the King High School presented the Nevo Oven. 2015 welcomed participants from the US, specifically from Florida’s The science students experienced difficulty in determining the percentage Hillsborough County School District. In February, Hillsborough County yield of crystals (i.e. actual mass of crystals / expected mass of crystal) conducted a STEM Fair, with Jai Patel from Walker Middle Magnet School synthesised in the laboratory. The reason for this was that there was no and his mentor (teacher) Ms. Nancy Robords emerging as the US winner. furnace or oven to dry the prepared crystals, as the cost of electrical or laboratory furnaces is very high. As a result, experimental procedures were Five Rivers Secondary School from Trinidad and Tobago captured first place negatively affected and several errors were constantly occurring. In order to with their winning project, Cardboard Box Pellet – A Recycling Project. The solve the problem, students decided to produce homemade ovens, designed project outlined how to reduce Trinidad and Tobago’s carbon footprint by to be built with readily available and recyclable materials. providing an efficient alternative to the waste disposal system, and creating a useful, environmentally-friendly by-product from the discarded cardboard At Queen’s College, Barbados, The Green Way to Get Styrofoam Away breakfast boxes at their school. As part of their prize, the school received was presented as a solution to the amount of waste generated on a daily a complete Caribbean Science Foundation computerised Vernier mobile basis, the majority of which was styrofoam. Styrofoam poses problems science and technology centre, as well as six Caribbean Examination Council because it occupies excessive space in dumps and landfills and, since it (CXC) approved science kits. is non-biodegradable, it remains in landfills for a long time. Styrofoam containers often collect water and become a breeding ground for 2015 Annual Report 21 Sagicor Financial Corporationmosquitoes, encouraging dengue fever, malaria and chikungunya. It also causes unsightly pollution and harm to marine life when it reaches the sea. As a method of reducing styrofoam waste at school and in the wider community, the students demonstrated that acetone, an organic solvent, can dissolve the organic compound, polystyrene, from which the styrofoamis made, leaving very little residue. However, for a more eco-friendly, sustainable and cost-effective solution, an essential limonene oil could be extracted from citrus fruits as an alternative to acetone. A proposal was made to the school to set up a styrofoam waste collection system, where the waste will be reduced using limonene extracted from citrus fruits. The end product can then be used as a sealant or glue. The back of the L-shaped wing of St Martin Secondary School, Dominica, consists of a narrow stretch of land used for planting flowers by the six classes which occupy the building. However, students’ interest had 1 decreased, as the garden is hidden from the public and is therefore only visible to the students in the classrooms. The distance between the water source and the garden also made it difficult to water. Students have encountered difficulties in planting because the sandy stony soil is not fertile enough and the space per class is limited. The solution, dubbed, “Techno- Gardeners”, has the potential to transform a failing vegetable garden, incorporating the use of recyclable materials, such as plastic bottles and tyres for growing crops. The students intend to use organic waste from the food laboratory to make compost, which will improve the soil structure and provide nutrients to the soil. Hydroponics with a solar powered pump will also be used, and rain water will be collected in a large tank to provide a readily available supply of water. Vegetables from the garden will be sold through a small school market to students at low cost for their cooking classes in the food lab, and students will be encouraged to eat healthily and plant small gardens at home. St Mary’s College, St Lucia, and its immediate community, have a litter problem with plastic waste finding its way into gutter systems and causing flooding during heavy rainfall periods. The plan was to produce biodegradable plastics out of a renewable resource. Plastics are typically 2 22 2015 Annual Report 1. Trinidad and Tobago National Winners from Five Rivers Secondary School explaining the benefits of the Cardboard Box Pellet Recycling Project to Jacinto Martinez, (R) Vice President, Sales and Marketing, Sagicor Life Inc. 2. Team members from the Abram Zuil Secondary School in Guyana with the model of their project, Rice Husk Particle Board, demonstrating how rice husk can be made into a low cost, durable building material. Sagicor Financial Corporation3 4 5 made of an artificial synthetic polymer and their structures are not naturally occurring and non-biodegradable. Based on research and an understanding of the correlation between the polymer structure, properties and natural processes, a starch-based polymer was recommended to replace the original polymers that were synthetically made. However, the plastic made out of starch will not be able to meet all the properties of the previous synthetically made polymers. So biodegradable additives would have to be added to strengthen it, making it long-lasting for practical use. Tivoli High School Inspiration Day - Sagicor Group Jamaica Limited - Jamaica Members of SGJ’s Executive Management gave their time to visit the Tivoli High school and talk with the 5th and 6th form students on life skills and career choices, in keeping with their theme “Inspire Them to Achieve 3. 2015 Sagicor Visionaries Challenge overall winners, Bishop Martin High School, Belize, Greatness.” SGJ also expanded the intern employment programme which explaining the concept behind the project, ‘Mayan Power for Modern Times’, to a gives tertiary level students a chance to work with the company for judge. The Belizean team also won the People’s Choice Award, receiving over 51,000 a three-month period. The programme, which started in October 2013, has votes. 4. Sagicor Visionaries Challenge Team, Antigua 5. Sagicor Visionaries Challenge Team, Barbados.. grown from sixteen participants to sixty in March 2015. 2015 Annual Report 23 Sagicor Financial CorporationScholarships - Sagicor Group Jamaica Limited - Jamaica now reaches approximately 25,000 school children through three signature SGJ awarded scholarships to outstanding secondary and tertiary students. programmes: At the tertiary level, thirty-four students received Sagicor Scholarships to attend five local Universities and Colleges for the 2015/16 school year. • The “New Clothes, New Beginnings” annual clothing distribution; Thirteen students at the tertiary level, who did not qualify for scholarships, • The matching grants programme, Student Attire For Education (SAFE), also received book grants. At the secondary level, students entering and high schools across the island in September 2015, were presented with • Stitches of Love. academic scholarships. Sixteen scholarships for secondary schools were awarded to children of SGJ stakeholders who excelled in the local Grade Employees from SLIC’s Scottsdale office also volunteered to assist with Six Achievement Test (GSAT). Additionally, SGJ awarded scholarships to a Back-to-School Clothing Drive event held at Grand Canyon University. the children of its team members through its Corporate Staff Education Children who participated in the programme received uniforms, shoes and Programme. There were ninety-two awards at the primary level and forty- socks, a sweatshirt, a backpack and assorted school supplies. All the items one at the secondary level. received by the children were provided through donated funds raised from corporate sponsorships and private donations. Twenty-nine SLIC employees International Day of Literacy - Sagicor Group Jamaica Limited - Jamaica donated 164 hours of service for this event, during which thousands of SGJ’s support to educational initiatives was also demonstrated through its children received school supplies. The donations went a long way towards observation of International Day of Literacy. Staff members conducted a creating a brighter beginning for a successful school year, while giving the reading session with students at the Balcombe Drive Primary School, and recipients a greater sense of pride, higher self-esteem, self-confidence, and SGJ also sponsored the prizes in the annual Jamaica Library Service Reading hope. Competition. Step Up For Students - Sagicor Life Insurance Company - USA Adopt-a-Classroom - Sagicor Life Insurance Company - USA In 2015, SLIC entered into its second year of supporting the state ‘‘Santa’ and some of his ‘elves’ visited a kindergarten class at Wilson programme, Step Up For Students. It allows SLIC to redirect its Florida Primary School in downtown Phoenix as part of SLIC’s Adopt-a-Classroom premium taxes from the Florida Department of Revenue to Step Up programme. Each student received toys from a wish list, as well as a pair of For Students. In 2015, SLIC provided $82,500 to the organisation. The socks and shoes, clothing and a coat or jacket, all of which were donated programme is a Florida-based, not-for-profit corporation that was created by SLIC. Students came from low income families and some were homeless. to help alleviate the enormous educational challenges faced by children Many would not have otherwise received a Christmas present. The Adopt-a- in Florida who live in or near poverty. The organisation provides Tax Classroom programme has been in place for 17 years, with each classroom Credit Scholarships to students in K-12 from low-income families. These being sponsored by a company or an individual family within the community. scholarships allow the students to consider participating private schools or an out-of-district public school that may better suit their needs. Back-to-School Clothing Drive - Sagicor Life Insurance Company - USA This Drive was established in 1967, for the purpose of providing clothing, uniforms and school supplies to children in need. The clothes provided meet mandatory school uniform policies and other guidelines, and the programme 24 2015 Annual Report Sagicor Financial Corporation7 8 9 6 6. Mark Clarke, Vice President, Information Technology Services, Sagicor Life Jamaica speaking to students at the Tivoli High School Inspiration Day. 7. Proud Scholarship winners receiving their awards from Sagicor Group Jamaica Chairman, Dr the Honourable R Danny Williams (R) and President and Chief Executive Officer, Richard Byles. 8. Primary school children receiving their presents from Santa as part of SLIC’s Adopt- a-Class programme. 9. Representatives from SLIC presenting a school with a donation from ‘Step Up For Students’. 2015 Annual Report 25 Sagicor Financial CorporationIN OUR COMMUNITIES Youth and Community Development Sagicor continues to be a part of every community in which it operates, guided by the belief that we have a fundamental responsibility to contribute to enhancing and sustaining people’s quality of life. This belief is also shared by our community partners with whom we collaborate across the Sagicor Group. Our investment in these partnerships and community organisations allows us to contribute to the economic and social advancement of our communities, as well as help them affect change. YOUTH AND COMMUNITY DEVELOPMENT Junior Achievement Trade Fair - Sagicor Life (Eastern Caribbean) Inc - University Scholarships - Sagicor Life Inc - Barbados St Kitts For over 15 years, as part of our commitment to youth development and For a second year, SLI supported the Junior Achievement Programme education, Sagicor has been awarding Scholarships to outstanding students as a sponsor and exhibitor at the Programme’s Annual Trade Fair. The enrolled at the University of the West Indies, Cave Hill Campus. Romeco event showcased the products and services of participating schools and King, a student from St Vincent and the Grenadines, and Shaneeka Bovell, companies to the general public and the business community. a Barbadian, were the recipients of the 2014/2015 Sagicor Academic Scholarship Programme. Both young scholars demonstrated diligence, Coast Guard Youth Development Summer Programme - Sagicor Life determination and a commitment to excellence. Their keen interest in the (Eastern Caribbean) Inc - St Vincent and the Grenadines community was also impressive, as each displayed humility and kindness, This summer programme provided constructive activities for young people expressing their desire to share their skills and knowledge with others. The between the ages of fourteen and eighteen. Participants learned valuable life scholarships are open to undergraduate students at the University of the skills, and gained new perspectives in areas such as social and professional West Indies who are from Barbados and the Eastern Caribbean, and are etiquette, first aid, leadership development, swimming and life saving, as well majoring in Actuarial Science, Business Studies, Accounting or Computer as conflict resolution. Science. The funds from the scholarships will be used towards maintenance costs, books, fees and incidental expenses. 1. Sagicor Life Inc Agency Manager, Denrick Connor, presenting a donation to Kevin Roberts of ‘Junior Achievement’. NIFCA Performing Arts - Sagicor Life Inc - Barbados Sagicor continued its support of youth and cultural development in its third year of sponsoring the National Independence Festival of Creative Arts (NIFCA) Performing Arts Finals Juniors’ Night. The Finals showcased the best youth performers of the season, and they were evaluated for achievement awards. In 2015, event attendees were given tokens of appreciation which highlighted Sagicor’s 175th Anniversary. One of the finalists, The Akoya Dance Ensemble, was recognised for its performance of ‘Future Ones’ with the Sagicor Visionaries NIFCA Performing Arts Prize for Juniors, and also judged ‘Most Promising Newcomer to NIFCA Dance’. NIFCA was originally conceptualised as a forum to showcase and encourage the disciplines of dance, music, drama, literary arts, culinary arts, fine arts and craft, photography and film during the Independence celebrations in Barbados. Outstanding participants received gold, silver and bronze awards of achievement along with specialty awards. 1 2015 Annual Report 27 Sagicor Financial CorporationAdopt-A-Project Campaign - Sagicor Life Inc - Trinidad and Tobago forty-five individuals, schools, charity groups, communities and institutions From July to November 2015, Sagicor Advisors and administrative staff from benefited from acts of kindness based on need, as nominated by friends, different locations reached out to their communities and asked in what ways family, and associates. The 45 beneficiaries received a variety of donations, Sagicor could assist, as part of the Adopt-A-Project Campaign. This resulted ranging from wheel chairs, health and school supplies, equipment and in Sagicor partnering with local communities to address specific needs or furniture for their charities and refurbishing supplies. requirements in the areas of youth development through sport, education and health. Staff volunteered to take part in activities such as painting and Sagicor Motivational Seminar (SMS) - Sagicor Group Jamaica Limited - refurbishing schools, homes for disadvantaged youth, and the aged, as well Jamaica as installing ovens, washers, dryers and a pump. The SMS is staged by SGJ to develop and motivate team members to achieve their highest potential. While planning this bi-annual Seminar, SGJ Red Cross Kiddies Carnival - Sagicor Life Inc - Trinidad and Tobago Team Members combined their efforts and resources to identify and offer Committed to maintaining and developing cultural heritage and national assistance to a local charity, and so demonstrate their commitment to social art, SLI was honoured as a Gold Sponsor at the 58th edition of the Red responsibility. The Strathmore Gardens Children’s Home received monetary Cross Kiddies Carnival. Sagicor was the prize sponsor for the Medium Band assistance through the biannual event, and SGJ staff also participated in a Category for first, second, and third places. Kiddies Carnival is part of the workday to refurbish sections of the childcare facility. Trinidad and Tobago Red Cross’ fund-raising efforts, which has given the organisation the opportunity to purchase ambulances and service vehicles. More recently, fund-raisers have assisted the Red Cross with their Gift of Light project, whereby those children in Trinidad and Tobago who are without electricity, are provided with solar lanterns. Funds raised from Kiddies Carnival 2015 were used to support the Solar Lantern Project. MovieTowne Trinbago Kids Got Talent - Sagicor Life Inc - Trinidad and Tobago This annual event, held during the summer vacation, provided a platform for children to display their skills and abilities, from singing to dancing, and many other musical and non-musical talents. For the past three years, Sagicor has been a proud sponsor of this event, supporting the development of young stars, encouraging and rewarding the gifted children of Trinidad and Tobago. #45WaysToGiveBack - Sagicor Group Jamaica Limited - Jamaica In June, SGJ launched its 45th Anniversary initiative out of SGJ’s need to serve and give back to the community that contributed to its success for their 45 years of existence. After reviewing over three hundred applications, 2 28 2015 Annual Report Sagicor Financial Corporation5 2. Team members from Sagicor Life Inc, Trinidad, painting Rainbow Rescue, a home for socially displaced children, as part of the Adopt-A-Project campaign. 3. A member of the public speaking with a Sagicor Advisor at the Sagicor stand during the MovieTowne Trinbago Kids Got Talent competition. 4. Sagicor Group Jamaica Assistant Vice President, Group Human Resources, Jacqueline Donaldson, handing a cheque for a new wheelchair to 14-year-old Ajani Miller, one of 45 recipients of #45WaysToGiveBack. 5. Volunteers from Sagicor Group Jamaica helping to refurbish the Strathmore Gardens Children’s Home in St Catherine, as organised by the Sagicor Motivational Seminar Planning Committee. 3 4 Tampa Bay Rays - Sagicor Life Insurance Company - USA SLIC currently runs two community programmes with the Tampa Bay Rays’ Sponsorship. The ‘Junior Announcer Sweepstakes’ provides children aged eight to sixteen with the opportunity to be an announcer for one inning during a Rays’ home game. Junior Announcers were selected for every Sunday home game throughout the 2015 season. The second programme, ‘Salute to Education’, recognises Tampa Bay area educators. At every other home game, 40 in total, current and former teachers attending the game are asked to stand and be recognised on the stadium’s video scoreboard for Sagicor Life’s salute to education. SLIC and the Tampa Bay Rays conducted three visits to All Children’s Hospital during the season. Players, along with the team mascot, Raymond, interacted with the children, sharing Sagicor baseball pillows, and bringing smiles to the faces of, not only the young patients, but their parents and hospital staff as well. Sagicor staff members were on hand to assist the players with their rounds. Habitat for Humanity - Sagicor Life Insurance Company - USA In March, fifteen associates from the SLIC’s Scottsdale office met in North Phoenix to put the finishing touches to the outside of a new home built through the Habitat for Humanity organisation. More than 4 tons of landscaping rock was shoveled, rolled, dumped and placed by the team. Staff also dug water line trenches, planted shrubs and a tree and leveled both the side and back gardens. Another team of five Scottsdale associates followed up to clean the inside of the home from top to bottom. Later, in September, employees from the Scottsdale office helped hang drywall. Many of the volunteers were on site by 6:15 am, and the level of experience for hanging drywall ranged from novice to ‘old pro’. Sagicor volunteers donated their time and abilities to this worthwhile project as part of our Corporate Giving Programme. Habitat for Humanity is a nonprofit, ecumenical Christian 6. A ‘Junior Announcer Sweepstakes’ winner, during a Tampa Bay Rays’ home game. 7. Tampa Bay Rays’ team member on a visit to the All Children’s Hospital with team mascot, Raymond. 6 7 30 2015 Annual Report Sagicor Financial Corporationministry which supports people in need, regardless of race or religion, and welcomes volunteers and supporters from all backgrounds. Dominica Relief Effort - Sagicor Group of Companies In August 2015, the island of Dominica sustained significant damage due to the passage of Tropical Storm Erika. A band of torrential rain caused by the system resulted in 6 to 8 inches of rainfall in less than twelve hours, and triggered massive flooding and several landslides, which resulted in families losing their homes. In addition to the loss of lives, and personal belongings, there was also total destruction of subsistence crops. Directly after Erika, the general population of Dominica, Sagicor staff included, were in need of assistance for basic necessities at the beginning of the recovery process. An internal Crisis Management Team was set up immediately to plan the support for Sagicor staff and the wider community. All companies within the Group 8 participated. In an effort to support the employees and their families in Dominica, financial donations were collected across Barbados, Trinidad and Tobago and the Eastern Caribbean. In the US, SLIC donated the funds collected during its September Casual Dress Days, as well as additional funds donated from its team members. Senior Management from all Sagicor companies committed to matching the staff donations. In support of the wider Dominica community, staff members donated an array of items detailed in the Red Cross List of Emergency Supplies. More than 180 boxes of dried food goods, personal hygiene items and safety equipment were shipped to Dominica to those in need. Time and time again, we have seen an exemplary response from Sagicor 9 staff, demonstrating a high level of generosity and compassion to those facing adversity. Whether it was hurricane Ivan or Katrina ravaging the Gulf Coast, or tornados ripping through Oklahoma, our staff have been there and 8. SLIC Volunteers putting the finishing touches on a home for ‘Habitat for Humanity’. they are to be commended for their actions. 9. President and Chief Operating Officer, Bart Catmull, presenting a donation raised by SLIC Staff to Donald Austin, President and Chief Executive Officer, Sagicor Life Eastern Caribbean Limited, to assist the Sagicor team in Dominica after the passing of Tropical Storm Erika. 2015 Annual Report 31 Sagicor Financial CorporationIN OUR COMMUNITIES Sports Throughout the Caribbean, sports are a unifying cultural mainstay and a part of everyday life. To Sagicor, sport is a cultural and social phenomenon. Sport plays an important role in people’s daily lives, and acts as a force that brings them together, providing a sense of unity. Sagicor’s support to sports has bolstered programmes designed to train and mould promising sportsmen and women, coaches and sports administrators, enabling them for service at the international level. SPORTS the Sagicor General Shield tournament are two of the largest competitions National Sports Council Summer Camp - Sagicor Life Inc - Barbados at the local level. They attracted several local teams, and the standard of During the months of July and August, the Barbados National Sports Council competition was high. hosts a summer camp for children aged eight to sixteen. For several years, SLI has sponsored the summer programme, offering twenty-five sports Barbados Association of Classic Cars - Sagicor General Insurance - disciplines at various locations across the island. Several workshops and Barbados special visits took place during the camp, and 2015 welcomed a special Sagicor was the proud sponsor of the Association’s car show, held at session from the Sagicor University of the West Indies Cricket Team. Content, St Thomas, in July 2015. Many patrons came out to support the Cricketers Pedro Collins and Ryan Hinds conducted a practice session event and to view the cars, many of which pre-dated 1985. with the cricket group, as well as hosted a friendly match. Campers also benefited from a session with Krystal Boyea, who educated the children St Andrews Invitational - Sagicor Life Inc - Trinidad and Tobago about diabetes. Krystal is a recognised Ambassador and Spokesperson for The event, now in its 15th year, is one of the most prestigious tournaments Diabetes in the Caribbean, having been diagnosed with the disease as a very in Trinidad and Tobago, and attracts the country’s elite golfers from over young child. six golf clubs nationwide. The main focus of this tournament was on gross scores and no handicaps. The participants were awarded points based on Inter Schools’ Athletics - Sagicor Life Inc - St Kitts and Nevis their performance, towards selection for the Trinidad and Tobago national SLI renewed its sponsorship of the annual Inter-Schools’ Athletics golf team. Championship. Over three days of competition at the Silver Jubilee Stadium, athletes from the island’s eleven secondary schools competed for national records, as well as the opportunity to represent their country at the annual 1 A 1954 Ford Popular at the Classic Car Show. CARIFTA (Caribbean Free Trade Association) Games. Regional Police Cricket 20/20 - Sagicor Life (Eastern Caribbean) Inc - St Vincent and the Grenadines Sagicor supported the Royal St Vincent and the Grenadines’ Police Force with their Regional Police Cricket 20/20 Tournament on Easter Weekend. The tournament, which takes place annually among member states of the Regional Security System (RSS), saw teams from St Vincent and the Grenadines, Barbados, Grenada, St Lucia and Trinidad and Tobago, all vying for the championship. Sagicor Twenty/20 and Shield Tournaments - Sagicor General Insurance - Barbados Sagicor General Insurance (SGI) has become synonymous with cricket sponsorship, and the Sagicor General Insurance Twenty/20 Competition and 1 2015 Annual Report 33 Sagicor Financial CorporationSagicor Kids on the Green - Sagicor Life Inc - Trinidad and Tobago elements of CariFin include The Urban Challenge, a series of three challenges Sagicor hosted ‘Sagicor Kids on the Greens’, where staff members and their in and around the Port of Spain, Queens Park area, a Fitness Burnout in May children teed off, after some practice sessions on the putting greens with a and a Cross-Country Run. The 2015 Games were particularly thrilling, as SLI St Andrews’ golf coach. TT employee, Adona Joseph, won three of the events and placed 2nd in two others in her very first year of competition. Sagicor Junior Tennis - Sagicor Life Inc - Trinidad and Tobago The 13th Sagicor Junior Tennis Tournament took place in July, at the Eddie National Association of Athletics Administration (NAAA) Senior Taylor Public Courts, Nelson Mandela Park, where 115 contenders vied for top Championships - Sagicor Life Inc - Trinidad and Tobago trophies and cash prizes. For the 12th year, Sagicor was title sponsor for the NAAA Senior Championships. Over the years, Sagicor and the NAAA have forged a CariFin - Sagicor Life Inc - Trinidad and Tobago partnership which has seen Sagicor become an integral part of the Games Sagicor was well represented in the 2015 CariFin Games, with over 50 Committee - the forum that provides local athletes with the opportunity employees from both Sagicor Life Inc and Sagicor General taking up the to pre-qualify for major international track and field events, such as the challenge. CariFin is focused on promoting health and fitness among workers Commonwealth Games, IAAF World Championships and the Olympics. in the financial sector. The Games are a series of events held over several months, with the Torch Run in April signalling the start of the Games. Other 2. Sagicor UWI Cricket team player, Ryan Hinds, giving campers a few pointers on batting at the National Sports Council Summer Camp. 3. Golfers getting ready to tee off at the St Andrews Golf Club, Moka, Trinidad. 2 3 34 2015 Annual Report Sagicor Financial Corporation4 4. A budding tennis player at the 13th Sagicor Junior Tennis Tournament. 5. Sagicor Life Inc Trinidad employee, Adona Joseph, crossing finish line at the Cross Country Run at Sevilla Golf Course during the CariFin Fun Day. 5 2015 Annual Report 35 Sagicor Financial CorporationNational Athletic Championships - Sagicor Group Jamaica Limited - sponsored by SLIC. This particular race supports the maintenance and care Jamaica of the Malayan Tiger exhibit. Malayan Tigers are an endangered species. The annual two-day Meet was implemented by SGJ as their contribution to youth sport. This Championship included 1,200 Primary, all-age and Junior The sponsorship of the Palm Beach Zoo encourages the local community High school student athletes participating from 800 schools across the by supporting a world-class Zoo. 2015’s event was the best yet, attracting island. The Champion Boy and Girl at this athletic meet received five-year record participants and raising more funds for the Zoo than the year before. scholarships to further their education at the secondary level. National Arthritis Awareness Month - Sagicor Life Insurance Company - Arizona State University - Sagicor Life Insurance Company - USA USA SLIC sponsored Arizona State University’s football, basketball and baseball The Walk to Cure Arthritis was held during the month of May, offering a programmes. During the football season, Sagicor provided a unique three-mile and a one-mile course for the walkers, as well as featuring arthritis opportunity for children, ages six to twelve years, to be a “Sagicor Kick Off information and activities for those in attendance. SLIC has been raising and Kid”. A child is selected for each home game to run out on the field after donating funds, as well as participating in the Walk to Cure Arthritis for six the kick off to collect the kicking tee. The child and family, who receive VIP years. The event has become an annual tradition for the company. tickets to the game, are also featured on the video board as they run out on the field to retrieve the kicking tee. The 2015 programme was extended to Phoenix Children’s Hospital - Sagicor Life Insurance Company - USA include women’s basketball, volleyball and softball teams. The Phoenix Children’s Hospital (PCH) golf tournament is one of the Brigham Young University Athletics - Sagicor Life Insurance Company - the community’s most active and affluent business leaders. Over the past USA sixteen years, the tournament has raised more than $4.8 million in funding As part of its 2015 promotional activities for the launch of the Sagicor to support the outstanding medical care provided at the Hospital. Sagicor Benfell Agency in Utah, SLIC supported Brigham Young University (BYU) has been an active supporter of PCH, and a sponsor and participant in the Athletics. The BYU sponsorship presented the new Agency, as well as SLIC, annual golf outing for a number of years. The 17th Annual Phoenix Children’s at a national game, as the University has strong alumni support around the Hospital Golf Tournament was held in November, at the Troon North Golf country. Several of BYU’s football games were televised nationally. Club in Scottsdale. premier charity golf tournaments in Arizona, attracting more than 300 of Knights of Columbus Golf - Sagicor Life Insurance Company - USA In early April, SLIC sponsored a hole in the Knights of Columbus Golf (KofC) outing and fundraiser. KofC supports many charitable organisations which help the less-fortunate in the Arizona communities. In 2015, KofC was able to make an immediate donation to charitable organisation, St. Vincent de Paul. Save the Tiger - Sagicor Life Insurance Company - USA The 3rd annual “Save the Tiger” 5K Race was held in May, at the Palm Beach Zoo. “Save the Tiger” is one of two annual Palm Beach Zoo 5K races that are 36 2015 Annual Report Sagicor Financial Corporation6 7 6. Track and field athletes race at the Sagicor/National Association of Athletics Administration (NAAA) Senior Championships. 7. Team Sagicor at the presentation for the Phoenix Children’s Hospital Golf Tournament. 2015 Annual Report 37 Sagicor Financial CorporationHUMAN CAPITAL REPORT THE VICTORINS Anse La Raye, St Lucia One observes a quiet dignity from the Victorins. It’s reflected in their determination when they speak of their future, and the importance of education for daughter Phoebe’s future successes. It seems only fitting that the time they spend together often involves taking in the natural beauty of St Lucia. When twelve-year-old Phoebe isn’t busy studying, the Victorins like to visit the scenic town of Soufrière and other wonders of their island. To protect moments like these, and support new ones, they turned to Sagicor. “We selected Sagicor as our preferred insurance company on the basis of reputation, variety and, most importantly, affordability.” When asked about the coverage they receive, Gracelyn explained: “Each service is beneficial, and provides protection against loss of income in the event of critical illness, plus a start for our daughter to pursue her academic desires.” The Victorins make it a priority to savour life’s special moments – even the homework that accompanies them. HUMAN CAPITAL REPORT across the Sagicor Group of Companies for certain key positions TALENT MANAGEMENT AND WORKFORCE PLANNING during 2015. Having completed a series of assessments of the business Succession plans were updated in Phase 1 of this project, which activity chain, the project team on the Process Review and included assessing the existing bench strength, conducting Optimisation (PRO) initiative, which was launched in 2014, competency profiling interviews and developing competency provided recommendations for certain changes that would profiles for key leadership roles. improve efficiency, and which would be implemented in the next cycle of the strategic plans. Group companies introduced Leadership Development Programmes and other training interventions for both EXL Services, an international business process solutions firm, administrative and sales managers to develop required continues to assist the company with this project. competencies. The PRO initiative aims to: TRAINING AND DEVELOPMENT • Overhaul our processes and systems, reducing complexity Business, announced the launch of The Sagicor Corporate and inefficiencies; University, exclusively created to offer education and training in • Create a culture of continuous improvement, driven by a customised in-house format. The 2016 calendar includes a High measurement and analysis of performance metrics; Potential Leaders Programme and a Mentoring and Coaching Sagicor Life Inc, in conjunction with the Cave Hill School of • Provide our customers with a wider range of products and Skills programme. services at improved value; • Improve the work experience of our staff, and deliver LEADERSHIP DEVELOPMENT better returns to our shareholders. Assistant Vice Presidents and Managers attended two workshops CORPORATE APPOINTMENTS facilitated by LIMRA. The workshops, Power to Connect and Mentoring for Impact, gave participants the skills to tailor their The registration of Sagicor Life (Eastern Caribbean) Inc led communication styles, which will ultimately affect productive, to the appointment of Mr Donald Austin to the post of Chief cohesive teams, and nurture a corporate culture of mentoring, Executive Officer for this entity, and the appointment of key which will leverage talent and achieve peak performance. management in St Lucia to support our Eastern Caribbean strategy. SUCCESSION PLANNING COMPETENCY-BASED TRAINING FUND In December 2014, Sagicor Life Inc was informed that the company had been awarded approximately US $400,000 in The Human Resources Committee of the Board of Directors and training funding through the Competency-Based Training Fund, an management completed interviews with suitably qualified talent Inter American Development Bank project with the Government of Barbados, under The Skills for the Future programme. 40 2015 Annual Report Sagicor Financial CorporationThe company has partnered with the Barbados Institute of In Jamaica, Sagicor Group Jamaica Limited (SGJ) launched three Management & Productivity (BIMAP) to provide this competency- new development programmes – Human Relations; Problem based training, which will lead to the award of the internationally- Solving and Decision Making, and Managing in an Environment recognised National Vocational Qualification (NVQ) Certification of Change. Members of Sagicor Bank and Sagicor Investments for employees who successfully complete the programme. focused on the new banking platform, T24. By December 2015, the company introduced the new e-banking features to its During 2015, employees attended courses in Customer Service, corporate clients. Management, Business Communication, Time Management, Conflict Management, Stress Management, and Sales and A new Service Excellence programme was launched, focusing on Leadership workshops. In Trinidad and Tobago, training programmes focused on Client Experience and Service Value. The three-day programme is now part of the on-boarding programme for new staff. product development across group and individual product lines. New recruits to sales teams now go through the Incubator Programme content for managers and supervisors included programme, covering topics that include Ethics & Performance Management, along with Planning and Monitoring. Professionalism, Networking and Sales Skills. Supervisors graduated from the “Building Supervisory Excellence Programme” in July 2015, having successfully completed 10 SGJ’s Internship Programme gives recent university graduates modules of the programme over a six-month period. an opportunity to gain valuable work experience, and an opportunity for the company to assess potential for critical The ‘Priority You’ customer care transformational project, which professional and leadership roles. Interns later make a seamless started in 2014, continued as part of the organisation’s market transition into the workforce. This programme which began differentiation strategy. The programme includes a customer care in 2013, has grown from sixteen participants to eighty-five in vision and standards, service quality testing via mystery shopper 2015. Some forty-three tertiary graduates have successfully exercises, training managers and supervisors in the service transitioned from intern to team member status within the experience, and the appointment of “Priority You” Advocates. Sagicor Jamaica Group. Brian Moran, author of the “12 Week Year”, facilitated a one-day In the USA, management provided career and personal interactive training session with all sales and administrative development opportunities for new trainees who, after managers, advisors and supervisors, introducing them to completing a programme designed to enhance their leadership the disciplines and principles of high performance within the skills in the areas of New Business and Compliance, have been context of the twelve-week year. This transformed the traditional promoted into supervisory/management roles. Leadership way of doing business by shortening the annual planning and training videos are now incorporated into management meetings execution cycle to a twelve-week model, thereby dispelling the to enhance current skills in the areas of communication and low productivity which is sometimes associated with annualised effective people management. thinking. 2015 Annual Report 41 Sagicor Financial CorporationCOMPLIANCE add/delete direct deposit information directly with ADP The Group continues training and testing of employees on Payroll Service. FATCA and Money Laundering on an online platform. An annual disclosure process is used to support compliance with the Staff in Sagicor Financial Corporation, Sagicor Life Inc, and company’s Code of Business Conduct and Ethics. Sagicor USA (SUSA) now have access to information on EDUCATIONAL ACCOMPLISHMENTS The Fellow Life Management Institute (FLMI) programme is the status of their equity compensation via an online portal, providing easy access to grants, grant status and balances. a 10-course professional development system that provides Upgrades to the current platform on Success Factors, which an industry-specific business education in the context of the was rebranded as Sagicor Success, are scheduled for 2016, insurance and financial services industry. Established in 1932, providing access to new modules and enhanced functionality the programme is the world’s largest university-level education for performance management, learning and development, programme in insurance and financial services. There are three communication and collaboration. levels of certification, the final of which is the Fellow, Life Management Institute (FLMI). NATIONAL AND INTERNATIONAL AWARDS AND OTHER We proudly welcomed our newest Fellow Life Management President & Chief Executive Officer, Sagicor Group Jamaica, Institute (FLMI) graduates: Richard Byles, received the following awards: APPOINTMENTS IN 2015 • Samanta Pinder – Sales and Marketing - Sagicor Life Inc – 1. International Achievement Award from the American Barbados. Friends of Jamaica; • Krystal Bunting – Employee Benefits - Sagicor Life Inc – 2. Manager of the Year from the Jamaica Institute of Trinidad and Tobago. Management, and • Amanda Abraham – Employee Benefits – Sagicor Life Inc – 3. Commitment Award from Jamaica College Boys’ Trinidad and Tobago. Association of Canada. HRIS Executive Vice President and General Manager, Sagicor Life Inc Staff in the USA now enjoy the facilities of a new mobile – Trinidad and Tobago, Robert Trestrail, was appointed to the application that gives them access to their pay statements, post of President of the Chamber of Commerce in Trinidad and W-2’s, and time-and-labour data from their mobile devices. Tobago. • Managers have access to time and labour data, time-off requests and approvals with their mobile devices. • Employees have self-service features, enabling them to change their addresses and withholding exemptions, and 42 2015 Annual Report Sagicor Financial CorporationREWARDS AND RECOGNITION To qualify, applicants must show a tangible, measurable impact Group companies recognised and celebrated the following on the insurer’s business. Submissions are reviewed by a nine- achievements during 2015: member judging panel, comprising representatives from a wide cross-section of the industry, including insurance professionals, consultants and media. Sagicor was the second finalist for the 2015 Award, and was recognised for Accelewriting®. Ben Davidson, AVP, Chief Underwriter – Sagicorian Award - the most outstanding Manager in the Sagicor Group of Companies for 2014. Ben was recognised for his vision, dedication and innovation when he developed and implemented a ground-breaking, automated underwriting process that we now know as Pedro Medford - Sagicorian Award - the most outstanding Employee in the Sagicor Group of Companies for 2014. Accelewriting®. The process allows a computerised system to Pedro Medford is an Actuarial Assistant at Sagicor Life Inc, who make underwriting decisions based on very specific responses to led the implementation of the new monthly valuation process underwriting questions and third party data. SUSA is the first life in 2014. Pedro’s automated improvements reduced the work insurance company to implement a fully-automated underwriting process cycle from 18 to 11-12 days, a 40% improvement in the system and, when coupled with SUSA’s electronic application overall process efficiency. (eApp), the result is a much faster turnaround time for agents and a renewed interest in Sagicor’s products. He is the student representative for the Caribbean Actuarial Association. A keen fitness enthusiast and motivator, he Each year in the USA, the Insurance Accounting & Systems organises the exploits of ‘Sagicor’s Epic Walkers’ in Sagicor Life Association (IASA), along with the Ward Group, recognises Inc, Barbados. insurance companies who have successfully implemented technology projects that are both innovative and impactful in guiding strategic direction, improving overall operational efficiency, or increasing revenue, by nominating them for the Technology Innovation Award. 2015 Annual Report 43 Sagicor Financial CorporationTOP PRODUCERS Markus Galuschka of Sagicor Life Inc in Barbados - Group Pioneer Award Markus was awarded for work completed on the GIAS Life Barbados Jamaica Janice Mullin-Sargeant - Loeri Robinson - Administration project. He also designed a Footprints Reporting Dashboard, improving the delivery of customer service. Garvin Ali of Sagicor General Inc (Trinidad and Tobago) - Group Contributor Award. Garvin was recognised for his outstanding team spirit and commitment to the organisation, and for his exceptional customer service. Natalia Hildalgo - Allan Kercelus - The Dutch Caribbean Trinidad and Tobago Solange Magloire - Evan Kleeger - The Eastern Caribbean The United States of America 44 2015 Annual Report Sagicor Financial CorporationCOMMUNITY SERVICE Employees enjoyed a highly diverse annual calendar of events, In the USA, Sagicor implemented a corporate giving programme highlights of which included Christmas events, Movie Nights, that encourages employees to participate in community Sagicor Spirit Day, Hat Day, Tropical Day, Favourite Football volunteer opportunities and embrace culture. This programme Team Day and Team building and Health events. The Mr and requires all employees to participate in 8 hours of community Miss Sagicor Competition and the Sagicor Grande Market Expo, service with specified Sagicor-partnered organisations. where team members showcase their talents, creativity and Employees completed 1,713 hours of service in 2015, making a entrepreneurial spirit, are novel events in Jamaica. The Annual difference in our communities. Great Train Hike in Barbados challenged the minds and bodies of several of the bravest employees and walking enthusiasts to • St Mary’s Food Bank - Scottsdale & Metropolitan Ministries complete the 26-mile journey. – Tampa • Broward Partnership – Plantation & Boys and Girls Club – Scottsdale • Hillsborough School Foundation – Tampa • Multiple organizations for Oklahoma and other locations. Employees in Barbados volunteered for a YWCA programme, which received corporate support to provide breakfast to children. EMPLOYEE EVENTS An important event on the annual staff agenda is the Kick-off Meetings held in each Group entity at the start of the year. These meetings are hosted by the Presidents and Chief Executive Officers under specific themes, and relevant to the corporate strategy. Group companies shared information on the past year’s performance, corporate strategy, and celebrated significant achievements with staff. Motivational speakers helped set the tone for the new year’s performance. AM Best assigns Barbados Mutual Life Assurance Society an “A” FSR, reflecting a solid reputation in financial strength, strategic management and operating effectiveness. 1999 2015 Annual Report 45 Sagicor Financial CorporationOPERATING & FINANCIAL REVIEW 46 2015 Annual Report Sagicor Financial CorporationTHE WILLIAMSON- MUNROES Kingston, Jamaica Mother of two and lecturer at Jamaica’s University of Technology, Primla Williamson- Munroe makes time to show gratitude, regardless of how hectic life gets. “I appreciate the everyday moments with my family, revel in the successes, and learn from the failures,” says Primla. Education has been a priority throughout Primla’s life. She holds a bachelor’s and master’s degree in science, and is working towards a third degree. Her children, Rachel and Justin, are also driven academically. Primla centres her life around protecting them and ensuring they get the opportunity to achieve whatever they dream. Sagicor Advisor, Arlene Lawrence helped Primla find a policy that was right for her family. “With Sagicor on board, I feel more secure,” says Primla. “And I can say that the investment portion of my policy has been beneficial more than once.” 2015 Annual Report 47 Sagicor Financial CorporationOPERATING AND FINANCIAL REVIEW OVERVIEW The Group’s operating units are all regulated by insurance, banking and securities regulations. The Group therefore has to meet statutory and reporting requirements to governments and government agencies. The Sagicor Group is a leading provider of insurance products and related services in the Caribbean region. It also provides insurance products in the Economic Environment United States of America (USA) and banking services in Jamaica. The year 2015 saw continued subdued economic growth globally, with emerging and developing markets experiencing a prolonged decline. The main insurance lines are life insurance, annuities and pension For the advanced economies, the modest recovery continued; in the management, health insurance and property and casualty insurance. The USA, growth remained constant at 2.4%, while the economies of Europe customer base is predominately individuals, but certain lines are marketed to and Japan experienced improved growth of 1.5% and 0.6%, respectively. employers to provide employee benefits, and to commercial enterprises to The USA started to tighten monetary policy as short-term interest rates provide property and casualty products. were increased in December, while Europe and Japan prolonged their EXTERNAL ENVIRONMENT accommodative fiscal and monetary policies throughout 2015. Furthermore, the continued sharp and extended decline in oil prices, as well as the gradual The external environment impacts the operating and financial performance slowdown of the Chinese economy, negatively impacted global growth. of the Sagicor Group. In light of weaker-than-expected growth in emerging markets such as China, Brazil and the Middle East, the International Monetary Fund revised Economic factors, such as economic growth, employment levels and downward its projections for global growth by 0.2% to 3.4% for 2016. disposable income impact the levels of both new business and renewal life insurance and annuity products offered by the Group. Interest rates and In the USA, economic indicators were mixed. Consumer-spending slowed investment yields affect the level of savings and investment returns offered during the fourth quarter of 2015, while the unemployment rate trended for life insurance, annuities and banking products, and ultimately the profit down to 5.0% in December. The US dollar strengthened during the year, margins that the Group can generate from these product lines. which led to a decline in exports, while the Federal Reserve raised the Fed funds rate by 25 basis points. Inflation remained subdued and was recorded The health and mortality of insured customers and beneficiaries impact the at 0.7% in December. levels of death, disability and health benefits the Group is required to meet. Property and casualty insurance products offer policyholders financial investment climate and persistently high unemployment, continued to protection against loss or damage to property, accidents, and liability to weigh on economic growth. Therefore, the European Central Bank (ECB) In Europe, the low level of inflation, coupled with the generally weak third parties. Sagicor Financial Corporation is established. 45,000 policy- helped Sagicor compete in a global arena. Sagicor launches holders are awarded shares as a result of demutualization, which the most successful IPO in the history of the Caribbean. 2002 48 2015 Annual Report Sagicor Financial Corporationmaintained its relaxed fiscal policy stance and further decreased the Regulation already-negative interest rates to an unprecedentedly low level. Insurance Regulation Regionally, economic growth across the majority of Caribbean countries in the Caribbean during 2015. However, the following revisions to insurance trended positively, albeit at relatively low levels. However, the protracted legislation have been initiated, and are contemplated in the near future: There have been no significant legislative changes in the insurance sphere economic challenges of burdensome fiscal deficits, increasing debt levels, as well as dwindling foreign direct investment, remained hindrances to the • A new Insurance Act to repeal the existing legislation in Trinidad together economic stability of the region. with regulations; delayed until 2016. • Harmonised Insurance Act in the Eastern Caribbean to repeal existing Conversely, there was enhanced recovery in the tourism sector, which legislation in the eight EC territories; pending industry consultation generally showed moderate improvement for tourism-based economies. • • In the USA, enhanced Risk Based Capital Rules are proposed. In Belize, the Private Pensions Act 2016 was gazetted on March 19, The Barbados economy experienced modest expansion of 0.5% in 2015, 2016, after revisions were made to it in late 2015, and applies to every which was supported by improved growth within the tourism sector. Trinidad pension plan that is established by an employer for persons employed in and Tobago and Jamaica experienced real GDP growth for 2015 of 0.2% and Belize, or in respect of which, an employer makes contributions. The Act 1.5% (September 2015) respectively. The level of unemployment remained excludes certain statutory entities, pension plans for government officials high across the region, while the level of inflation trended lower and and certain public officers and social security pensioners. The Act remained positively correlated with the decline in global oil prices. strengthens pension oversight, and provides for membership, vetting and In Jamaica, areas of expansion were in manufacturing, tourism, and other wind up, surplus, asset transfers and conversion. Pension regulations are services, while the slowdown of growth in the Trinidad and Tobago economy to be implemented in the near future. retirement age, ancillary and death benefits, locking-in and portability, was due to the fall in production of crude oil and natural gas, and also tepid activity in distribution and construction. Trinidad and Tobago’s budgetary Banking price assumptions for oil have remained at US $45 per barrel. Trinidad and With regard to legislative changes in the banking arena, in Jamaica, Tobago’s Repo rate increased to 4.75%, up from 3.5% recorded in January the Banking Services Act, 2014 repealed the Banking Act and Financial 2015. Institutions Act, and amended the Bank of Jamaica Act and the Building Societies Act. It consolidated three deposit-taking statutes – The Banking Throughout 2015, the US dollar rallied against major international currencies. Act, The Financial Institutions Act and The Bank of Jamaica`s (Building In the region, the Jamaica dollar depreciated relative to the US dollar by an Societies) Regulations – into a single piece of legislation, and came into annualised rate of 5.0%. Sagicor Group enters the US market through the acquisition of American Founders Life Insurance Company (AFLIC). Laurel Life Insurance Company and its subsidiary It rebrands to Sagicor Life Insurance Company. 2005 2015 Annual Report 49 Sagicor Financial Corporationeffect on September 30, 2015. Its purpose is to further strengthen oversight CONSOLIDATED INCOME 1 - $ millions of the deposit-taking financial sector, and achieve greater conformity with the Basel Core Principles. Subsidiary Rules and Regulations were also implemented in 2015. GROUP RESULTS Revenues from continuing operations in 2015 totalled US $1,104 million, and were US $59 million higher than the prior year amount of US $1,045 million. The prior year included US $29.1 million in negative goodwill on the acquisition of a banking operation in Jamaica. Revenues in 2015 were impacted by higher premium growth, when compared to 2014. Investment Revenue Benefits Expenses & taxes Net income COMPREHENSIVE INCOME Other comprehensive (loss) / income Total comprehensive income 2015 1,104 (553) (453) 98 2015 (77) 21 2014 1,045 (542) (403) 100 2014 7 107 income and Fees and other revenue were also higher than the prior year 1 from continuing operations amounts as a result of the full-year impact of the RBC banking operation in Jamaica, which was acquired on June 27, 2014. Other comprehensive income was a loss of US $77 million, compared to income of US $7 million in 2014. Comprehensive income in 2015 was Insurance and other benefits increased in 2015 to a total of US $553 million, impacted by mark-to-market declines on financial assets associated with compared to a total of US $542 million in 2014. Expenses and taxes our international portfolios. These changes resulted from volatility in increased, reaching US $453 million in 2015, as compared to a total of international bond prices, reflecting concerns over global economic growth, US $403 million in 2014. Expenses now include 12 months of operating costs and uncertainty surrounding the Federal Reserve’s monetary policy. The on the banking business acquired in Jamaica, compared to 6 months in 2014. Jamaica dollar declined against the US dollar by 4.8% for 2015, compared to During 2015, the Group also incurred additional finance costs. Firstly, US $6.8 7.8% for 2014, contributing to currency retranslation losses of US $16 million. million were incurred related to the early redemption of the US $150.0 million senior notes which were due to mature in May 2016. Secondly, financing In December 2012, the Board and Management made a decision to dispose costs of US $11.8 million arose from the pre-funding of redemptions of the of Sagicor Europe, which owns the Sagicor at Lloyd’s operations. In Convertible Redeemable Preference Shares and the Short-term Notes, also accordance with International Financial Reporting Standards, the results due to mature in mid-2016 and the above mentioned senior notes. of Sagicor Europe have been separated from the Group’s continuing operations and presented as a discontinued operation. Sagicor Europe was Total comprehensive income from continuing operations was US $21 million sold on December 23, 2013. The results of the Group’s continuing operations in 2015, compared to US $107 million in 2014. are further analysed under the next several sub-headings. The results of the discontinued operation are discussed and analysed in the Operating Segments 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 50 2015 Annual Report Sagicor Financial Corporationresults. As some Group companies have minority shareholders, particularly REVENUE - $ millions 2015 2014 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 Net insurance premiums: Life and annuity Inc policyholders who hold participating policies, an arrangement which Health was established at the demutualisation of Barbados Mutual Life Assurance Society (now Sagicor Life Inc). Property & casualty For the 2015 financial year, US $56 million of net income from continuing operations were allocated to the holders of common shares of Sagicor Financial Corporation, which corresponded to earnings per share of US 18.2 Net investment income Fees and other revenues cents. The comparative amounts for 2014 were US $54 million of net income Gain arising on acquisition and earnings per share of US 17.3 cents. The respective annual returns on shareholders’ equity were 11.7% for 2015 and 11.2% for 2014. 506 150 18 674 322 109 (1) 461 146 19 626 307 83 29 1,104 1,045 Dividends declared to common shareholders in respect of 2015 totalled represented 75% of total premium revenue. The comparative amounts for US $12 million, and represented US 4 cents per share. The same amounts 2014 were US $461 million and 74%. The Group markets a range of life and were declared for 2014. annuity products, most of which are long-term contracts for which a monthly Premium revenue from life insurance and annuity was US $506 million, and COMMON SHAREHOLDER RETURNS 1 2015 2014 Net income - $ millions Dividends - $ millions Earnings per share - cents Dividends per share - cents Return on equity - % 56 12 18.2 4.0 11.7 54 12 17.3 4.0 11.2 1 from continuing operations except for dividends. Revenue premium is paid by the customer. For some long-term contracts, however, 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 also 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 $150 million, an increase of US $4 million over the 2014 total. The sources of the Group’s revenue are insurance premiums from customers, The Group also markets property and casualty insurance contracts in investment income, fee income and other revenues. The following table the Caribbean region. These are marketed to individuals and commercial summarises the main items of revenue. enterprises. Premium revenue from these classes of insurance totalled US $18 million, and was in line with the prior year comparative amount. 2015 Annual Report 51 Sagicor Financial CorporationIncome is generated from the investments made by the Group. Net BENEFITS - $ millions 2015 2014 investment income closed the year at US $322 million, compared to US $307 million in 2014. The annual yields achieved on financial investments were as follows. INTEREST YIELDS 2015 2014 Debt securities Mortgage loans Policy loans Finance loans & finance leases Securities purchased for resale Deposits 6.4% 6.5% 7.3% 12.7% 2.4% 0.9% 6.3% 6.6% 7.5% 11.4% 5.6% 1.7% Net insurance benefits: Life and annuity Health Property and casualty Interest expense 373 111 10 494 59 553 363 108 8 479 63 542 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 Income from fees and other revenues totalled US $109 million, as compared are treated as interest benefits. Current life insurance and annuity benefits to the 2014 level of US $83 million, and includes the impact of the RBC Royal are recognised on the notification of death, disability or critical illness of an Bank’s operation in Jamaica, which was acquired on June 27, 2014, and insured person; on the maturity or surrender of a policy; on the declaration therefore, contributed 12 month results compared to 6 months in the prior year. of a policy bonus or dividend, or an annuity payment date. Future life insurance and annuity benefits are recognised in the financial statements on The 2014 comparative amount was impacted by the fact that, on June 26, in-force long-term insurance contracts based on reserving methodologies 2014, the Group completed the acquisition of RBC Royal Bank’s Jamaica adopted by the Group, in accordance with established Canadian accepted banking operations and rebranded the business as Sagicor Bank. After actuarial standards. determining the fair value of acquired assets and liabilities of the business, the Group experienced negative goodwill on acquisition of US $29 million. Life and annuity benefits totalled US $373 million in 2015, of which Benefits US $346 million related to current benefits, and US $27 million related to future benefits. The corresponding amounts for 2014 were a total of The table below summarises the expense incurred by the Group in providing US $363 million, of which US $322 million were for current benefits, and benefits. US $41 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. 52 2015 Annual Report Sagicor Financial CorporationHealth, property and casualty insurance benefits are recognised either on the notification or settlement (for short notification periods) of a claim from Expenses and taxes totalled US $453 million for 2015, up from US $403 million for 2014. policyholders. In addition, incurred but not reported (IBNR) benefits are Administrative Expenses represent the largest expense category and totalled recognised in accordance with established or expected trends for claims US $252 million in 2015, compared to US $234 million in 2014. The increase in incurred. expenses reflected expenses incurred with the inclusion of the operation and integration of the RBC Royal Bank’s Jamaica banking operation for the entire Total health insurance benefits were US $111 million, representing an overall year, compared to six months in 2014. The banking operation was acquired claims to premium ratio of 74%. The comparative 2014 amounts were on June 27, 2014. US $108 million, and an overall claims to premium ratio of 74%. Property and casualty claims amounted to US $10 million in 2015, an increase of Finance costs, depreciation and amortisation incurred was US $56 million, US $2 million from the 2014 comparative figure. compared to US $43 million in 2014. On August 11, 2015, Sagicor refinanced The interest returns the Group has provided to investment contract-holders Notes, repayable in 2022. The notes were issued to refinance the existing and financial institutions which have advanced funds are summarised in the US $150 million Senior Notes, Convertible Redeemable Preference Shares its total debt with the issuance of US $320.0 million seven-year Senior following table. INTEREST YIELDS Investment contracts Other funding instruments Customer deposits Securities sold for repurchase Expenses and taxes and other Short-Term Notes all of which mature 2016. On September 10, 2015, the company early redeemed the US $150.0 million 7.50% 2016 Senior 2015 2014 Notes due to mature in May 2016, incurring additional finance costs of 5.2% 2.2% 1.9% 3.7% 5.4% 2.0% 2.6% 5.0% US $6.8 million in the process. Further financing costs of US $11.8 million arose from the pre-funding of redemptions of the Convertible Redeemable Preference Shares, the Short-Term Notes, and the above mentioned Senior Notes, all due to mature in mid-2016. Commissions represent compensation and benefits payable to insurance agents and brokers who generate new and renewal premium revenue for the Group. Commissions totalled US $105 million for 2015, compared to EXPENSES & TAXES - $ millions 2015 2014 US $98 million for 2014. Administrative expenses Commissions Finance costs, depreciation and amortisation Premium, asset and income taxes 252 105 56 40 453 234 98 43 28 403 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. Higher asset taxes were experienced in 2015, when compared to the prior year. 2015 Annual Report 53 Sagicor Financial CorporationComprehensive income Gains and losses recorded within other comprehensive income arise from STATEMENT OF FINANCIAL POSITION - $ millions 2015 2014 fair value changes of certain classes of assets and from the retranslation of Assets foreign currency operations. There was a comprehensive loss of US $77 million, compared to income of US $7 million in 2014. Comprehensive income in 2015 was impacted by mark-to-market declines on financial assets associated with our international portfolios. These changes resulted from volatility in international bond prices, reflecting concerns over global economic growth, and uncertainty Liabilities arising from operations Borrowings Equity 6,400 5,185 476 739 6,180 5,107 299 774 6,400 6,180 surrounding the Federal Reserve’s monetary policy. The Jamaica dollar Assets declined against the US dollar by 4.8% for 2015, compared to 7.8% for 2014, Invested assets and cash balances as of December 31 are summarised in the contributing to currency retranslation losses of US $16 million. table below. INVESTMENTS & CASH - $ millions 2015 1 2014 1 Net income and other comprehensive income together result in total comprehensive income. Summarising the Group’s results from continuing operations, total comprehensive income was US $21 million for 2015, compared to US $107 million for 2014. Debt securities Mortgage loans Policy loans GROUP FINANCIAL POSITION Sagicor’s activities of issuing insurance contracts; of accepting funds Finance loans and finance leases from depositors, and of banking and securities dealing result in the Group Securities purchased for re-sale receiving significant funds which are held as liabilities, and are invested in a variety of assets. Deposits Cash The Group’s sources of capital are equity contributions from shareholders, Investment property and other items retained earnings and reserves, and borrowings. The table below summarises the consolidated financial position of Sagicor as 1 continuing operations of December 31, 2015 and 2014. 3,418 3,448 341 132 436 8 261 250 394 294 133 411 32 127 403 347 5,240 5,195 Debt securities are the largest class of invested assets, and represented 65% of total investments and cash as of December 31, 2015 (66% as of December 31, 2014). 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 low credit risk. 54 2015 Annual Report Sagicor Financial CorporationDebt instruments are issued primarily by Governments, state-sponsored FINANCIAL LIABILITIES - $ millions 2015 2014 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 Investment contracts Securities sold for re-purchase returns with minimal risk, and of providing opportunities for investment Customer deposits contract-holders to earn safe returns. Other invested assets are spread across various asset classes such as mortgages, loans, deposits and property. Other funding instruments and other items 369 520 670 383 361 665 571 369 1,942 1,966 Liabilities arising from operations Investment contracts may be issued to pension funds to hold pension plan assets, or to individual customers to provide savings vehicles. Securities sold The Group issues life insurance and annuity contracts either to individuals for re-purchase provide specific security to depositors who place funds with or to employers in respect of their employees. Insurance liabilities are the Group for investment return. Deposits and other funding provide monies summarised in the following table. to the Group to invest in loans and related securities. INSURANCE LIABILITIES - $ millions 2015 1 2014 1 Other liabilities include general provisions, accruals and payables which arise Future benefits - individual contracts 2,207 2,137 in the ordinary course of business. Future benefits - group contracts Current benefits and other payables 1 continuing operations 426 245 426 242 2,878 2,805 The discontinued operation (Sagicor at Lloyds) was sold on December 23, 2013. There is a liability of US $46 million (2014 US $46 million) relating to future price adjustments on the run off of the 2011, 2012, and 2013 underwriting years of account. Future benefits represent 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 as follows. 2015 Annual Report 55 Sagicor Financial CorporationCapital On August 11, 2015, the Group issued seven-year senior notes in the amount The Group has issued equity and debt instruments to provide capital for its of US $320.0 million, which are repayable in 2022. The notes carry a fixed operations. The amounts recognised in the statement of financial position in annual rate of interest of 8.875% payable semi-annually. respect of these instruments are summarised below. EQUITY & BORROWINGS - $ millions 2015 2014 Common shareholders’ equity Preference shareholders’ balances Minority interest shareholders’ balances 7.5% senior notes due 2016 8.875% senior notes due 2022 4.6% notes due 2015 Participating accounts & other 502 120 232 0 314 45 2 522 118 242 147 0 43 1 On December 18, 2013, the Company issued eighteen-month notes with a par value of US $43 million, which were repayable in 2015 and carried a 4.6% annual rate of interest. Effective June 19, 2015, the notes were extended at an annual rate of interest of 5.0% and a maturity date of May 12, 2016. 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 capital ratio which, for the Sagicor Group, was 39.2% as of December 31, 2015, (December 31, 2014: 27.9%). The debt to capital ratio will return to lower Classified as: Equity Borrowings 1,215 1,073 levels (approximately 35%) when the Convertible Redeemable Preference shares and the other Short-term Notes, which mature in May 2016, are redeemed. 739 476 774 299 1,215 1,073 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 221% as of December 31, 2015, 304,494,131 common shares of Sagicor Financial Corporation are outstanding compared to 273%, at December 31, 2014, both of which are significantly in and are tradable on the Barbados, Trinidad & Tobago and London Stock excess of the minimum recommended ratio of 150%. These ratios include Exchanges. 120 million convertible redeemable 5-year 6.5% preference risk factors for the potential credit default of debt instruments of Caribbean shares were issued by the Company in 2011, and these are also tradable on Governments held by life insurance subsidiaries. the Barbados and Trinidad and 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. On September 10, 2015, the Company redeemed, before maturity, the US $150.0 million 7.5% 2016 senior notes. 56 2015 Annual Report Sagicor Financial CorporationSAGICOR GROUP SUMMARY ORGANISATIONAL CHART SAGICOR FINANCIAL CORPORATION - HOLDING COMPANY & GROUP FINANCING SAGICOR LIFE - LIFE & HEALTH INSURANCE SAGICOR JAMAICA SAGICOR USA OTHER SAGICOR EUROPE OPERATING COMPANIES (discontinued operation) BARBADOS, EASTERN CARIBBEAN & DUTCH ISLANDS, CENTRAL AMERICA TRINIDAD & TOBAGO SAGICOR LIFE SAGICOR JAMAICA - BANK LIFE & JAMAICA - HEALTH COMMERCIAL INSURANCE BANKING SAGICOR INVESTMENTS JAMAICA - INVESTMENTS SAGICOR LIFE - LIFE INSURANCE SAGICOR INVESTMENT, SAGICOR AT GENERAL FINANCE & - P&C REAL ESTATE LLOYD’S - P&C INSURANCE ENTITIES INSURANCE JAMAICA & CAYMAN ISLANDS JAMAICA JAMAICA USA TOBAGO, EASTERN TOBAGO, EASTERN WORLDWIDE BARBADOS, BARBADOS, TRINIDAD & TRINIDAD & U.K. & CARIBBEAN CARIBBEAN 2015 Annual Report 57 Sagicor Financial CorporationOPERATING SEGMENTS 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 Sagicor Europe segment was disposed of on December 23, 2013. The performance of these segments in 2015 is discussed under the following sub-headings. 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 2015, this segment generated revenue of US $471 million. During the year, Sagicor Life USA entered into a reinsurance agreement with Sagicor Life. SAGICOR LIFE INC INCOME - $ millions 2015 2014 Revenue Benefits Expenses and taxes Segment income Segment income attributable to shareholders FINANCIAL POSITION - $ millions Assets Liabilities Net assets 471 (199) (201) 71 69 2015 1,904 362 (195) (116) 51 44 2014 1,773 (1,305) (1,309) 599 464 Included in the segment revenues is US $91 million and segment expenses of Net segment income for the year was US $71 million, compared to US $91 million relating to this transaction. Excluding this transaction, there US $51 million for the prior year. After accounting for income allocated to was an increase in segment revenues of US $18 million over the previous policyholders, the net income attributable to shareholders for the segment year. The main revenue component was premium income, which totalled totalled US $69 million in 2015, compared to US $44 million in 2014. US $291 million. Investment income totalled US $75 million, while other items totalled US $14 million. Financial investments comprised 74% of segment assets and policy liabilities comprised 91% of segment liabilities at the end of 2015. Benefits totalled US $199 million, and closed at a similar level as the prior year. Current insurance benefits were US $200 million, while amounts Sagicor Jamaica Segment recognised for future insurance benefits totalled a reduction of US $1 million. This segment comprises subsidiaries in Jamaica and Cayman Islands. The principle activities of the segment are the provision of life, critical illness Total expenses and taxes in 2015 closed the year at US $201 million, and health insurance, annuities, pensions administration, investment compared to US $116 million in 2014. Included in expenses is US $91 million management, securities dealing and commercial banking. relating to a reinsurance arrangement with Sagicor Life USA. Excluding this transaction, there was a reduction in expenses of US $6 million over the This segment generated revenue of US $511 million in 2015, an increase previous year. 58 2015 Annual Report of US $25 million over the 2014 total. The main revenue component was premium income, which totalled US $278 million, compared to US $264 million in 2014. Investment income totalled US $181 million, compared to US $158 million in the prior year. Net investment income Sagicor Financial Corporationand Fees and other revenue include the results of the RBC Royal Bank’s Financial investments comprised 83% of the segment’s assets at the end of operation in Jamaica, which was acquired on June 27, 2014, and impacted 2015. The liabilities of this segment were distributed 31% to policy liabilities these results for the entire year, compared to six months in 2014. Revenue in and 69% to deposit and security liabilities and other liabilities at the end 2015. 2014 also included negative goodwill of US $29 million on the acquisition of the RBC Royal Bank’s Jamaica banking operations in Jamaica. Sagicor USA Segment Benefits totalled US $249 million, as compared to US $250 million in 2014. insurance and annuity products to individuals. This segment consists of the USA operations of Sagicor which market life Expenses and taxes incurred totalled US $182 million in 2015, increasing Segment revenue totalled US $78 million in 2015, decreasing by by US $24 million over the prior year. Expenses include the results of the US $75 million over 2014. During the year, Sagicor Life USA entered into a RBC Royal Bank’s operation in Jamaica for the entire year, compared to six reinsurance agreement with Sagicor Life. Included in revenue is a reduction months in 2014. Higher asset taxes were also incurred in 2015. of US $83 million, and there is also a reduction in expenses and taxes of SAGICOR JAMAICA INCOME - $ millions Revenue Benefits Expenses and taxes Segment income Segment income attributable to shareholders FINANCIAL POSITION - $ millions Assets Liabilities Net assets 2015 511 2014 486 (249) (250) (182) (158) 80 39 2015 2,513 78 38 2014 2,495 (2,116) (2,083) 397 412 Net segment income for the year was US $80 million, compared to a total of US $78 million recorded for 2014. As the Sagicor Jamaica segment is owned 49% by the Group, the resulting net income attributable to shareholders was US $39 million in 2015 (US $38 million in 2014). Assets Liabilities Net assets US $83 million relating to this transaction. Excluding this transaction, there was an increase of US $8 million over the previous year. Premium revenue recorded in 2015 was US $81 million, and was increased from the 2014 total by US $6 million. Investment income for 2015 totalled US $60 million, compared to the prior year amount of US$ 64 million. SAGICOR USA INCOME - $ millions Revenue Benefits Expenses and taxes Segment income Segment income attributable to shareholders FINANCIAL POSITION - $ millions 2015 78 (88) 17 7 7 2015 1,701 2014 153 (83) (58) 12 12 2014 1,743 (1,578) (1,535) 123 208 2015 Annual Report 59 Sagicor Financial CorporationTotal benefits amounted to US $88 million in 2015, compared to Sagicor Europe made a net loss of US $23 million in 2015, compared to a net US $83 million in 2014. Current insurance benefits were US $102 million, loss of US $26 million in 2014. while the expense for future insurance benefits in 2015 was a reduction of US $17 million, compared to a reduction of US $18 million in the prior year. DISCONTINUED OPERATION Expenses and taxes totalled negative US $17 million in 2015, compared INCOME - $ millions to US $58 million in 2014. Sagicor Life USA entered into a reinsurance Movement in price adjustment agreement with Sagicor Life. Included in expenses are negative expenses of $83 relating to this transaction. Excluding this transaction, expenses showed Net loss 2015 2014 (23) (23) (26) (26) an increase of US $8 million. FINANCIAL POSITION - $ millions 2015 2014 Assets Liabilities Net assets - (46) (46) - (46) (46) Net income of the segment for 2015 was US $7 million, compared to the US $12 million recorded for 2014. As of December 31, 2015, financial investments comprised 62% of the segment assets and policy liabilities comprised 83% 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 made a decision to dispose of these operations. The disposal of this segment occurred on December 23, 2013. In accordance with International Financial Reporting Standards, the Sagicor at Lloyd’s operation is defined as a discontinued operation. The terms of the sale included future price adjustments to the sale consideration representing adjusted syndicate profit in the run-off of the 2011, 2012 and 2013 underwriting years. During 2015, future price adjustments amounted to US $23 million. The company has now fully provided for this contingent exposure, and no further adverse exposure to underwriting losses is expected. 60 2015 Annual Report Sagicor Financial CorporationLOOKING FORWARD The outlook for global economic growth remains tepid for 2016, owing to continued relatively depressed levels of growth within emerging economies led by China, and continued softening of commodity prices coupled with a modest expansion in developed economies. Following estimated global growth of 3.1% for 2015, the IMF projected a moderate improvement in global growth of 3.4% for 2016. Generally, the tenuous economic climate will continue to be underpinned by the highly accommodative fiscal and monetary stimulus, particularly across the non-US developed, as well as emerging economies. In the US, the Federal Reserve’s commitment to systematic fiscal tightening is expected to be derailed and, if necessary, abandoned, as global headwinds, inclusive of deflationary pressures, remain major concerns and imperil economic stability. Regionally, economic conditions are expected to continue to show signs of improvement, led by the moderate expansion in tourism and tourism-related activity. However, sustained recovery in the region hinges on the economic conditions in developed markets, such as the United States of America and United Kingdom, which remain the region’s main source markets for tourism. During 2016, regional fiscal deficits are expected to narrow in line with declining commodity prices. In this regard, we remain cautiously optimistic and anticipate marginal improvement in regional economic growth for 2016. During 2016, Sagicor will continue to adapt our strategies as we deliver quality products to our customers and competitive returns to our shareholders. 2015 Annual Report 61 Sagicor Financial CorporationBOARD OF DIRECTORS THE AUSTINS St James, Barbados For eleven-year-old Johnathan Austin, skateboarding is the best thing in the world. However, there was a moment in time when he was very sick and his beloved board gathered dust. Johnathan has Gastroparesis: a life-altering condition that causes stomach paralysis. To manage it, doctors inserted a gastric pacemaker through surgery at a US hospital, where Johnathan spent a month in recovery. For the Austins, Sagicor medical coverage has been a lifeline. “If we didn’t have our plan, there’s a possibility my son would not be alive today,” says Johnathan’s father, Stephen. Today, Johnathan is helping others who need overseas medical care, and has raised over $7,000 for the Johnathan Austin Helping Hands Sick Children’s Fund. Best of all, he’s now back on his board, back in school, and back to being the active boy he was. BOARD OF DIRECTORS STEPHEN MCNAMARA, 65, was appointed Non-Executive Chairman on January 1, 2010, having formerly served ANDREW ALEONG, 55, has been an independent Director since June 2005, and is a citizen of Trinidad and PROFESSOR SIR HILARY BECKLES, K.A, 60, has been an independent Director since June 2005, and is a citizen of as Vice-Chairman since June 2007. He has been an Tobago. He holds an MBA from the Richard Ivey School Barbados. Sir Hilary earned his PhD from Hull University, independent Director since December 2002, and is a of Business, University of Western Ontario, Canada. United Kingdom, and received an Honorary Doctorate of citizen of St Lucia and Ireland. He is a British-trained Mr Aleong is Group Managing Director of the Albrosco Letters from the same University in 2003. He is the Vice Attorney-at-law, and is the Senior Partner of McNamara Group of Companies, Trinidad and Tobago, and has Chancellor of the University of the West Indies, and has & Company, Attorneys-at-Law of St Lucia. Mr McNamara served the Trinidad and Tobago manufacturing industry previously served as the Head of the History Department was elected to the Board of Sagicor Life Inc in 1997. He for over 25 years. He is a former President of the Trinidad and Dean of the Faculty of Humanities. In 1998, he is Chairman of the Group’s main operating subsidiary, and Tobago Manufacturers’ Association. Mr Aleong also was appointed Pro-Vice-Chancellor for Undergraduate Sagicor Life Inc, Sagicor USA, and Sagicor Finance Inc. He serves as a Director of a number of private companies. He Studies and, in 2002, the Principal of Cave Hill Campus. serves as a Director of Sagicor Group Jamaica Limited, was elected a Director of Sagicor Life Inc in 2005, and is Sir Hilary has published widely on Caribbean economic and a number of other subsidiaries within the Group. also a Director of a number of other subsidiaries within history, cricket history and culture and higher education, the Group. 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. He is a member of the Secretary General of the UN, Ban Ki Moon’s Advisory Board on Science and Sustainable Development, and Vice President of the Commonwealth Ministers’ Advisory Board on Sport. Sagicor raises $150 million US on the United States Bond Market and becomes the first non-governmental Caribbean Company to receive a BBB+ financial strength rating from Standard & Poor’s. 2006 64 2015 Annual Report Sagicor Financial CorporationPETER CLARKE, 61, has been an independent Director since June 2010, and is a citizen of Trinidad and Tobago. DR JEANNINE COMMA, 65, has been an independent Director since June 2007, and is Chairman of the Human MONISH DUTT, 57, has been an independent Director since 2012 and is a citizen of India and a permanent He obtained a Bachelor of Arts degree from Yale Resources Committee. She is a citizen of Trinidad and resident of the United States of America. He holds an University and a Law degree from Downing College, Tobago. She holds a PhD from George Washington MBA with a concentration in Finance from the London Cambridge University. He was called to the Bar as a University, Washington, DC, USA, and is also a graduate Business School, London University, and a BA in member of Grays Inn, London, in 1979 and to the Bar of the University of the Virgin Islands. Dr Comma is Economics from the University of Delhi. He is a Fellow of of Trinidad and Tobago in 1980. Mr Clarke is a Financial CEO/Director of the Cave Hill School of Business of the Institute of Chartered Accountants, London, England. Consultant, who formerly practised as a Barrister-at-Law The University of the West Indies, Cave Hill Campus. Currently a Consultant on Emerging Markets, Mr Dutt is a before embarking on a 22-year career in stockbroking. She specialises in organisational development, strategy seasoned investment professional who, for the 25 years From 1984 to 2000, he was the Managing Director of and leadership development. She has made significant preceding 2011, was employed with International Finance Money Managers Limited, and Chief Executive of West contributions to the sustainable development of human Corporation (IFC), a member of the World Bank Group. Indies Stockbrokers Limited from 2001 until his retirement capital within the regional business community. in 2005. While at IFC, he held various positions, the most recent Dr Comma has extensive experience in Leadership of which was Chief Credit Officer for Global Financial Mr Clarke, is a Director of a number of companies in Development, Organisational Strategic Planning, Institutions & Private Equity Funds. He was formerly the Trinidad and Tobago, including the Trinidad and Tobago Transformation Management and Corporate Governance. Head of IFC’s Private Equity Advisory Group; the Head Stock Exchange. He is also a member of the University of She has also taught at the undergraduate and graduate of the Baltics, Central Europe, Turkey and Balkans Group; the West Indies Development and Endowment Fund, and levels at George Washington University, Howard Principal Investment Officer for Asia; Senior Investment the Finance Council of the Roman Catholic Archdiocese University, Washington, DC, and the University of the Officer for Central & Eastern Europe, and an Investment of Port of Spain. From 2002 to 2005, he was a Director West Indies. She is a member of The American Society Officer for Africa, Latin America and Asia. Mr Dutt has of the Trinidad and Tobago Chamber of Industry and for Training and Development, and serves on the Boards extensive experience evaluating investment proposals in Commerce. Mr Clarke also serves as a Director of Sagicor of the Barbados Tourism Investment Inc, the National financial institutions and private equity funds globally, Life Inc, Sagicor Group Jamaica Limited and Sagicor Life Jamaica Limited. Initiative for Service Excellence and the Barbados Entrepreneurship Foundation. She is also a Board structuring investments, tracking global investment portfolios, and providing quality control guidance Member of the Commonwealth Association of Public to private equity fund investments. Mr Dutt has also Administration and Management (CAPAM). Dr Comma represented IFC on boards of investee companies. Mr Dutt was elected a Director of Sagicor Life Inc in 2006. serves as a Director of Sagicor Bank Jamaica Limited. 2015 Annual Report 65 Sagicor Financial CorporationMARJORIE FYFFE-CAMPBELL, 64, has been an independent Director since June 2005, and is a citizen of RICHARD KELLMAN, 64, was elected as a Director in June 2009, and was appointed Group Chief Operating WILLIAM LUCIE-SMITH, 64, has been an independent Director since June 2005, and is a citizen of Trinidad Jamaica. She is a Management Consultant, and holds an Officer on November 1, 2009. He is a citizen of Guyana and Tobago. He holds an MA from Oxford University MSc in Accounting from the University of the West Indies, and the United Kingdom. He holds a BSc in Statistics from and is a Chartered Accountant. He is a retired Senior is a Fellow of the Institute of Chartered Accountants University College, London University, and is a Fellow of Partner of PricewaterhouseCoopers, Trinidad and Tobago, of Jamaica and a member of the Hospitality, Financial the Institute of Actuaries and an Associate of the Society where he headed the Corporate Finance and Recoveries and Technology Professionals. She is a former President of Actuaries. and Chief Executive Officer of the Urban Development Divisions, specialising in all aspects of business valuations, privatisation, mergers and acquisitions and corporate Corporation, Jamaica, a large development and property- He has also attended training programmes at Harvard taxation. owning company that manages several entities such Business School and has completed other financial, as hotels, attractions, a maintenance company, a water investment and management training courses. Mr Kellman Mr Lucie-Smith was elected a Director of Sagicor Life supply company, a shopping centre, a conference centre is a financial services professional with wide knowledge Inc in 2005, and is also a Director of Sagicor USA, and a and a golf course. regionally in the areas of finance, pensions, insurance number of other subsidiaries within the Group. Mrs Fyffe-Campbell is an Adjunct Lecturer in Financial management positions and served on several Boards. and investments. He has also held senior actuarial and and Management Accounting and Enterprise Risk Management Governance at the Mona School of Business and Management 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. 66 2015 Annual Report Sagicor Financial CorporationDODRIDGE MILLER, 58, was appointed Group President and Chief Executive Officer in July 2002, and has been JOHN SHETTLE, JR, 61, has been an independent Director since June 2008, and is a citizen of the United States of RICHARD P YOUNG, 66, a citizen of Trinidad and Tobago, was appointed an independent Director of the a Director since December 2002. A citizen of Barbados, America. He received his undergraduate degree from Company in January, 2014. He is a Chartered Accountant Mr Miller is a Fellow of the Association of Chartered Washington & Lee University, and holds an MBA from the by profession, and has had a distinguished career in Certified Accountants (ACCA), and obtained his MBA Sellinger School of Business at Loyola College, Maryland. accounting, auditing, insurance and banking. He has from the University of Wales and Manchester Business Mr Shettle is an Operating Partner of Stone Point Capital, over forty years’ experience in the regional financial School. He holds an LLM in Corporate and Commercial a private equity firm in the global financial services services sector, the last seventeen of which he spent as Law from the University of the West Indies and, in industry. He has over 20 years’ experience in senior the Managing Director of Scotiabank Trinidad & Tobago October 2008, he was conferred with an Honorary Doctor management positions in the property/casualty, health Limited and a Senior Vice President of The Bank of Nova of Laws degree by the University of the West Indies. and insurance-related services industry. Scotia, before retiring in 2012. He has more than 30 years’ experience in the banking, insurance and financial services industries. More recently, he served as Senior Advisor to Lightyear Prior to joining Scotiabank, he was the Managing Director Capital, a private equity firm, and President and Chief of NEM (West Indies) Insurance Ltd. (NEMWIL). Mr Young Prior to his appointment as Group President and Chief Executive Officer of the Victor O Schinnerer Company. also served as Chairman and Deputy Chairman of other Executive Officer, he held the positions of Treasurer and Prior to that, he was the Chief Executive Officer of Tred Scotia Group subsidiaries, as well as Deputy Chairman Vice President – Finance and Investments, Deputy Chief Avon Capital Advisors, Inc, a firm providing advisory of the National Housing Authority. He is a former Executive Officer and Chief Operating Officer. Mr Miller services to companies and private equity firms focused President of the Council of the Institute of Chartered joined the Group in 1989. He is a Director of Sagicor on the insurance sector. He has held senior management Accountants of Trinidad and Tobago; President of the Life Inc, Sagicor USA, Sagicor Group Jamaica Limited, positions at Securitas Capital, Swiss Reinsurance Bankers Association of Trinidad and Tobago; Chairman of Sagicor Life Jamaica, Sagicor Investments Jamaica Company and Frederick, the Maryland-based AVEMCO the Trinidad & Tobago Stock Exchange and Committee Limited (formerly Pan Caribbean Financial Services) and a Corporation (NYSE). Mr Shettle is also a Director of Member of the Association of Insurance Companies of number of other subsidiaries within the Group. Sagicor USA and a number of subsidiaries within the Trinidad & Tobago. He is Chairman of Catholic Media Group. Services Limited and Youth Business Trinidad and Tobago, and also served as Chairman of the Economic Development Board of Trinidad and Tobago. 2015 Annual Report 67 Sagicor Financial CorporationCORPORATE GOVERNANCE THE BELLS Kingston, Jamaica Kevin Bell has one of those infectious smiles you can’t fake. The kind that spreads to the eyes and stays there. The smile of a man who, at 38 years, can boast of a promising life, a successful career and a loving family. As explained to our team, when he opened the doors to Bell’s Auto Services, his dream of owning a business was realised. It is that moment in time that regenerates and keeps this young entrepreneur’s smile true. The reason for, and the result of, hard work and dedication. Kevin has had a sixteen-year relationship with Sagicor which, he notes, has provided him with the unwavering support he needed for his business, and personally as well. Kevin has two trusted Sagicor Advisors: Sharon Brooks-Hylton for life insurance and Lisa Walker for his business. Sharon and Lisa work hard to help Kevin protect the things he holds most important, so he can enjoy all of life’s precious moments. Those moments include Kevin’s future plans to expand Bell’s Auto Services, buy property, and put his three children: Kevane, Kymani and Akeelah, through tertiary education. “The future is bright, and I give thanks for getting this far,” says Kevin. CORPORATE GOVERNANCE Directors’ interests Directors’ interests as at December 31, 2015, and as at the record date, April 19, 2016, are as follows: Shares as at 31-Dec-15 Shares as at 19-Apr-16 Common Shares Preference Shares Common Shares Preference Shares Beneficial Non- Beneficial Beneficial Non- Beneficial Beneficial Non- Beneficial Beneficial Non- Beneficial Stephen McNamara Andrew Aleong Professor Sir Hilary Beckles Peter Clarke Dr Jeannine Comma Monish Dutt Marjorie Fyffe-Campbell Richard Kellman William Lucie-Smith Dodridge Miller John Shettle, Jr Richard P. Young 23,993 533,358 9,579 10,000 22,300 1,000 50,850 421,576 120,000 1,707,967 1,000 34,266 0 0 0 0 0 0 0 0 0 0 0 0 0 55,000 0 0 5,000 0 0 150,000 0 15,000 0 10,000 0 0 0 0 0 0 0 0 0 0 0 0 23,993 533,358 9,579 10,000 22,300 1,000 50,850 421,576 120,000 1,707,967 1,000 34,266 0 0 0 0 0 0 0 0 0 0 0 0 0 55,000 0 0 5,000 0 0 150,000 0 15,000 0 10,000 0 0 0 0 0 0 0 0 0 0 0 0 Restricted Stock Grants Stock options As at 31-Dec-15 As at 19-Apr-16 As at 31-Dec-15 As at 19-Apr-16 Vested Unvested Vested Unvested Vested Exercised Unvested Vested Exercised Unvested Richard Kellman 491,328 104,351 491,328 104,351 327,627 Dodridge Miller 2,065,808 1,366,985 2,065,808 1,366,985 2,283,729 0 0 430,249 327,627 1,873,194 2,283,729 0 0 430,249 1,873,194 70 2015 Annual Report Sagicor Financial Corporation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, 2015, and as at the record date, April 19, 2016, are set out earlier in this Report. The Board of Directors considers that the quality, skills and experience of Directors enhance the Board’s effectiveness and the collective Board is required to have the core set of skills identified in the Board Core Competency Matrix on the following page. On February 14, Sagicor becomes the first Caribbean company of the London Stock Exchange. This was a significant milestone to have its shares admitted into trading on the main market in becoming an international financial services group. 2007 2015 Annual Report 71 Sagicor Financial Corporationa r a m a N c M n e h p e t S l g n o e A w e r d n A y r a l i H r i S f o r P l s e k c e B a m m o C e n n n a e J i r D l e k r a C r e t e P t t u D h s i n o M l l e b p m a C - e f f y F e i r o j r a M n a m l l e K d r a h c R i h t i i m S - e c u L m a i l l i W r e l l i M e g d i r d o D . r J , e l t t e h S n h o J g n u o Y d r a h c R i 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 Corporate Governance Other: Education 72 2015 Annual Report Sagicor Financial Corporation 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: 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 drectors. It is intended that Directors who (a) high personal standards consistent with the Company’s Code of have served on the Board for 9 or more years will be subject to enhanced Business Conduct and Ethics (b) commitment to business leadership due diligence by the Corporate Governance and Ethics Committee, to ensure that their performance over the period of their tenure is such as to justify (c) courage to express and defend a position the Committee’s recommendation to the Board that they be nominated for (d) decisiveness and willingness to be held accountable re-election. (e) effective intervention and decision-making style (f) willingness to contribute to team synergy 3 New Director Orientation (g) mature and thoughtful perspective on business. The Company’s Corporate Governance Manual expressly recognises the importance of an efficient and effective new Director on-boarding process. The Company is also mindful that the Board must reflect the business, To this end, the Manual establishes a New Director Orientation Programme social, economic and cultural jurisdictions from which the Company draws to assist a new director in developing a high level of institutional, boardroom customer patronage, and that Directors must have sufficient time available and interpersonal comfort in order to expedite his/her effectiveness as to devote to performance of their Board duties. Finally, Directors are a director.. The Company has established an online Board Portal for the required to undergo annually a rigorous self-assessment. This assessment distribution and housing of Board Meeting materials and other corporate is designed to ensure that appropriate standards of independence and information. All directors therefore have immediate and constant access to objectivity are maintained. All non-executive Directors have satisfied the all necessary company materials and documents. 2015 independence self-assessment. 4 On-going Director Education 2 Rotation and Re-election of Directors During the year, on-going Director education included sessions on The Company’s Bylaws provide that at least one-third, or the number nearest successfully leading change, transition and transformation and reviews of thereto, of the directors must retire every year, but a Director shall not be the Group’s corporate governances structure and the Executive Incentive required to retire unless he has been in office for three years. Programme. Directors also completed the Myers Briggs Type Indicator L. Jeannine Comma, Peter E. Clarke and Dodridge D Miller retire at this to be a worthwhile exercise in understanding and valuing personality the Thirteenth Annual Meeting, and all being qualified, have offered differences. The Board is committed to continuing these sessions to ensure themselves for re-election. Profiles of the nominees are contained in the Director effectiveness is optimised by enhancing Director knowledge. assessment and received feedback on the results. The directors considered Management Proxy Circular accompanying the Notice of the Meeting. The Board recommends that all the nominees be re-elected. In making this 5 Board Responsibilities recommendation, the Board has been guided by the nomination process 5.1 Board of Directors overseen by the Corporate Governance and Ethics Committee, which The Board of Directors is collectively responsible for providing requires a review of the core competency requirements of the Board as entrepreneurial leadership, guidance and oversight to the Company, within a a whole; the skills and experience of each nominee; their independence framework of prudent and effective controls that enable risk to be assessed 2015 Annual Report 73 Sagicor Financial Corporationand managed, with a view to maximising shareholder wealth within the The Committee oversees the Internal Audit function, reviewing Internal bounds of law and community standards of ethical behaviour. Audit’s assessment of the adequacy and effectiveness of the Group’s internal controls, compliance with legal, statutory, regulatory and other The Board’s six main responsibilities, which it executes through decision- requirements, and management of risk. The Committee’s composition making and oversight, are strategic planning; enterprise risk management; meets the independence and skill requirements of the Group’s Corporate executive succession planning and performance evaluation; Shareholder Governance Policy. The Members are financially literate, and three Members, communications and public disclosures; internal controls and Corporate William Lucie-Smith, Monish Dutt and Marjorie Fyffe- Campbell, all Chartered Governance. Accountants, have relevant accounting expertise. The current Members are William Lucie-Smith (appointed a Member on August 24, 2005 and The respective roles of the Chairman of the Board, the Board, Committee Chairman on June 28, 2006), Peter Clarke (appointed a Member on March Chairmen, Committees and Management are clearly defined. Position 21, 2014), Marjorie Fyffe- Campbell (appointed a Member on September 11, descriptions explaining the roles, responsibilities and desired competencies have 2008), Dr Jeannine Comma (appointed a Member on September 11, 2008) been developed for the Chairman of the Board, the Chairmen of each Board and Monish Dutt (appointed a Member on March 18, 2014). Committee, as well as the President & CEO. The Group CEO and the Executive Committee (ExCom) are responsible for the day-to-day management of the The role of the Corporate Governance and Ethics Committee is principally Group. Their role is to formulate and implement strategy, operational plans, to develop and recommend to the Board policies and procedures to policies, procedures and budgets; monitor operating and financial performance; establish and maintain best practice standards of Corporate Governance assess and control risk; prioritise and allocate resources and monitor competitive and Corporate Ethics. It also manages the process for Director succession, and environmental forces in each area of operation. The roles of functional Director performance, the operation of the President, the composition of Group Executives, who form part of ExCom, are also specifically defined. Board and Committees, Shareholder communications, and corporate image. 5.2 Board Committees The Committee’s composition meets the independence requirements of the Group’s Corporate Governance Policy. The current Members are Stephen The four Standing Committees of the Board - Audit; Corporate Governance McNamara (appointed a Member on March 9, 2004 and Chairman on and Ethics; Human Resources and Investment and Risk - play an integral February 17, 2010), Professor Sir Hilary Beckles (appointed a Member on role in the governance process, in that they assist the Board with the proper March 18, 2009), Marjorie Fyffe-Campbell (appointed a Member on March discharge of its functions by providing an opportunity for more in-depth 18, 2009), John Shettle, Jr (appointed a Member on August 18, 2010) and discussions on areas not reserved specifically for the Board. The mandates of Richard P. Young (appointed a Member on March 18, 2014). all the Committees comply with best practice. The mandate of the Audit Committee is to oversee the external audit respect to compensation policies, programmes and plans; human resources process, and manage all aspects of the relationship with the External policies and practices to attain the Company’s strategic goals; executive Auditors. The Committee is also required to review the annual audit plan, management recruitment; succession plans; performance evaluation and interim and audited financial statements, and international financial reporting compensation. The Committee’s composition meets the independence standards having a significant impact on the financial statements. It also requirements of the Group’s Corporate Governance Policy. The current reviews actuarial reports and recommendations. Members are Dr Jeannine Comma (appointed a Member on September 18, The mandate of the Human Resources Committee is to advise the Board with 74 2015 Annual Report Sagicor Financial Corporation2007, and Chairman on August 24, 2011), Stephen McNamara (appointed 7 Interlocking Directorships a Member on August 18, 2010), Andrew Aleong (appointed a Member on The Corporate Governance Recommendations of the Barbados Stock March 23, 2012) and Monish Dutt (appointed a Member on March 18, 2014). Exchange require that the Company make certain disclosures relating to The Investment and Risk Committee is charged with ensuring generally that and the Boards of various Group subsidiaries, the following Company the Group manages risk within its defined philosophy and appetite, and in Directors also serve together on the Boards of the publicly- listed companies Director Interlocks. In addition to their service on the Board of the Company compliance with policy risk parameters. Its specific mandate is to ensure appearing next to their names: that an appropriate enterprise risk management framework is implemented throughout the Group, approve risk policies and risk undertakings and Directors Company 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 Richard P Young William Lucie-Smith Massy Holdings Ltd regularly reviews the Group risk profile, and assesses Management’s plans 8 Board Operations for ensuring financial stability and capital soundness. The Committee’s During 2015, Management engaged the Board of Directors (BOD) 18 composition meets the independence requirements of the Group’s Corporate times, either in formal meetings or by requests for round-robin decisions Governance Policy. The current Members are Stephen McNamara (appointed in between meetings. In relation to the engagement of the Standing a Member on November 26, 2003 and Chairman on February 17, 2010), Committees of the Board, the Audit Committee (AC) met 5 times; the Andrew Aleong (appointed a Member on March 18, 2009), John Shettle, Corporate Governance and Ethics Committee (CGC) met 4 times; the Human Jr (appointed a Member on March 18, 2009), Peter Clarke (appointed a Resources Committee (HRC) met 4 times; and the Investment and Risk Member on August 18, 2010), Richard P. Young (appointed a Member on March Committee (IRC) met once. Directors’ record of attendance was as follows: 18, 2014), and William Lucie-Smith (appointed a Member on March 21, 2014). 6 Board Evaluation In 2015, 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. 2015 Annual Report 75 Sagicor Financial CorporationStephen McNamara Andrew Aleong Prof Sir Hilary Beckles Peter Clarke Dr Jeannine Comma Monish Dutt Marjorie Fyffe- Campbell Richard Kellman William Lucie-Smith Dodridge Miller John Shettle, Jr Richard P Young BOD 18 of 18 18 of 18 18 of 18 18 of 18 17 of 18 18 of 18 17 of 18 18 of 18 17 of 18 18 of 18 16 of 18 18 of 18 AC 4 of 5 5 of 5 5 of 5 5 of 5 5 of 5 CGC 4 of 4 3 of 4 3 of 4 4 of 4 4 of 4 HRC 4 of 4 4 of 4 4 of 4 4 of 4 IRC 1 of 1 1 of 1 0 of 1 1 of 1 1 of 1 1 of 1 Total 27 of 27 23 of 23 21 of 22 22 of 24 26 of 27 27 of 27 25 of 26 18 of 18 23 of 24 18 of 18 21 of 23 23 of 23 % 100 100 95 92 96 100 96 100 96 100 91 100 The Board manages an annual schedule of critical agenda items designed to • review and approve unaudited interim and audited annual consolidated ensure that it fulfils its recurring obligations, and that Board- reserved items financial statements; are routinely considered. The principal business at Board meetings in 2015 • approve interim and final dividends; was to: • • review and approve actuarial reports of the Appointed Actuary; and receive reports on work being carried out by Board Committees, and • consider and approve the Group strategic plan, capital plan and consider and approve their recommendations as required. projections for the period 2016 to 2018; • consider the terms of the US$320 million Corporate Bond raised by the Group • • • receive reports on the Process Review and Optimisation initiative receive reports on proposed corporate reorganisation review periodically the Group capital and liquidity plan, strategic and business development initiatives forming part of the Strategic Plan, and other key initiatives; • receive and consider periodic reports and presentations from Management on the performance of various subsidiaries within the Group and the Group, on a consolidated basis; 76 2015 Annual Report Sagicor Financial Corporation9 Committee Operations Audit Committee Report: • overseeing the management of independence requirements and conflicts of interest; • overseeing the Director self and peer performance evaluation process; The 2015 activities of the Audit Committee included: • monitoring Director attendance; • reviewing and approving the external audit plan and timetable; • Reviewing Corporate Governance structure of subsidiaries • evaluating the performance of the External Auditors for Group entities • reviewing Insider Trading Policy; and approving their audit fees; • conducting its annual review of the adequacy of the Code of Business • reviewing the External Auditors’ 2014 Management Letter and Report on Conduct and Ethics; the 2014 audit; • generally monitoring the operation of Corporate Governance policies and • approving the 2015 Audit Engagement Letter; practices; and • reviewing and recommending for approval by the Board interim and • assessing the adequacy of the Committee’s mandate, and evaluating its annual audited financial statements; effectiveness in fulfilling the same. • making dividend recommendations to the Board; • • • reviewing actuarial reports of the Appointed Actuary; Human Resources Committee Report: reviewing reports of the External Auditors on key audit issues; During 2015, the Human Resources Committee: reviewing the financial performance of the Group and key subsidiaries; • examining the implications of changes to International Financial • reviewed executive performance, compensation and terms of Reporting Standards; engagement; • approving the 2015 Internal Audit Plan, reviewing Internal Audit reports • monitored succession planning and leadership and development plans at and monitoring Management action on open Internal Audit items; the executive level; • • reviewing compliance with various financial covenants; • considered succession planning needs across the Group for senior reviewing reports on pending material litigation and claims, and pending employees below the executive level; regulatory issues; • granted awards to qualified participants under the annual cash incentive, • reviewing regulatory compliance and other compliance reports; long-term incentive plan (LTI) and employee share ownership plan • assessing the adequacy of the Committee’s mandate, and evaluating its (ESOP), based on performance against established benchmarks; effectiveness in fulfilling the same. • reviewed aspects of the rules of the Company’s annual long-term Corporate Governance and Ethics Committee Report: • reviewed ESOP financial statements; and The Committee’s principal business during 2015 included: • assessed the adequacy of the Committee’s mandate, and evaluated its effectiveness in fulfilling the same. incentive plans; • reviewing Board and Director core competencies and identifying gaps to inform the nomination process; • overseeing Director nominations, Board Committee, subsidiary and outside Board appointments; 2015 Annual Report 77 Sagicor Financial CorporationInvestment and Risk Committee Report: in addition, compensation includes a non-cash component (long-term In 2015, the Investment and Risk Committee’s work included monitoring key incentive) which is performance based and takes into consideration an risks to which the Group is exposed: externally calculated cost of equity. For the financial year under review, compensation paid in cash to the top 5 members of the Executive • reviewing in detail interest rate, credit, liquidity and foreign exchange risk Management team of the Company, amounted in aggregate to US dashboards for the Company as a whole, and for its major subsidiaries; $5,420,192. The table immediately below shows a breakdown of the non-cash • monitoring of risk exposures and reviewing mitigation strategies component of the compensation of the top 5 members of the Executive designed to manage risk, and generally overseeing the enterprise risk Management team. management process; and • reviewing investment performance as required. 10 Sagicor’s Compensation Philosophy The Sagicor Group’s compensation strategy for all employees including Executive Management, aims to achieve an efficient and competitive position for the Company as an Employer of Choice in the markets we serve; while supporting our efforts to attract, motivate and retain the best candidates for all positions across the Group. The compensation strategy seeks to strike a balance between the needs of the employee and the strategic objectives of the Company, while ensuring that all employees are treated fairly, recognised and rewarded for team as well as individual performance. Factors such as market competition; supply and demand of critical skills and competencies; and strategic issues are all considered in determining a position’s competitive market value. Base salaries are reviewed annually for all staff and, in determining whether to approve salary increases, the Board of Directors considers various factors, including: the ability to pay; local labour market statistics e.g. cost of living and compensation trend data; merit budget; and the performance of the Company and business units. All employees must meet a minimum performance standard each year to be considered for a salary increase. The quantum of annual cash incentive compensation, once earned, is calculated using a methodology called the Balance Score Card. This methodology takes into account financial as well as non-financial measures, including revenue, profitability, efficiency and customer satisfaction. 78 2015 Annual Report Sagicor Financial CorporationTop 5 Members of the Group Executive Management Team Vested 1,008,428 Vested 928,204 Restricted Stock Grants Stock options For the financial year ended 31-Dec-15 For the financial year ended 31-Dec-15 Board of Directors The Company’s compensation philosophy for the Board of Directors has objectives akin to that for employees. It is designed to attract, retain and motivate Directors of the quality required to ensure the efficient oversight of the Company’s business. In 2006, the Board commissioned the independent firm of Ernst & Young of Atlanta, to review Directors’ compensation and make compensation recommendations. After examination of international best practice in the area, and consideration of various factors, including the level of responsibility, potential liability, and the time and commitment required for the role, Ernst & Young made certain recommendations to the Board regarding the levels and structure of compensation for Directors. These recommendations were approved by shareholders at the 2007 Annual Meeting, and remain unaltered to-date. Non-Executive Directors do not participate in any 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. Non-Executive Directors’ fees for the financial year under review amounted in aggregate to US $$687,000. Directors receive no additional benefits, but are reimbursed reasonable and customary out-of-pocket expenses associated with their attendance at Meetings, and the performance of their role as Directors. Executives who are Directors are not paid fees. 2015 Annual Report 79 Sagicor Financial Corporation11 Fees Paid to External Auditors 13 Internal Audit PricewaterhouseCoopers is the Group’s external auditor. Following is a The mission of Group Internal Audit is to provide independent, objective statement of the fees paid to the external auditors for audit and non-audit assurance and consulting services, designed to add value and improve services during 2014 and 2015: the organisation’s operations by utilising an appropriate risk- based audit Services Fees Paid US$ ‘000 Audit Non-Audit Statutory Returns Other Total 2014 3,398 179 580 383 4,540 2015 3,420 254 912 1,956 *6,542 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 *This amount includes fees of US$1,476,000 incurred by Sagicor Finance protected, and that quality and continuous improvement are fostered in the (2015) Ltd for the US$320 million Corporate Bond raised in 2015. organisation’s control process, and significant legislative or regulatory issues impacting the organisation are recognised and addressed appropriately. 12 Enterprise Risk Management The Group’s enterprise risk management framework comprises articulation 14 Compliance of risk philosophy and appetite; risk structures and processes; risk policies Sagicor continues to strengthen and streamline its compliance function, in and a regime of monitoring risk exposures, both at the enterprise and response to the increasing complexity of regulatory and other risks, with subsidiary levels. The Group’s activities of issuing insurance contracts, the Audit Committee continuing to exercise oversight of all aspects of accepting funds from depositors, and investing insurance premium and compliance. deposit receipts in a variety of financial and other assets expose the Group to various insurance, financial and operational risks. Insurance risks include The Group Compliance Committee also contributes to compliance pricing, claims and lapse risks. Financial risks include credit, liquidity, interest management. It’s role includes ensuring that compliance is governed by rate and market risks. Operational risks include fraud; damage to physical appropriate policy and is implemented and administered in accordance assets; improper business practices; improper employment practices; with policy, ensuring that risk management practices are developed, business interruption and system failures, and execution and process errors. implemented and administered for identifying, assessing, managing, Exposure and sensitivity to financial and insurance risks are disclosed in reporting and monitoring compliance risk, and lending value-added support Notes 41 to 43 to the 2015 audited financial statements contained in this for the administration of and compliance with Sagicor’s Code of Business Annual Report. Conduct and Ethics. The Committee’s membership includes the Group Chief Compliance Officer as Chair, and the Chief Compliance Officer of each 80 2015 Annual Report Sagicor Financial Corporationmajor operating subsidiary, the Group Chief Risk Officer and Group General Counsel. 15 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 to indicate 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. 16 Investor Relations and Communications During 2015, the Company continued to execute its investor relations communications program with periodic 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 were unable to travel to Barbados for the Annual Meeting of Shareholders. By Order of the Board of Directors. Althea C Hazzard Corporate Secretary April 19, 2016 2015 Annual Report 81 Sagicor Financial CorporationEXECUTIVE MANAGEMENT THE ELLIS’ Castries, St. Lucia It’s easy to see how passions can be transferred through generations, and at times as we watched Shane and his son Noah play, the obvious glee in their eyes gave us an honest moment with the Ellis family. Shane and his wife Derniea know how to make the most of every moment. They love taking three-year-old Noah on beautiful drives along St Lucia’s coast, and then there’s playtime with the toys. Little Noah is especially fond of sports cars. Like father, like son. For the Ellis’, planning for retirement is another way of making life’s collective moments count. Derniea’s parents had policies with Sagicor, so she followed suit, and secured her own family’s future. “Being comfortable at retirement is important to us,” says Derniea. “Having access to policies that cover ‘unpredictables’, and provide for us when we retire makes this easier to achieve.” 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 a Director of Sagicor Life Inc, Sagicor USA, Sagicor Group Jamaica Limited, Sagicor Life Jamaica Limited, Sagicor Investments Jamaica Limited 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, 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 also held senior actuarial and management positions, and served on several Boards. DONALD S AUSTIN, BSc, MBA, FCCA Chief Executive Officer, Sagicor (Eastern Caribbean) Inc Mr Donald Austin was appointed Chief Executive Officer, Sagicor Life (Eastern Caribbean) Inc on March 1, 2015. He has held several senior management roles with regional responsibility throughout his career including Executive Vice President – Government, Legal & Regulatory Affairs and Corporate Communications at Cable and Wireless (LIME) Caribbean; President- Cable and Wireless Barbados, CEO of Cable and Wireless St. Lucia, CEO of Cable and Wireless St. Vincent and the Grenadines. He holds a Bachelor of Science (Honors) in Electronic Engineering from the University of Bristol, a Master of Business Administration from Manchester Business School and he is a Fellow of the Association of Chartered Certified Accountants. Mr Austin is a former Chairman of the Board of Directors of LIME Grenada and LIME Dominica and a current Board Member of LIME Barbados, Sagicor Funds Inc and Sagicor Asset Management Inc. 84 2015 Annual Report Sagicor Financial CorporationRONALD B BLITSTEIN, BA, MBA Group Chief Information Officer Ronald Blitstein joined Sagicor Financial Corporation in September 2013. He holds a BA in Political Science and a MBA in Finance from Syracuse University. He has attended various training programmes at Harvard Business School and Massachusetts Institute of Technology. Mr Blitstein is an IT professional, with broad and deep knowledge in all areas of information technology and its application to driving improved business outcomes. He has previously served as Director, Business Technology and Strategies Practice for the global advisory firm, Cutter Consortium, supporting Fortune 500 clients, as well as national governments and various United Nations agencies. Mr Blitstein has also held CIO or other key executive leadership positions at Revlon, Pitney Bowes, BOC Group, and Xerox Corporation. He has served as a Six Sigma Champion for firms pursuing enterprise operational excellence. RICHARD O BYLES, BSc, MSc President and Chief Executive Officer, Sagicor Group Jamaica Limited Richard Byles was appointed President and CEO of Sagicor Life Jamaica Limited in March 2004. He is Chairman of the Board of Sagicor Bank Jamaica Limited, Sagicor Property Services Limited, Sagicor Reinsurance Limited (Cayman), Sagicor Insurance Managers (Cayman) and Desnoes and Geddes Limited. He also serves on the Boards of several subsidiary and associated companies, and is a Director of Pan-Jamaican Investment Trust Ltd. Mr Byles is the Co-chair of the Economic Programme Oversight Committeee (EPOC), a private/ public sector committee established to oversee the Implementation of the IMF Programme in Jamaica. 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. BART F CATMULL, BSc, CPA President and Chief Operating Officer, Sagicor USA, Inc Bart Catmull was appointed President and Chief Operating Officer in April 2013. A citizen of the United States of America, Mr Catmull is a Certified Public Accountant (CPA), and obtained his Bachelor of Science degree in Accounting from Brigham Young University in 1992. He has more than 20 years’ experience in the insurance industry. Prior to his appointment as President, he held the positions of Chief Operating Officer, Chief Financial Officer, Treasurer and Chief Accounting Officer. Mr Catmull joined the Group in 2005, when the predecessor of Sagicor Life Insurance Company (the US operating company) was acquired by the Group. He has been with the Company since 1999. 2015 Annual Report 85 Sagicor Financial CorporationANTHONY O CHANDLER, CGA, MBA Group Chief Financial Controller Anthony Chandler was appointed Group Chief Financial Controller on July 1, 2013. Prior to this, he served as Executive Vice President and Chief Financial Officer of Sagicor Life Inc from 2011. He joined Sagicor in 1995 as Financial Accountant, and was transferred to the Group subsidiary, Island Life Insurance Company Ltd, in 2000. In 2003 he joined the management of Life of Jamaica as Head of its Internal Audit function, before returning to Barbados in the position of Vice President, Finance, of Sagicor Life Inc later in the same year. In 2006, he was promoted to Vice President and Chief Financial Officer. Mr Chandler is a member of the Certified General Accountants Association of Canada, and holds an MBA from the University of Manchester. DR M PATRICIA DOWNES-GRANT, CBE, MA, MBA, DBA, LLD (Hon) Chief Executive Officer and President, 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 Treasury 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. Patricia-Downes-Grant was a Senior Manager in the Management, Consulting and Insolvency Division of Coopers & Lybrand (now PricewaterhouseCoopers). Dr. Downes-Grant has more than 20 years of work experience in insurance, banking and asset management. 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. In 2014, Dr. Downes-Grant was honored for her services to the financial industry and was awarded a Commander of the British Empire (CBE). More recently, Dr. Downes-Grant was conferred with an Honorary Doctor of Laws degree by the University of the West Indies. J ANDREW GALLAGHER, FSA, FCIA, CERA 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 insurance industry. 86 2015 Annual Report Sagicor Financial CorporationALTHEA C HAZZARD, LLM (Cantab), FCIS, MICA Executive Vice President, General Counsel and Corporate Secretary Althea Hazzard was appointed Executive Vice President, General Counsel and Corporate Secretary of Sagicor Financial Corporation on January 1, 2014, having previously served in the positions of Vice President, Legal and Compliance of Sagicor Life Inc and Corporate Secretary of Life of Barbados Limited. An Attorney-at-Law, Chartered Secretary and Compliance Professional, Mrs Hazzard joined the Group in 1997 after an eight-year attachment to a leading corporate law firm in Barbados, specialising in international business. Mrs Hazzard holds a Bachelor of Laws Honors Degree from the University of the West Indies and a Certificate in Legal Education from the Hugh Wooding Law School in Trinidad, and was called to the Bar in Barbados and Trinidad and Tobago in 1989. She obtained her Master of Laws degree from the University of Cambridge, United Kingdom, and also holds International Diplomas in Compliance and Anti-money Laundering from the International Compliance Association in the United Kingdom and the Executive Diploma in Management from the UWI Centre for Management Development (now the Cave Hill School of Business). Mrs Hazzard is a professional member of the International Compliance Association and a Fellow of the Institute of Chartered Secretaries and Administrators in Canada. J EDWARD CLARKE, FCCA, CIA Chief Operating Officer Sagicor Life Inc and General Manager - Barbados Operations Edward Clarke was appointed to the position of Chief Operating Officer, Sagicor Life Inc and General Manager, Barbados Operations in September, 2010. Prior to this, he held the position of Group Internal Auditor. Mr Clarke is a Fellow of the Association of Chartered Certified Accountants and is a Certified Internal Auditor with more than 30 years’ experience in the field of auditing and finance. Mr Clarke began his accounting career at Pannell Fitzpatrick & Company Chartered Accountants (now Ernst & Young). He later joined Texaco and served as a senior member of its finance team in Barbados, Nigeria and the USA. Prior to joining Sagicor, Mr Clarke was the Chief Finance Officer of Goddard Enterprises Limited. Mr Clarke is a Director of Sagicor General Insurance Inc, Sagicor Funds Inc, Barbados Farms Limited and Globe Finance Inc. He is also a Director of The Insurance Association of the Caribbean and a Vice President of the Barbados Chamber of Commerce and Industry. RAVI C RAMBARRAN, BSc, MSc, FIA President and Chief Executive Officer, Sagicor International Ravi Rambarran has 25 years of experience, both regionally and internationally, in the pension, insurance and asset management industries. He was awarded an Open Mathematics Scholarship by the Government of Trinidad and Tobago, has a BSc (Hons) in Actuarial Science from City University, London, an MSc in Finance from the University of London, and is a Fellow of the Institute of Actuaries. He is a member of the Executive of the Caribbean Actuarial Association and represents the Caribbean on the International Actuarial Association Insurance Committee. Mr Rambarran is a director of Sagicor USA Inc, Sagicor Life Insurance Company and Sagicor General Insurance Inc. 2015 Annual Report 87 Sagicor Financial CorporationROBERT J L TRESTRAIL, BA Executive Vice President and General Manager, Trinidad and Tobago Operations Robert Trestrail was appointed Executive Vice President and General Manager for the Trinidad and Tobago Operations of Sagicor Life Inc with effect from January 1, 2007. He joined Sagicor Life Inc on May 1, 2001, as an Assistant Vice President – Administration, and became a member of the Senior Management Team of the Trinidad and Tobago Branch operations. He has since been responsible for general branch administration and administration of the Investment Portfolio. He was promoted to the post of Vice President – Administration in 2004, and became Executive Vice President and General Manager Designate on May 1, 2006. He brings several years of Commercial Banking experience to this position, and holds a Bachelor of Arts with an Economics major from the University of Toronto. KESTON D HOWELL, BSc, (Hon) MBA Executive Vice President and General Manager, Dutch Caribbean & Central America After seventeen years in the banking industry (the last seven of which were at the senior executive level) Keston Howell joined Sagicor in July 2006 as Executive Vice-President, Merchant Banking, with responsibility for the establishment of Sagicor Merchant Limited as well as the overall banking strategy for the Group. In 2008 he assumed the position of Executive Vice President and General Manager of Sagicor Asset Management where he was responsible for overseeing management of the investment portfolios of Sagicor Life Inc and Sagicor Capital Life as well as promoting and managing Sagicor’s Eastern and Southern Caribbean Asset Management Initiative. On April 1st 2013, Mr Howell assumed executive responsibility for Sagicor Capital Life Insurance Company Limited and Sagicor Life Aruba N.V. He retains executive oversight of the Mortgage Recovery Unit and for the Mortgage department. Mr Howell holds a B.Sc. (Hons) in Management Studies from the University of the West Indies and a MBA from the University of London. Sagicor expands its banking footprint and acquires RBC’s Jamaican operations. This acquisition allows Sagicor to serve its customers better through more branches and ATM locations island wide. 2014 88 2015 Annual Report Sagicor Financial Corporation2015 Annual Report 89 Sagicor Financial CorporationINDEX OF FINANCIAL STATEMENTS THE BURNETTS St. James, Barbados There is this innate ability of a musician that even when surrounded by people, whether in a concert hall or in this case a photo shoot, they can lose themselves in their music. For as long as he can remember, John Burnett has had the music in him. Now, there are two passions that keep this former Combermerian going: the ever-present urge to play and his family. “When my son was born, I started thinking about what we had to put in place for his future. All the things we needed to do to provide sufficient support to get him started in life. A chat with my Sagicor Advisor helped me think about how Sagicor could help. What we got was a sincere, knowledgeable review of our options, and then making a decision was easy, “ says John. Today, John is reaching his financial milestones and protecting his loved ones, and still playing. “I’m on my way to reaching my goals.” INDEX TO FINANCIAL STATEMENTS AND NOTES Independent Auditor’s Report Appointed Actuary’s Report Consolidated Financial Statements: Statement of Financial Position Statement of Income Statement of Comprehensive Income Statement of Changes in Equity Page 94 95 96 97 98 99 8 Intangible Assets 9 Financial Investments 10 Reinsurance Assets 11 Income Tax Assets 12 Miscellaneous Assets and Receivables 13 Actuarial Liabilities 14 Other Insurance Liabilities Statement of Cash Flows 100 15 Investment Contract Liabilities Notes to the Financial Statements: 16 Notes and Loans Payable 1 Incorporation and Principal Activities 2 Accounting Policies 3 Critical Accounting Estimates and Judgements 4 Segments 5 Investment Property 6 Associates and Joint Venture 7 Property, Plant and Equipment 101 101 122 124 134 135 139 17 Deposit and Security Liabilities 18 Provisions 19 Income Tax Liabilities 20 Accounts Payable and Accrued Liabilities 21 Common and Preference Shares 22 Reserves 23 Participating Accounts Page 140 143 145 145 145 146 149 150 150 151 151 151 151 152 154 155 92 2015 Annual Report Sagicor Financial Corporation40 Fair Value of Property 41 Financial Risk 42 Insurance Risk - Property & Casualty Contracts 43 Insurance Risk - Life, Annuity & Health Contracts 44 Fiduciary Risk 45 Statutory Restrictions on Assets 46 Capital Management 47 Related Party Transactions 48 Events after December 31, 2015 Page 176 177 199 201 206 206 207 210 210 24 Premium Revenue 25 Net Investment Income 26 Fees and Other Revenue 27 Policy Benefits & Change in Actuarial Liabilities 28 Interest Expense 29 Employee Costs 30 Equity Compensation Benefits 31 Employee Retirement Benefits 32 Income Taxes 33 Deferred Income Taxes 34 Earnings per Common Share 35 Other Comprehensive Income 36 Cash Flows 37 Subsidiary Acquisition and Ownership Changes 38 Discontinued Operation 39 Contingent Liabilities Page 155 156 157 157 157 158 158 161 165 166 170 171 172 173 174 175 2015 Annual Report 93 Sagicor Financial CorporationAUDITOR’S REPORT 94 2015 Annual Report Sagicor Financial CorporationACTUARY’S REPORT 2015 Annual Report 95 Sagicor Financial CorporationCONSOLIDATED STATEMENT OF FINANCIAL POSITION As of December 31, 2015 Sagicor Financial Corporation Amounts expressed in US $000 Note 2015 2014 Note 2015 2014 ASSETS Investment property Property, plant and equipment Associates and joint ventures Intangible assets Financial investments Reinsurance assets Income tax assets Miscellaneous assets and receivables Cash resources Total assets 5 7 6 8 9 10 11 12 79,172 170,249 84,530 88,183 88,766 169,469 40,806 76,056 LIABILITIES Actuarial liabilities Other insurance liabilities Investment contract liabilities Total policy liabilities 4,826,621 4,661,494 Notes and loans payable 665,819 66,342 168,480 250,489 527,171 57,503 156,630 402,525 Deposit and security liabilities Provisions Income tax liabilities Accounts payable and accrued liabilities 6,399,885 6,180,420 Liabilities of discontinued operation These financial statements have been approved for issue by the Board of Directors on April 8, 2016. Director Director Total liabilities EQUITY Share capital Reserves Retained earnings Total shareholders’ equity Participating accounts Non-controlling interest in subsidiaries Total equity 13 14 15 16 17 18 19 20 38 21 22 23 2,632,387 2,562,221 205,891 368,596 197,420 360,961 3,206,874 3,120,602 475,517 298,942 1,607,611 1,623,971 88,206 34,765 201,722 46,026 78,356 41,767 197,444 45,796 5,660,721 5,406,878 299,320. (59,688) 266,414 506,046 1,383 231,735. 739,164. 295,989. (8,765) 244,474 531,698. 364 241,480. 773,542. Total liabilities and equity 6,399,885. 6,180,420. 96 2015 Annual Report Sagicor Financial Corporation CONSOLIDATED STATEMENT OF INCOME Year ended December 31, 2015 Sagicor Financial Corporation Amounts expressed in US $000 Note 2015 2014 Note 2015 2014 REVENUE Premium revenue Reinsurance premium expense Net premium revenue Net investment income Fees and other revenue Gain/(loss) arising on acquisition 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 24 24 25 26 37 27 27 28 32 969,522 (295,597) 673,925 322,229 109,090 (1,025) 889,121 (263,564) 625,557 307,215 83,344 29,051 1,104,219 1,045,167 692,937 (198,801) 494,136 58,807 552,943 251,892 105,093 14,808 37,234 18,687 427,714 123,562 (25,119) 98,443 714,770 (236,292) 478,478 63,739 542,217 233,742 97,965 11,474 22,544 20,220 385,945 117,005 (16,700) 100,305 Net income from continuing operations Net loss from discontinued operation 38 NET INCOME FOR THE YEAR 98,443 (21,648) 76,795 100,305 (26,367) 73,938 Net income/(loss) is attributable to: Common shareholders: From continuing operations From discontinued operation Participating policyholders Non-controlling interests Basic earnings /(loss) per common share: 34 From continuing operations From discontinued operation Fully diluted earnings /(loss) per common share: 34 From continuing operations From discontinued operation 56,327 (21,648) 34,679 1,285 40,831 76,795 53,737 (26,367) 27,370 6,200 40,368 73,938 18.2 cents (7.2) cents 11.0 cents 17.3 cents (8.7) cents 8.6 cents 17.3 cents (6.6) cents 10.7 cents 16.6 cents (8.2) cents 8.4 cents 2015 Annual Report 97 Sagicor Financial CorporationCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended December 31, 2015 Sagicor Financial Corporation Amounts expressed in US $000 OTHER COMPREHENSIVE INCOME Note 2015 2014 TOTAL COMPREHENSIVE INCOME 2015 2014 Items net of tax that may be reclassified subsequently to income: 35 Available for sale assets: Gains / (losses) on revaluation Gains transferred to income Net change in actuarial liabilities Retranslation of foreign currency operations Items net of tax that will not be reclassified subsequently to income: 35 Gains / (losses) on revaluation of owner-occupied property Gains / (losses) on defined benefit plans Other items (103,101) (1,175) 48,346. (15,686) (71,616) (345). (5,431) - (5,776) 38,386 (2,830) (19,970). (22,036) (6,450) 27. 13,212 (108) 13,131 OTHER COMPREHENSIVE INCOME / (LOSS) FROM CONTINUING OPERATIONS (77,392) 6,681 Net income Other comprehensive (loss) / income TOTAL COMPREHENSIVE (LOSS) / INCOME FOR THE YEAR 76,795 (77,392) (597) 73,938 6,681 80,619 Total comprehensive income / (loss) is attributable to: Common shareholders: From continuing operations From discontinued operation Participating policyholders Non-controlling interests 14,461 (21,648) (7,187) 1,249 5,341 (597) 64,156 (26,367) 37,789 6,262 36,568 80,619 98 2015 Annual Report Sagicor Financial CorporationCONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended December 31, 2015 Sagicor Financial Corporation Amounts expressed in US $000 Share Capital (note 21) Reserves (note 22) Retained Earnings Total Shareholders’ Equity Participating Accounts (note 23) Non-controlling Interests Total Equity 2015 Balance, beginning of year 295,989 (8,765) Total comprehensive income from continuing operations Total comprehensive income from discontinued operation Transactions with holders of equity instruments: Allotment of common shares Movements in treasury shares Changes in reserve for equity compensation benefits Dividends declared (note 21.3) Transfers and other movements Balance, end of year 2014 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 Dividends declared (note 21.3) Changes in ownership interest in subsidiaries Transfers and other movements Balance, end of year - - 556 2,775 - - - 299,320 295,450 - - 539 - - - - 295,989 (38,419) - - - (1,650) - (10,854) (59,688) (4,825) 2,556 - - (463) - - (6,033) (8,765) 244,474 52,880 (21,648) - - - (19,842) 10,550 266,414 221,472 61,600 (26,367) - - 531,698 14,461 (21,648) 556 2,775 (1,650) (19,842) (304) 506,046 512,097 64,156 (26,367) 539 (463) (19,835) (19,835) 1,499 6,105 1,499 72 244,474 531,698 364 1,249 241,480 5,341 - - - - - (230) 1,383 (5,662) 6,262 - - - - - (236) 364 - - - (313) (14,835) 62 231,735 218,751 36,568 - - 79 (12,303) (1,779) 164 773,542 21,051 (21,648) 556 2,775 (1,963) (34,677) (472) 739,164 725,186 106,986 (26,367) 539 (384) (32,138) (280) - 241,480 773,542 2015 Annual Report 99 Sagicor Financial CorporationCONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, 2015 Sagicor Financial Corporation Amounts expressed in US $000 Note 2015 2014 Note 2015 2014 OPERATING ACTIVITIES Income before taxes 123,562 117,005 Movement in treasury shares (896) FINANCING ACTIVITIES Adjustments for non-cash items, interest and dividends 36.1 (200,783) (185,855) Other notes and loans payable, net 36.3 156,458 Interest and dividends received Interest paid Income taxes paid Net increase in investments and operating assets Net increase in operating liabilities Net cash flows - operating activities 36.1 36.1 299,482 275,582 (76,276) (27,444) (81,518) (19,402) (269,081) (245,772) 58,514 (92,026) 305,976 166,016 Dividends received from associates Dividends paid to common shareholders Dividends paid to preference shareholders Dividends paid to non-controlling interests Net cash flows - financing activities 480 (11,842) (7,800) (14,600) 121,800 (1,114) (683) 7,860 (11,819) (7,800) (11,498) (25,054) INVESTING ACTIVITIES Property, plant and equipment, net 36.2 (16,586) (20,916) Associates and joint ventures Intangible assets (28,986) (15,198) Acquisition of subsidiary, net of cash and cash equivalents 37 - Net cash flows - investing activities (60,770) (540) (2,469) 93,227 69,302 Effects of exchange rate changes (3,900) 7,925 NET CHANGE IN CASH AND CASH EQUIVALENTS - CONTINUING OPERATIONS Net change in cash and cash equivalents - discontinued operation (34,896) 218,189 (21,419) (35,595) Cash and cash equivalents, beginning of year 441,194 CASH AND CASH EQUIVALENTS, END OF YEAR 36.4 384,879 258,600 441,194 100 2015 Annual Report Sagicor Financial Corporation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 and in the United States of America (USA). There is a discontinued operation in the United Kingdom. Details of the Sagicor’s holdings and operations are set out in notes 4 and 38. 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 using approaches consistent with Canadian accepted actuarial standards. As no specific guidance is provided by IFRS for computing actuarial liabilities, management has judged that Canadian accepted actuarial standards 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. 2015 Annual Report 101 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.1 Basis of preparation (continued) 2.2 Basis of consolidation (continued) Amendments to IFRS A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after January 1, 2015, and have not been applied in preparing these consolidated financial statements (see note 2.25). There are no new standards, amendments to standards and interpretations effective for this financial year that have a significant effect on the consolidated financial statements. 2.2 Basis of consolidation (a) Subsidiaries Subsidiaries are entities over which the Group has control. The Group has control over an entity when the Group is exposed to the variable returns from its ownership interest in the entity and when the Group has the ability to affect those returns through its power over the entity. 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. 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 non-controlling interest. Acquisition-related costs are expensed as incurred. The excess of the cost of the acquisition, the non-controlling interest recognised and the fair value of any previously held equity interest in the acquiree, over the fair value 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. Non-controlling 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 non-controlling 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 non-controlling interest component is entitled to a proportionate share of net identifiable assets of the acquiree in the event of liquidation. For certain components of non-controlling interests, other IFRS may override the fair value option. Non-controlling interest balances are subsequently re-measured by the non-controlling’s proportionate share of changes in equity after the date of acquisition. 102 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.2 Basis of consolidation (continued) 2.2 Basis of consolidation (continued) (b) Discontinued operation In December 2012, the Group agreed to sell Sagicor Europe Limited, its subsidiary Sagicor at Lloyd's Limited and its interest in Lloyd's of London syndicate 1206. The decision to sell resulted in the closure of the Sagicor Europe operating segment and therefore met the criteria of a discontinued operation. The sale was concluded in December 2013. Consequently, the balances and results associated with the discontinued operation have been classified separately in these financial statements. As of December 31, 2015, the future price adjustments relating to the discontinued operation are disclosed in the statement of financial position at their estimated undiscounted value. Prior to the sale (as of December 31, 2012 and during interim financial periods in 2013), the net assets of the discontinued operation were carried in the statement of financial position at their estimated fair value less costs to sell. As this amount was less than the previous carrying value, impairments were recorded and applied to the goodwill and intangible assets component of the discontinued operation's assets. (c) Sale of subsidiaries On the sale of or loss of control of a subsidiary, the Group de-recognises the related assets, liabilities, non-controlling 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 sale recorded in income is the excess (or shortfall) of the fair value of the consideration received over the de-recognised and reclassified balances. (d) Associates and joint venture 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 associate and joint venture companies are originally recorded at cost and include intangible assets identified on acquisition. Accounting policies have been changed where necessary to ensure consistency with the accounting policies adopted by the Group. The Group recognises in income its share of associates and joint venture 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 and joint ventures are eliminated to the extent of the Group’s interest. The Group recognises in other comprehensive income, its share of post acquisition other comprehensive income. (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 either consolidates the assets, liabilities and activity of the fund and accounts for any non-controlling interest as a financial liability or accounts for the fund as an associate. (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 are applied towards the future purchase of Company shares. 2015 Annual Report 103 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.3 Foreign currency translation 2.3 Foreign currency translation (continued) (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. 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. (c) Transactions and balances (b) Reporting units The results and financial position of reporting units that have a functional currency other than the Group’s presentational currency are translated as follows: (i) Income, other comprehensive income, movements in equity and cash flows are translated at average exchange rates for the year. (ii) Assets and liabilities are translated at the exchange rates ruling on December 31. (iii) 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. 2015 closing 2015 average 2014 closing 2014 average 2.4 Segments Barbados dollar Eastern Caribbean dollar 2.0000 2.7000 2.0000 2.7000 2.0000 2.7000 2.0000 2.7000 Jamaica dollar 119.9758 116.7122 114.3232 110.5386 Trinidad & Tobago dollar 6.4196 Pound sterling 0.67480 6.3412 0.65276 6.3586 0.64070 6.3920 0.60482 104 2015 Annual Report Reportable operating segments have been defined on the basis of performance and resource allocation decisions of the Group’s Chief Executive Officer. Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 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 as determined by independent valuation, with the appreciation or depreciation in value being taken to investment income. Fair value represents the price (or estimates thereof) that would be agreed upon in an orderly transaction between market participants at valuation date. Investment property includes property partially owned by the Group and held under joint operations with third parties for which the Group recognises its share of the joint operation's assets, liabilities, revenues, expenses and cash flows. 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 property. Rental income is recognised on an accrual basis. 2.6 Property, plant and equipment Property, plant and equipment are recorded initially at cost. Subsequent expenditure is capitalised when it will result in future economic benefits to the Group. Owner-occupied property is re-valued at least every three years to its fair value as determined by independent valuation. Fair value represents the price (or estimates thereof) that would be agreed upon in an orderly transaction between market participants at valuation date. 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. Owner-occupied property includes property held under joint operations with third parties for which the Group recognises its share of the joint operation's assets, liabilities, revenues, expenses and cash flows. On the disposal of owner-occupied property, the amount included in the fair value reserve is transferred to retained earnings. 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 Lands are not depreciated. 2015 Annual Report 105 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.6 Property, plant and equipment (continued) 2.7 Intangible assets (continued) An impairment loss is recognised for the amount by which an 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. 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. 2.7 Intangible assets (a) Goodwill Goodwill (defined in note 2.2(a)) arising from an acquisition of a subsidiary or insurance business is allocated to appropriate cash generating units which are defined by the Group’s operating segments. Goodwill arising in a reportable operating segment is allocated to that segment. Goodwill arising in a Group entity, which is not within a reportable operating segment, is allocated to that entity’s own operations, or, if that entity is managed in conjunction with another Group entity, to their combined operations. (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. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. The estimated useful lives of recognised intangible assets are as follows: Class of intangible asset Asset Estimated useful life Customer relationships 4 - 20 years Broker relationships 10 years 15 years 2 – 10 years Goodwill arising from an investment in an associate is included in the carrying value of the investment. Customer related Goodwill is tested annually for impairment and whenever there is an indication of impairment. Goodwill is carried at cost less accumulated impairment. An impairment loss is recognised for the amount by which the carrying amount of goodwill exceeds its recoverable amount. The recoverable amount is the higher of an operating segment's (or operation's) fair value less costs to sell and its value in use. On the 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. Contract based Technology based Licences Software 106 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.8 Financial assets (a) Classification 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. 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. 2.8 Financial assets (continued) (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. Interest income on financial assets at fair value through income is calculated using the effective interest rate method. Financial assets in the available for sale category are measured initially at fair value and are subsequently re-measured at their fair value based on quoted prices or internal valuation techniques. Unrealised gains and losses, net of deferred income taxes, are reported in other comprehensive income. Either on the disposal of the asset or if the asset is determined to be impaired, the previously recorded unrealised gain or loss is transferred to investment income. Discounts and premiums on available for sale securities are amortised using the effective yield method. (c) Fair value Fair value amounts represent the price (or estimates thereof) that would be agreed upon in an orderly transaction between market participants at valuation date. 2015 Annual Report 107 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.8 Financial assets (continued) (d) Impaired financial assets 2.8 Financial assets (continued) (e) Securities purchased for resale A financial asset is considered impaired if its carrying amount exceeds its estimated recoverable amount. Securities purchased for resale are treated as collateralised financing transactions and are recorded at the amount at which they are acquired. 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. 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. 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 and a decline that has persisted for more than twelve months to be prolonged. 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. (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) 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. 108 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.9 Real estate developed or held for resale 2.10 Policy contracts (continued) 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. 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: 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. 2.10 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 discernible 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. • • • 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 2.20). (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. 2015 Annual Report 109 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.10 Policy contracts (continued) 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. 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. Commissions and premium taxes payable are recognised on the same basis as premiums earned. At the date of the financial statements, commissions and premium taxes 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. 2.10 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 accrued 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 2.11. 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. 110 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.10 Policy contracts (continued) 2.10 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 2.11. 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. 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 2.11. 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 recognised on the same basis as earned premiums. Commissions and premium taxes payable are generally recognised only on settlement of premiums. (iv) Long-term universal life and unit linked insurance contracts (v) Reinsurance contracts assumed 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. Reinsurance contracts assumed by an insurer are accounted for in a similar manner as if the insurer has assumed the risk direct from a policyholder. Reinsurance contracts assumed include blocks of life and annuity policies assumed from third party insurers. In some instances, the Group also administers these policies. (vi) Reinsurance contracts held As noted in sections (i) to (iv) above, an insurer may obtain reinsurance coverage for insurance risks underwritten. The Group cedes insurance premiums and risk in the normal course of business in order to limit the potential for losses arising from its exposures. Reinsurance does not relieve the originating insurer of its liability. 2015 Annual Report 111 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.10 Policy contracts (continued) 2.10 Policy contracts (continued) 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. Reinsurance balances are measured consistently with the insurance liabilities to which they relate. Other investment contracts are recognised initially at fair value and are subsequently stated at amortised cost and are accounted for in the same manner as deposit administration contracts which are similarly classified. (c) Embedded derivatives Certain insurance contracts contain embedded derivatives which are options whose value may vary in response to changes in interest rates or other market variables. The Group does not separately measure embedded derivatives that are closely related to the host insurance contract or that meet the definition of an insurance contract. Options to surrender an insurance contract for a fixed amount are also not measured separately. In these cases, the entire contract liability is measured as set out in note 2.11. (vii) Deposit administration and other investment contracts (d) Liability adequacy tests Deposit administration contracts are issued by an insurer to registered pension schemes for the deposit of pension plan assets with the insurer. Deposit administration liabilities are recognised initially at fair value and are subsequently stated at: 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 2.11 Actuarial liabilities the pension scheme in direct proportion to the investment returns on specified blocks of assets. (a) Life insurance and annuity contracts 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. Deposit administration contributions are recorded directly as liabilities. Withdrawals are deducted directly from the liability. The interest or investment return provided is recorded as an interest expense. In addition, the Group may provide pension administration services to the pension schemes. The Group earns fee income for both pension administration and investment services. The determination of actuarial liabilities of long-term insurance contracts has been done using approaches consistent with Canadian accepted actuarial standards. 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. Canadian standards may change from time to time, but infrequently. 112 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.11 Actuarial liabilities (continued) 2.11 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 resulting provisions for adverse deviations will be included in future income to the extent they are released when 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. Net insurance contract liabilities represent the amount which, together with estimated future premiums and net investment income, will be sufficient to pay projected future benefits, policyholder dividends and refunds, taxes (other than income taxes) and expenses on policies in-force net of reinsurance premiums and recoveries. The determination of net insurance liabilities is based on an explicit projection of cash flows using current assumptions plus a margin for adverse deviation for each material cash flow item. Investment returns are projected using the current asset portfolios and projected reinvestment yields. The period used for the projection of cash flows is the policy lifetime for most individual insurance contracts. The Company segments assets to support liabilities by major product segment and geographic market and establishes investment strategies for each liability segment. Projected net cash flows from these assets and the policy liabilities being supported by these assets are combined with projected cash flows from future asset purchases to determine expected rates of return on these assets for future years. Investment strategies are based on the target investment policies for each segment and the reinvestment returns are derived from current and projected market rates for fixed income investments. Investment return assumptions for each asset class make provision for expected future asset credit losses, expected investment management expenses and a margin for adverse deviation. Under this methodology, 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 unrealised gains or losses in fair 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 changes in actuarial liabilities which are recorded in other comprehensive income and which arise from recognised unrealised gains or losses in fair value of available for sale securities. 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. 2.12 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 2.10(b) (vii) and in the following paragraphs. (a) Securities sold for re-purchase Securities sold for re-purchase are treated as collateralised financing transactions and are recorded at the amount at which the securities were sold. Securities sold subject to repurchase are not derecognised but are treated as pledged assets when the transferee has the right by contract or custom to sell or re-pledge the collateral. 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. The liability is extinguished when the obligation specified in the contract is discharged, assigned, cancelled or has expired. 2015 Annual Report 113 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.12 Financial liabilities (continued) (b) Deposit liabilities Deposits are recognised initially at fair value and are subsequently stated at amortised cost using the effective yield method. (c) Loans and other debt obligations 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. (d) Fair value 2.14 Derivative financial instruments and hedging activities (continued) 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. Fair value amounts represent the price (or estimates thereof) that would be agreed upon in an orderly transaction between market participants at valuation date. Gains and losses from changes in the fair value of derivatives that do not qualify for hedge accounting are included in net investment income or interest expense. 2.13 Provisions 2.15 Offsetting financial instruments 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. Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when there is a legally enforceable right to offset and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously. 2.14 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. 2.16 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 and 33 are non- current unless otherwise stated in those notes. 114 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.17 Employee benefits (a) Pension benefits 2.17 Employee benefits (continued) (c) Profit sharing and bonus plans 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 less the fair value of plan assets. 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 on government bonds for the maturity dates and currency of the related liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to the other comprehensive income and retained earnings or non-controlling interest in the period in which they arise. Past service costs are charged to income in the period in which they arise. 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. Contributions are recognised in income in the period in which they are due. (b) Other retirement benefits Certain Group subsidiaries provide supplementary health 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. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to the other comprehensive income and retained earnings or non-controlling interest in the period in which they arise. 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 non-controlling 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 non- controlling interest either on the distribution of share grants or on the exercise of share options. 2015 Annual Report 115 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.17 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 2.18 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 Life insurance and non-registered annuities Health insurance 3% - 6% Nil Nil 4% Nil Nil Nil Property and casualty insurance 3% - 5% Nil Nil Nil United States of America 0.75% - 3.5% Premium tax is recognised gross in the statement of income. (b) Asset tax The Group is subject to an asset tax in Jamaica and Barbados. In Jamaica, the asset tax is levied on insurance, securities dealers and deposit taking institutions, and is 0.14% of adjusted assets held at the end of the year. In Barbados, the asset tax is levied on insurance, deposit taking institutions and credit unions and is 0.20% of adjusted assets held at the end of a period. (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 the current year are set out in the next table. 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. 116 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.18 Taxes (continued) Income tax rates Barbados Jamaica Trinidad and Tobago United States of America (i) Current income taxes Life insurance and non-registered annuities 5% of gross investment income 25% of profit before tax 15% - 25% of investment income 35% of net income Registered annuities Other lines of business Nil Nil Nil Nil 25% of net income 25% of profit before tax 25% 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 enacted or substantially enacted by the end of the reporting period. 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 and once they relate to the same entity. 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. 2.19 Common and preference shares (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 as of July 18, 2011: (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. 2015 Annual Report 117 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.19 Common and preference shares (continued) 2.20 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. (c) Dividends 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. 2.20 Participating accounts (a) “Closed” participating account For participating policies of Sagicor Life Inc in force at de-mutualisation, Sagicor Life Inc established a closed participating account in order to protect the guaranteed benefits and future policy dividends, bonuses and other non-guaranteed benefits of the afore-mentioned policies. The rules of this account require that premiums, benefits, actuarial reserve movements, investment returns, expenses and taxes, attributable to the said policies, are recorded in a closed participating fund. Policy dividends and bonuses of the said policies are paid from the participating fund on a basis substantially the same as prior to de-mutualisation. 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. 118 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.20 Participating accounts (continued) (c) Financial statement presentation The assets and liabilities of the participating accounts are included but not presented separately in the financial statements. The revenues, benefits and expenses of the participating accounts are also included but not presented separately in the financial statements. However, the overall surplus of assets held in the participating funds over the associated liabilities is presented in equity as the participating accounts. The overall net income and other comprehensive income that are attributable to the participating funds are disclosed as allocations. 2.23 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. 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. 2.24 Cash flows 2.21 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, insurance beneficiaries or depositors. 2.22 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. 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 tangible and intangible assets to be utilised in the business and in respect of changes in subsidiary holdings, insurance businesses, and associated company and joint venture 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. 2015 Annual Report 119 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.25 Future accounting developments and reporting changes (continued) IFRS (Effective Date) Subject / Comments 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 11 - Accounting for Acquisitions of Interests in Joint Operations (January 1, 2016) The amendments to IFRS 11 clarify the accounting for the acquisition of an interest in a joint operation where the activities of the operation constitute a business. They require an investor to apply the principles of business combination accounting when it acquires an interest in a joint operation that constitutes a business. IFRS 9 – Financial Instruments (January 1, 2018) Classification and measurement of financial instruments IFRS 9, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. The IASB is currently discussing an optional deferral of IFRS 9 until January 2021 for certain companies issuing insurance contracts. The Group is yet to assess IFRS 9’s full impact. 120 2015 Annual Report This includes: • • • • measuring identifiable assets and liabilities at fair value expensing acquisition-related costs recognising deferred tax, and recognising the residual as goodwill, and testing this for impairment annually. Existing interests in the joint operation are not remeasured on acquisition of an additional interest, provided joint control is maintained. The amendments also apply when a joint operation is formed and an existing business is contributed. The Group is assessing the impact of these amendments. from an entity’s contracts with customers. Revenue IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The Group is assessing the impact of IFRS 15. IFRS 15 – Revenue from contracts with customers (January 1, 2017) Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0002.25 Future accounting developments and reporting changes (continued) IFRS (Effective Date) Subject / Comments IFRS 16 – Leases (Annual periods beginning on or after 1 January 2019 with earlier application permitted if IFRS 15, ‘Revenue from Contracts with Custom- ers’, is also applied.) in replaces the current guidance IAS 17 and This standard is a far-reaching change in accounting by lessees in particular. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group is yet to assess the impact of IFRS 16. IAS 6 and IAS 41 - Agriculture: Bearer Plants (January 1, 2016) IAS 41 Agriculture now distinguishes between bearer plants and other biological asset. Bearer plants must be accounted for as property plant and equipment and measured either at cost or revalued amounts, less accumulated depreciation and impairment losses. A bearer plant is defined as a living plant that: • • • is used in the production or supply of agricultural produce is expected to bear produce for more than one period, and has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales. Agricultural produce growing on bearer plants remains within the scope of IAS 41 and is measured at fair value less costs to sell with changes recognised in profit or loss as the produce grows. The Group is yet to assess the impact of the amendment. IFRS (Effective Date) Subject / Comments IFRS 10, IFRS 12 and IAS 28 – Investment entities: Applying the consolidation exception (January 1, 2016) IFRS 10 and IAS 28 – Sale or contribution of assets between an investor and its associate or joint venture (January 1, 2016) Amendments made to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in associates and joint ventures clarify that: • • • The exception from preparing consolidated financial statements is also available to intermediate parent entities which are subsidiaries of investment entities. An investment entity should consolidate a subsidiary which is not an investment entity and whose main purpose and activity is to provide services in support of the investment entity’s investment activities. Entities which are not investment entities but have an interest in an associate or joint venture which is an investment entity have a policy choice when applying the equity method of accounting. The fair value measurement applied by the investment entity associate or joint venture can either be retained, or a consolidation may be performed at the level of the associate or joint venture, which would then unwind the fair value measurement. Early adoption is permitted. The Group is yet to assess the impact of the amendment. The IASB has made limited scope amendments to IFRS 10 Consolidat- ed financial statements and IAS 28 Investments in associates and joint ventures. The amendments clarify the accounting treatment for sales or contribution of assets between an investor and its associates or joint ventures. They confirm that the accounting treatment depends on whether the non-monetary assets sold or contributed to an associate or joint venture constitute a ‘business’ (as defined in IFRS 3 Business Combinations). Where the non-monetary assets constitute a business, the investor will recognise the full gain or loss on the sale or contribution of assets. If the assets do not meet the definition of a business, the gain or loss is recognised by the investor only to the extent of the other investor’s investors in the associate or joint venture. The amendments apply prospectively. The Group is yet to assess the impact of the amendment. 2015 Annual Report 121 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0003 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 3.3 Impairment of intangible assets (continued) 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. 3.1 Impairment of financial assets An available for sale debt security or 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. 3.2 Recognition and measurement of intangible assets The recognition and measurement of intangible assets, other than goodwill, in a business combination involve the utilisation of valuation techniques which may be very sensitive to the underlying assumptions utilised. These intangibles may be marketing related, customer related, contract based or technology based. For significant amounts of intangibles arising from a business combination, the Group utilises independent professional advisors to assist management in determining the recognition and measurement of these assets. 3.3 Impairment of intangible assets (a) Goodwill The assessment of goodwill impairment involves the determination of the fair value of the cash generating business units to which the goodwill has been allocated. Determination of fair value involves the estimation of future cash flows or of income 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. For the Sagicor Life reporting segment, the Group uses an actuarial appraisal value technique for testing goodwill impairment. (a) Goodwill (continued) 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. 3.4 Valuation of actuarial liabilities (a) Canadian Actuarial Standards 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 as the present value of liability cash flows discounted at effective interest rates resulting in a value equivalent to the market value of assets supporting these policy liabilities under an adverse economic scenario. The AA identifies a conservative economic scenario forecast, and together with the existing investment portfolio as at the date of the actuarial valuation and assumed reinvestment of net asset and policy liability cash flows, calculates the actuarial liabilities required at the date of valuation to ensure that sufficient monies are available to meet the liabilities as they become due in future years. 122 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0003.4 Valuation of actuarial liabilities (continued) 3.5 Carrying value of the assets and liabilities of the discontinued operation As of December 31, 2015, the liability of the discontinued operation is the estimated residual liability due to the purchaser arising from the estimated results of the syndicate for the underwriting years of account up to and including 2013 until the end of the run-off period. The reported liability is also impacted by movements in various foreign exchange rates as the insured risks are denominated in a number of different currencies. (a) Canadian Actuarial Standards (continued) The methodology produces the total reserve requirement for each policy group fund. In general, the methodology is used to determine the net overall actuarial liabilities required by the insurer. Actuarial liabilities are computed by major group of policies and 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, and other individual components in the actuarial liabilities. Further details of the inputs used are set out in note 43. (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. 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 universal life and 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. 2015 Annual Report 123 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 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. 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. In accordance with the relevant financial reporting standard, the Group has determined that there are three principal subsidiary Groups within continuing operations which represent the reportable operating segments of Sagicor. These segments and other Group companies are set out in the following sections. Details of the discontinued operating segment are set out in note 38. (a) Sagicor Life 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 Life Segment Companies Principal Activities Sagicor Life Inc(1) Sagicor Life Aruba NV Life and health insurance, annuities and pension administration services Life and health insurance, annuities and pension administration services Country of Incorporation Effective Shareholders’ Interest Barbados 100% Aruba 100% Capital Life Insurance Company Bahamas Limited Life insurance The Bahamas 100% Sagicor Panamá, SA Life and health insurance Nationwide Insurance Company Limited Life insurance Panamá Trinidad & Tobago Associates RGM Limited Property ownership and management Trinidad & Tobago FamGuard Corporation Limited Investment holding company Bahamas 100% 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) On December 31, 2014, Sagicor Life Inc and its wholly-owned subsidiary Sagicor Capital Life Insurance Company Limited were amalgamated under the laws of Barbados. Under the terms of the amalgamation, the two companies continue as one corporate entity under the name of Sagicor Life Inc. 124 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0004 SEGMENTS (continued) (b) Sagicor Jamaica This segment comprises Group subsidiaries conducting life, health, annuity, property and casualty insurance business, and pension administration services and financial services in Jamaica, Cayman Islands and Costa Rica. Effective May 2014, Sagicor Investment Jamaica Limited (SIJL) became a wholly owned subsidiary of Sagicor Group Jamaica Limited (SGJ). Previously, Sagicor Investment Jamaica Limited was owned 85.45% (2013 – 85.45%) by Sagicor Life Jamaica Limited. The existing minority shareholders of Sagicor Investment Jamaica Limited exchanged their shares for Sagicor Group Jamaica Limited (SGJ) shares. The existing parent company, Sagicor Life Jamaica Limited exchanged their shares in SIJL for unsecured debenture bonds from SGJ. SIJL was subsequently delisted from the Jamaica Stock Exchange. The exchange of SIJL shares to SGJ shares took effect on 7 May 2014. This transaction resulted in a reduction of the Sagicor Financial Corporation's effective shareholder's interest from 51% to 49.11%. On June 27, 2014, the Group acquired 100% of the share capital of RBC Royal Bank (Jamaica) Limited and its subsidiary, RBC Securities (Jamaica) Limited and rebranded that business to Sagicor Bank. All Jamaican subsidiaries are now wholly owned by Sagicor Group Jamaica Limited. The companies comprising this segment are as follows. Principal Activities Country of Incorporation Effective Shareholders’ Interest Group holding company Jamaica 49.11%(1) Sagicor Jamaica Segment Companies Sagicor Group Jamaica Limited Sagicor Life Jamaica Limited Sagicor Life of the Cayman Islands Limited Sagicor Pooled Investment Funds Limited Life and health insurance and annuities Life insurance Jamaica 49.11%(1) The Cayman Islands 49.11% (1) 49.11% (1) 49.11% (1) Pension fund management Jamaica Employee Benefits Administrator Limited Pension administration services Jamaica 4 SEGMENTS (continued) Sagicor Jamaica Segment Companies (continued) Principal Activities Country of Incorporation Sagicor Re Insurance Limited Property and casualty insurance The Cayman Islands Effective Shareholders’ Interest 49.11% (1) Sagicor Insurance Brokers Limited Insurance brokerage Jamaica 49.11% (1) Sagicor International Administrators Limited Group insurance administration Jamaica 49.11% (1) Sagicor Insurance Managers Limited Captive insurance management services The Cayman Islands 49.11% (1) Sagicor Property Services Limited Property management Jamaica 49.11%(1) Sagicor Investments Jamaica Limited Investment banking Jamaica 49.11%(2) Sagicor Bank Jamaica Limited Commercial banking Jamaica 49.11%(2) Sagicor Costa Rica SCR, S.A. Life insurance Costa Rica 24.56% LOJ Holdings Limited Sagicor St Lucia Limited Insurance holding company Financial services holding company Jamaica 100% St. Lucia 49.11%(1) Sagicor Securities Jamaica Limited Securities trading Jamaica 49.11% Associates Sagicor Real Estate X-Fund Ltd. Investment in real estate activities St. Lucia 29.31%(3) (1) 51% prior to May 7, 2014. (2) 44% prior to May 7, 2014 (3) In September 2015, Sagicor Group acquired the Sagicor Real Estate X Fund. This acquisition took the Sagicor Group’s holding to 29.3%. At December 2014, the Sagicor Group owned 12.30% which was diluted to 8% with the rights issue. Control of Sagicor Group Jamaica Limited is established through the following: • • • The power of the group to appoint a majority of the directors of the company and thereby direct relevant activities. The Group is exposed to the variable returns from its effective shareholder's interest. The Group has the ability to use the power to affect the amount of investor's returns. 2015 Annual Report 125 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0004 SEGMENTS (continued) (c) Sagicor Life USA 4 SEGMENTS (continued) (d) Head office function and other operating companies This segment comprises Sagicor’s life insurance operations in the USA and comprises the following: These comprise the following: Sagicor Life USA Segment Companies Principal Activities Country of Incorporation Effective Shareholders’ Interest Other Group Companies Principal Activities Country of Incorporation Effective Shareholders’ Interest Life insurance and annuities USA - Texas 100% Sagicor Financial Corporation Group parent company Barbados 100% Sagicor Life Insurance Company Sagicor USA Inc Insurance holding company USA - Delaware 100% Sagicor General Insurance Inc Sagicor Finance Inc Sagicor Asset Management (T&T) Limited Sagicor Asset Management Inc Barbados Farms Limited Sagicor Funds Incorporated Globe Finance Inc Property and casualty insurance Loan and lease financing, and deposit taking Barbados St. Lucia 53% 70% Investment management Trinidad & Tobago 100% Investment management Barbados 100% Farming and real estate development Mutual fund holding company Loan and lease financing, and deposit taking The Mutual Financial Services Inc Financial services holding company Sagicor Finance Limited Group financing vehicle Sagicor Finance (2015) Limited(1) Group financing vehicle Barbados 77% Barbados 100% Barbados Barbados The Cayman Islands The Cayman Islands 51% 73% 100% 100% 126 2015 Annual Report (1) Sagicor Finance (2015) Limited was incorporated in the Cayman Islands with its primary function being the issuance of debt. Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0004.1 Statement of income by segment 2015 Net premium revenue Interest income Other investment income Fees and other revenues Gain / (loss) arising on acquisition 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 Net income / (loss) from continuing operations Net income/(loss) attributable to shareholders from continuing operations Total comprehensive income/(loss) attributable to shareholders from continuing operations Sagicor Life Sagicor Jamaica Sagicor Life USA Head office and other Adjustments Total 291,237 73,121 1,862 12,606 278,312 159,828 21,101 53,243 - (1,025) 80,963 51,236 8,831 20,124 - - (82,890)(1) 92,596(1) 471,422 189,934 (1,482) 11,247 64,958 40,694 - 5,831 82,585(1) 393,767 77,655 (6,888) 70,767 511,459 163,574 44,634 40,824 114,977 44,298 - 6,573 886 415,766 95,693 (15,581) 80,112 78,264 101,898 (16,593) 2,693 35,673 24,761 49 1,276 (81,207)(1) 68,550 9,714 (3,106) 6,608 6,608 23,413 9,247 (66) 23,113 - 39,905 95,612 12,171 - 4,043 35,449 10,148 (343) 5,007 9,943 76,418 19,194 (343) 18,851 (18,740) - - (2,931) 4 - (49,611) (52,538) - - - 835 - 37,528 - (12,207) 26,156 (78,694) 799 (77,895) (40,367) 673,925 293,432 28,797 109,090 (1,025) - 1,104,219 467,577 26,559 58,807 251,892 119,901 37,234 18,687 - 980,657 123,562 (25,119) 98,443 56,327 69,482 39,344 70,925 4,881 (3,404) (19,460) (38,481) 14,461 (1) During the year, Sagicor Life USA entered into a reinsurance agreement with Sagicor Life; included in the inter-segment revenues is $90,515 and inter-segment expenses of $82,225 relating to this transaction. 2015 Annual Report 127 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0004.1 Statement of income by segment (continued) 2014 Net premium revenue Interest income Other investment income Fees an d other revenues Gain arising on acquisition 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 Net income / (loss) from continuing operations Net income/(loss) attributable to shareholders from continuing operations Total comprehensive income/(loss) attributable to shareholders from continuing operations 128 2015 Annual Report Sagicor Life Sagicor Jamaica Sagicor Life USA Head office and other Adjustments Total 266,017 70,728 6,689 10,419 - 7,911 361,764 174,595 9,247 11,566 64,638 37,798 - 5,026 354 303,224 58,540 (8,297 ) 50,243 44,043 263,880 133,818 23,790 35,365 29,051 - 485,904 156,024 49,967 44,098 104,386 40,847 - 9,177 1,336 74,538 49,671 14,045 15,230 - - 153,484 97,697 (18,217 ) 3,642 30,548 20,618 41 1,437 926 405,835 136,692 80,069 (2,700 ) 77,369 38,055 16,792 (4,878 ) 11,914 11,914 21,122 10,144 (1,670 ) 22,306 - 33,763 85,665 9,165 - 4,433 32,827 10,176 (243 ) 4,580 8,065 69,003 16,662 (825 ) 15,837 - - - 24 - (41,674 ) (41,650 ) - - - 1,343 - 22,746 - (10,681) 13,408 (55,058) - (55,058 ) (7,963) (32,312) 50,330 34,004 19,478 (7,428) (32,228) 625,557 264,361 42,854 83,344 29,051 - 1,045,167 437,481 40,997 63,739 233,742 109,439 22,544 20,220 - 928,162 117,005 (16,700 ) 100,305 53,737 64,156 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000 4.1 Statement of income by segment (continued) 4.2 Variations in segment income (continued) The principal non-controlling interests in the Group are in respect of Sagicor Group Jamaica Limited (Sagicor Jamaica). (iv) Foreign exchange gains and losses Out of the total net income attributable to non-controlling interests of $40,831 (2014 - $40,368), Sagicor Jamaica contributed $40,767 (2014 - $39,314). 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. 4.2 Variations in segment income (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. 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) Gains on acquisitions/divestitures On acquisition of a business or portfolio, if the fair value of the net assets acquired exceeds the total consideration transferred, the difference is recognized directly in the statement of income. 2015 Annual Report 129 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 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 Sagicor Jamaica Sagicor Life USA Head Office and Other Total Sagicor Life Sagicor Jamaica Sagicor Life USA Head Office and Other Total 2015 2014 3,306 (3,409) (1,376) 30,616 (7,030) 4,421 - 29,051 13,371 375 47,668 (13) (2,186) (12,638) - - 180 3,225 - - 29,051 (2,349) 17,472 (25,443) 5,622 4,143 74,530 (12,085) (1,631) 64,957 Investment gains / (losses) Impairment of financial investments Foreign exchange gains / (losses) Gains / (losses) on acquisitions/ divestitures Decrease / (increase) in actuarial liabilities from changes in assumptions (1,226) (1,782) 1,624 28,342 (8,368) 1,182 - (1,025) 36,114 (403) 34,730 19,728 5,309 (17) - - 1,642 6,934 (7) (171) 8 - - 32,418 (10,338) 2,814 (1,025) 37,353 (170) 61,222 130 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000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. (iv) Defined benefit plans gains and losses Experience adjustments and changes in actuarial assumptions gives rise to gains or losses on defined benefit plans. The table below summarises by segment the individual line items within other comprehensive income from continuing operations which are impacted by the foregoing factors. 2015 Unrealised investment (losses) Changes in actuarial liabilities Retranslation of foreign currency operations Losses on defined benefit plans 2014 Unrealised investment gains Changes in actuarial liabilities Retranslation of foreign currency operations Gains on defined benefit plans Variations in other comprehensive income by segment Sagicor Life Sagicor Jamaica Sagicor Life USA Head Office and other Adjustments Total (5,252) 9,729 (982) (1,053) 6,207 (4,178) 1,339 2,763 (61,165) 3,702 (14,708) (3,787) 6,602 - (23,528) 9,086 (36,500) 34,915 - - 25,371 (15,792) - - (184) - 23 (591) 206 - 69 1,363 - - (19) - - - 84 - (103,101) 48,346 (15,686) (5,431) 38,386 (19,970) (22,036) 13,212 2015 Annual Report 131 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0004.4 Statement of financial position by segment 2015 Financial investments Other external assets Inter-segment assets Total assets Policy liabilities Other external liabilities Liabilities of discontinued operation Inter-segment liabilities Total liabilities Net assets 2014 Financial investments Other external assets Inter-segment assets Total assets Policy liabilities Other external liabilities Liabilities of discontinued operation Inter-segment liabilities Total liabilities Net assets 132 2015 Annual Report Sagicor Life USA Head office and other Adjustments Total Sagicor Life 1,402,811 331,311 169,945 1,904,067 1,189,512 87,439 - 28,475 1,305,426 Sagicor Jamaica 2,087,139 415,738 10,350 2,513,227 646,942 1,467,043 - 1,696 2,115,681 1,061,649 630,719 8,323 1,700,691 1,309,946 224,063 - 43,839 1,577,848 275,022 195,496 53,505 524,023 60,474 629,276 46,026 168,113 903,889 598,641 397,546 122,843 (379,866) 1,259,473 379,124 134,254 1,772,851 1,197,480 87,733 - 23,620 1,308,833 2,021,180 464,724 9,363 2,495,267 622,299 1,460,700 - 217 2,083,216 1,247,365 495,735 241 1,743,341 1,244,053 250,792 - 40,582 1,535,427 133,476 179,343 49,805 362,624 56,770 441,255 45,796 129,244 673,065 - - (242,123) (242,123) - - - (242,123) (242,123) - - - (193,663) (193,663) - - - (193,663) (193,663) 4,826,621 1,573,264 - 6,399,885 3,206,874 2,407,821 46,026 - 5,660,721 739,164 4,661,494 1,518,926 - 6,180,420 3,120,602 2,240,480 45,796 - 5,406,878 464,018 412,051 207,914 (310,441) - 773,542 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0004.4 Statement of financial position by segment (continued) 4.7 Geographical areas The principal non-controlling interests in the Group are in respect of Sagicor Group Jamaica Limited (Sagicor Jamaica). Out of the total non-controlling interests in the statement of financial position of $231,735 (2014 - $241,480), Sagicor Jamaica contributed $194,690 (2014 - $202,133). 4.5 Additions to non-current assets by segment Segment operations include certain non-current assets comprising investment property, property, plant and equipment, investment in associated companies and intangible assets. Additions to these categories for the year are as follows: The Group operates in certain geographical areas which are determined by the location of the subsidiary or branch initiating the business. 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. Sagicor Life Sagicor Jamaica Sagicor Life USA Head office and other 4.6 Products and services 2015 9,139 45,968 2,806 4,557 62,470 2014 7,384 7,878 2,064 10,645 27,971 Barbados Jamaica Trinidad & Tobago Other Caribbean USA External revenue Non-current assets 2015 2014 2015 2014 162,545 478,798 153,790 150,860 158,226 146,640 458,565 145,735 140,737 153,490 195,457 117,964 69,132 34,485 5,096 198,624 69,985 67,396 35,499 3,593 1,104,219 1,045,167 422,134 375,097 Total external revenues relating to the Group’s products and services are summarised as follows: Life, health and annuity insurance contracts issued to individuals 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 2015 2014 636,061 584,973 273,382 273,138 32,653 150,152 11,971 34,308 112,927 39,821 1,104,219 1,045,167 2015 Annual Report 133 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0005 INVESTMENT PROPERTY The movement in investment property for the year is as follows: Balance, beginning of year Additions at cost Transfer (to) / from property, plant and equipment (note 7) Disposals Change in fair values Effects of exchange rate changes Balance, end of year 2015 2014 88,766 111 (3,410) (5,255) (816) (224) 79,172 98,369 1,638 583 (8,269) (3,468) (87) 88,766 Investment property includes $11,446 (2014 - $14,372) which represents the Group’s proportionate interest in joint operations summarised in the following table. Country Description of property Barbados Freehold lands Freehold office buildings Trinidad & Tobago Freehold office building Percentage ownership 50% 10% -33% 60% Pension Funds managed by the Group own the remaining 50% interests of freehold lands in Barbados, and a 33% interest in a freehold office building in Barbados. 134 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0006 ASSOCIATES AND JOINT VENTURES 6.1 Interest in Associates and Joint Ventures Name of Entity Country of Incorporation % of ownership interest RGM Limited Trinidad & Tobago FamGuard Corporation Limited(1) Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Ltd.(2) Immaterial associates Bahamas Barbados Costa Rica St. Lucia 2015 33% 20% 38% 50% 29% 2014 33% 20% 38% 50% 12% Nature of relationship Measurement Method Carrying Amount 2015 2014 Associate Associate Associate Equity Method Equity Method Equity Method Joint Venture Equity Method Associate Equity Method 23,199 14,059 362 6,326 40,584 - 21,080 12,856 368 6,460 - 42 84,530 40,806 (1) FamGuard Corporation Limited is listed on the Bahamas International Securities Exchange. The proportionate share of market value calculated on the basis of the year-end closing rate of $5.60 per share was $11,200. (2) The Sagicor Real Estate X Fund Limited traded on the Jamaica Stock Exchange. The proportionate share of market value calculated on the basis of the year-end closing rate of $0.09 (J$11.00) per share was $58,346. Included in the carrying value for the investment acquired in this financial year is goodwill of $10,544 which has been provisionally determined, as allowed by IFRS 3. Should the finalized determination of the value of these intangibles in the next financial year be a materially different value, the financial statements will have to be restated during the next financial year. 6.2 Commitments and Contingent Liabilities Contingent liabilities – associates Share of contingent investors of the associate liabilities Total contingent liabilities incurred jointly with other 2015 2014 - - 4,207 4,207 2015 Annual Report 135 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0006.3 Summarised Financial Information RGM Limited FamGuard Corporation Limited Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Ltd. 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 ASSETS Financial Investments - - 251,312 235,157 Cash Resources 11,829 4,112 Other investments and assets 132,735 131,086 10,092 63,622 9,190 54,643 Total assets 144,564 135,198 325,026 298,990 LIABILITIES Policy liabilities Other liabilities Total liabilities - 74,972 74,972 - 206,002 191,199 71,963 71,963 10,966 216,968 9,208 200,407 - - 1,050 1,050 - 186 186 Net Assets 69,592 63,235 108,058 98,583 864 - - 1,050 1,050 - 170 170 880 7,840 3,607 1,867 13,314 1,829 144 1,973 10,415 1,118 1,371 12,904 911 1,259 2,170 93,939 19,972 168,306 282,217 - 151,799 151,799 11,341 10,734 130,418 - - - - - - - - 136 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0006.3 Summarised Financial Information (continued) RGM Limited FamGuard Corporation Limited Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Ltd. 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Reconciliation to carrying amounts: Investment, beginning of year 21,080 25,211 12,856 12,542 Additions Amounts assumed on acquisition Dividends received Share of income/(loss) before taxes Share of amortisation or impairment of 423 - - 1,677 168 - (7,380) 3,505 intangible assets which were identified on - - acquisition Share of income taxes Share of other comprehensive income/(loss) Effects of exchange rate changes 248 (738) - (229) - 314 - - (480) 959 (72) - 796 - - - (480) 864 (176) - 106 - 368 - - - (6) - - - - 373 - - - (5) - - - - Investment, end of year 23,199 21,080 14,059 12,856 362 368 6,460 152 - - (284) - - - (2) 6,326 6,031 372 - - 57 - - - - 6,460 - 28,453 12,288 - 807 - - 171 (1,135) 40,584 - - - - - - - - - 2015 Annual Report 137 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0006.3 Summarised Financial Information (continued) RGM Limited FamGuard Corporation Limited Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Ltd. 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Summarised statement of comprehensive income REVENUE Net premium revenue Net investment and other income Total revenue BENEFITS AND EXPENSES Benefits Expenses - 25,619 25,619 - 25,798 25,798 90,253 26,444 116,697 - - 20,526 16,330 75,671 34,205 Total benefits and expenses 20,526 16,330 109,876 INCOME BEFORE TAXES Income taxes 5,093 9,468 747 (2,209) NET INCOME FOR THE PERIOD 5,840 7,259 Other comprehensive income - - Total comprehensive income 5,840 7,259 6,821 - 6,821 882 7,703 87,186 26,690 113,876 72,764 35,097 107,861 6,015 - 6,015 3,279 9,294 - - - - 16 16 (16) - (16) - (16) - - - - 14 14 (14) - (14) - (14) 5,893 384 6,277 5,346 1,463 6,809 (532) (35) (567) - (567) 1,656 841 2,497 182 2,201 2,383 114 - 114 - 114 - 56,654 56,654 - 44,100 44,100 12,554 (1,438) 11,116 709 11,825 - - - - - - - - - - - Dividends associates and joint ventures received from - 7,380 480 480 - - - - - - 6.4 Individually immaterial associates The aggregate carrying amounts of individually immaterial associates for 2015 – Nil (2014 - $42). 138 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0007 PROPERTY, PLANT AND EQUIPMENT 2015 Owner-occupied property Lands Land & buildings Office furnishings, equipment & vehicles Operating lease vehicles & equipment Total Owner-occupied properties 2014 Office furnishings, equipment & vehicles Operating lease vehicles & equipment 13,438 2,933 169,469 18,175 - - - - - - 3,410 (6,348) 145 (22) (1,019) (2,122) - 815 (3,138) - (11,513) (1,760) 39,910 14,275 - - (6,348) 139 - (827) - (7,296) (543) 39,310 Net book value, beginning of year 38,220 77,901 Additions at cost Additions arising from acquisitions Transfer (to) investment property (note 5) Transfer to intangible assets (note 8) Other transfers Transfers (to) real estate developed or held for sale (Note 12) Disposals Change in fair values Depreciation charge Effects of exchange rate changes - - - - - (22) (167) - - - Net book value, end of year 38,031 Represented by: Cost or valuation Accumulated depreciation 38,031 - 38,031 967 - 3,410 - 6 - (109) 815 (1,079) (1,217) 80,694 84,316 (3,622) 80,694 Owner-occupied lands are largely utilised for farming operations. Owner-occupied land and buildings consist largely of commercial office buildings. 12,214 170,249 38,220 112,382 (73,072) 19,705 254,434 (7,491) (84,185) 39,310 12,214 170,249 38,220 - 38,220 Land 38,428 - - - - - (7) - (201) - - Land & buildings 66,281 2,173 11,568 (583) - 15 - - 278 (1,013) (818) 77,901 80,885 (2,984) 77,901 Total 151,539 23,324 14,041 (583) (3,286) 401 (7) 12,937 6,514 - - - - - (2,748) (3,582) - 77 (3,265) (10,991) - (1,464) 13,438 169,469 33,893 14,637 2,473 - (3,286) 386 - (834) - (6,713) (646) 39,910 111,025 (71,115) 19,707 249,837 (6,269) (80,368) 39,910 13,438 169,469 2015 Annual Report 139 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0008 INTANGIBLE ASSETS 8.1 Analysis of intangible assets and changes for the year Goodwill 2015 Customer & broker relationships Software Total Goodwill Net book value, beginning of year 46,643 19,129 Additions at cost Assumed on acquisition Transfer from property, plant and equipment (note 7) Amortisation/impairment charges Divestitures and disposals Effects of exchange rate changes - - - (585) - (786) 10,284 15,198 - 6,348 - - - (1,837) (4,680) - (851) (289) (391) 76,056 15,198 - 6,348 (7,102) (289) (2,028) 88,183 Net book value, end of year 45,272 16,441 26,470 Represented by: Cost or valuation Accumulated depreciation and impairments 47,085 (1,813) 45,272 38,316 (21,875) 16,441 57,513 (31,043) 26,470 142,914 (54,731) 88,183 140 2015 Annual Report 2014 Customer & broker relationships Software Total 16,220 - 10,304 - 7,725 2,469 - 3,286 71,893 2,469 10,304 3,286 (5,995) (3,056) (9,051) - (1,400) 19,129 - (140) 10,284 40,224 39,776 (21,095) (29,492) 19,129 10,284 - (2,845) 76,056 128,456 (52,400) 76,056 47,948 - - - - - (1,305) 46,643 48,456 (1,813) 46,643 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0008.2 Impairment of intangible assets 8.2 Impairment of intangible assets (continued) Goodwill arises from past acquisitions and is allocated to cash generating units (CGUs). Goodwill is tested annually for impairment. The recoverable amount of a CGU 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. For those CGU’s which the fair value less costs to sell methodology is used, the financial projections are used as inputs to determine maintainable earnings over time to which is applied an appropriate earnings multiple. For those CGU's which the value in use methodology is used, cash flows are extracted from the financial projections to which are applied appropriate discount factors and residual growth rates, or alternatively, the cash flows from the financial projections are extended to 50 years using an actuarial appraisal value technique which incorporates appropriate discount rates and solvency capital requirements. The Group obtains independent professional advice in order to select the relevant discount factors, residual growth rates and earnings multiples. The carrying values of goodwill and the impairment test factors used are considered in the following sections. (i) Years ended December 31, 2015 & 2014 An actuarial appraisal value technique was adopted to test goodwill impairment. The principal assumptions included the following: • • • • • Discount rates of 7 - 11% (2014, 7 - 11%) for individual life and annuity inforce business, New individual life and annuity business was included for the five year period 2016 to 2020, Annual growth rate for new individual life and annuity business was 0.01 - 7.5% for 2016 and 5 - 12.6 % from 2018 to 2020 (2014 – 7.5% from 2015 to 2018), Discount rates of 11 - 15% (2014, 11 - 15%) for new individual life and annuity business, Required Minimum Continuing Capital and Surplus Ratio (MCCSR) of 200%. Sensitivity The excess of the appraisal value over carrying value of the operating segment was also tested by varying the discount rates and capital ratios. The results are set out in the following tables. Negative amounts illustrate the extent of possible impairment. Barbados, Eastern Caribbean, Dutch Caribbean, Bahamas and Central America MCCSR target ratio (a) Sagicor Life operating segment 2015 2014 Discount rate Inforce New business 175% Low Mid 200% High 225% Carrying value of goodwill 27,061 27,157 Low Mid High 7% 9% 11% 11% 13% 15% 221,756 120,106 47,465 219,358 114,387 39,688 216,854 108,452 31,657 2015 Annual Report 141 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000 8.2 Impairment of intangible assets (continued) 8.2 Impairment of intangible assets (continued) Trinidad and Tobago MCCSR target ratio (c) Sagicor General Insurance Inc Discount rate Inforce New business 175% Low Mid 200% High 225% Low Mid High 7% 9% 11% 11% 13% 15% 84,616 40,012 8,492 82,544 36,134 3,645 80,306 31,941 (1,595) (b) Sagicor Jamaica operating segment Carrying value of goodwill 2015 4,284 2014 4,284 The Group recognised goodwill on the acquisition of its interests in Sagicor General Insurance Inc. The value in use methodology has been used to test goodwill impairment in both years. The after tax discount factor was 12.5% (2014 – 14.0%) which was derived from a pre-tax factor of 14.0% (2014 – 15.3%) using an iterative method. The residual growth rate was 4.4% (2014 – 3.8%). Carrying value of goodwill 13,927 14,617 The possible impairment of goodwill is sensitive to changes in earnings multiples and after tax earnings. This is illustrated in the following table. 2015 2014 Sensitivity The fair value less cost to sell methodology was adopted to test goodwill impairment in both years. The after tax multiple used for the segment was 7.4 (2014– 7.1) which was derived from a pre-tax factor of 5.9 (2014 - 6.14) using an iterative method. Sensitivity The possible impairment of goodwill is sensitive to changes in earnings multiples and after tax earnings. This is illustrated in the following table. 2015 test Scenario 1 Scenario 2 Scenario 3 After tax earnings multiples Reduction in forecast earnings 7.4 n/a Excess of recoverable amount (of 49.11% interest) 115,187 Impairment (of 49.11% interest) Nil 4.9 10% 86 Nil 4.4 10% n/a (13,731) 142 2015 Annual Report 2015 test Scenario 1 Scenario 2 Scenario 3 After tax discount factor Residual growth rate Reduction in residual growth rate Increase in after tax discount factor 12.5 4.4 n/a n/a Excess of recoverable amount (of 53.0% interest) 7,038 Impairment (of 53.0% interest) Nil 12.5 3.7 16% n/a 85 Nil 15.0 3.7 16% 20% n/a (4,284) Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0009 FINANCIAL INVESTMENTS 9.1 Analysis of financial investments Held to maturity securities: Debt securities Available for sale securities: Debt securities Equity securities Financial assets at fair value through income: Debt securities Equity securities Derivative financial instruments (note 41.6) Mortgage loans Deposits Loans and receivables: Debt securities Mortgage loans Policy loans 9.1 Analysis of financial investments (continued) 2015 2014 Carrying value Fair value Carrying value Fair value Non-derivative financial assets at fair value through income comprise: Assets designated at fair value upon initial recognition 310,412 299,611 2015 2014 20,530 21,940 20,364 21,102 Debt securities comprise: Government and government-guaranteed debt securities 1,767,389 1,776,729 2,311,591 2,311,591 2,357,014 2,357,014 Collateralised mortgage obligations 88,380 88,380 76,221 76,221 Corporate debt securities 2,399,971 2,399,971 2,433,235 2,433,235 Other securities 213,747 227,519 1,314,223 1,325,583 122,360 117,718 3,417,719 3,447,549 136,727 136,727 142,840 126,577 126,577 118,053 15,479 47,052 56 15,479 47,052 56 23,268 38,718 - 142,840 118,053 23,268 38,718 - 325,891 325,891 322,879 322,879 Debt securities include $8,085 (2014 - $32,403) that contain options to convert to common shares of the issuer. Corporate debt securities include $10,270 (2014 - $11,394) in bonds issued by an associated company. Equity securities include $963 (2014 - Nil) in mutual funds managed by the Group. Finance loans and finance leases 436,161 419,214 410,585 Securities purchased for re-sale 8,064 8,064 31,524 948,871 983,063 927,331 293,871 294,041 255,515 132,486 141,950 133,483 972,759 255,630 142,150 417,476 26,271 Deposits 260,776 260,776 126,578 126,578 Total financial investments 4,826,621 4,854,910 4,661,494 4,718,080 2,080,229 2,107,108 1,885,016 1,940,864 2015 Annual Report 143 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0009.2 Pledged assets 9.4 Reclassification of financial investments Debt and equity securities include $234,211 (2014 - $226,153) as collateral for loans payable and other funding instruments. In 2008, the Group reclassified certain securities from the available for sale classification to the loans and receivables classification. The assets reclassified were primarily: 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 $7,589 (2014 - $8,434), and mortgages and mortgage backed securities having a total market value of $174,478 (2014 - $199,387). 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, 2015, these pledged assets totalled $526,824 (2014 - $764,909). Of these assets pledged as security, $51,549 (2014 – $73,501) 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. 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. • • 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. 2015 2014 Carrying value Fair value Carrying value Fair value Government debt securities maturing after September 2018 44,338 51,818 49,282 56,236 Other debt securities 2,076 2,730 2,721 3,479 46,414 54,548 52,003 59,715 2015 2014 102,641 95,316 122,367 111,950 Cumulative net fair value gain / (loss), beginning of year 47,052 38,718 Net fair value gains 272,060 245,984 Disposals Effect of exchange rate changes Cumulative net fair value gain, end of year 2015 2014 1,994 1,355 947 (33) 4,263 (7,322) 9,437 174 (295) 1,994 Debt securities Equity securities Mortgage loans 144 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $0009.4 Reclassification of financial investments (continued) 12 MISCELLANEOUS ASSETS AND RECEIVABLES Net defined benefit assets (note 31) Real estate developed or held for resale (ii) Prepaid and deferred expenses (ii) Premiums receivable Legal claim (iii) 2015 2014 Other assets and accounts receivable (i) 2015 2014 1,066 11,084 19,967 42,398 42,902 51,063 1,055 12,199 20,753 39,731 34,174 48,718 168,480 156,630 The net fair value gain or loss 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. 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 601,597 470,271 37,816 21,356 5,050 31,998 20,152 4,750 665,819 527,171 The provision for unearned premiums and other items are expected to mature within one year of the financial statements date. 11 INCOME TAX ASSETS Deferred income tax assets (note 33) Income and withholding taxes recoverable 2015 2014 41,023 25,319 66,342 28,310 29,193 57,503 Income and withholding taxes recoverable are expected to be recovered within one year of the financial statements date. (i) Other assets and accounts receivables include $5,478 (2014 - $7,493) due from managed funds. (ii) Real estate developed for resale includes $8,234 (2014 - $6,953) which is expected to be realised within one year of the financial statements date. Prepaid and deferred expenses are also expected to be realised within one year of the financial statements date. (iii) $42,902 (2014 – $34,174) Legal claim In March 2014, the Supreme Court of Jamaica granted judgement in favour of a claimant in a case brought against Sagicor Bank Jamaica Limited (formerly RBC Royal Bank of Jamaica Limited). This claim pre-dated the acquisition of control of the Bank by Sagicor Group Jamaica Limited, and also pre-dated the acquisition of control of the Bank by RBTT International Limited from Finsac Limited (‘Finsac’) in 2001. By virtue of the Share Sale Agreement entered into between Finsac, RBTT Financial Holdings Limited and RBTT International Limited, Finsac agreed to fully indemnify RBTT International Limited (now SGJ Holdings (St. Lucia) Limited). Though the judgement is being appealed, the amount computed as settlement has been recorded as payable to the claimant and correspondingly receivable from Finsac (Note 20). During 2015, interest was accrued on this liability and resulted in an increase in the amount outstanding to $42.9 million. 2015 Annual Report 145 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00013 ACTUARIAL LIABILITIES 13.1 Analysis of actuarial liabilities 13.2 Movement in actuarial liabilities Gross liability Reinsurers’ share 2015 2014 2015 2014 Gross liability Reinsurers’ share 2015 2014 2015 2014 Balance, beginning of year 2,562,221 2,324,319 470,271 285,250 Contracts issued to individuals: Changes in actuarial liabilities: Life insurance - participating policies 239,861 251,011 57 100 Life insurance and annuity - non-participating policies Health insurance Unit linked funds 1,767,313 1,698,485 582,224 448,021 5,361 11,190 420 503 166,234 146,703 - - - - Reinsurance contracts held 27,982 29,135 Recorded in income (note 27) 157,887 226,018 131,328 185,021 Recorded in other comprehensive income (67,146) 28,473 Other movements (679) (326) Effect of exchange rate changes (19,896) (16,263) - - (2) - - - Balance, end of year 2,632,387 2,562,221 601,597 470,271 2,206,751 2,136,524 582,701 448,624 Analysis of changes in actuarial liabilities Contracts issued to groups: Life insurance Annuities Health insurance 31,548 36,554 267 819 358,604 351,826 18,460 20,681 35,484 37,317 169 147 425,636 425,697 18,896 21,647 Total actuarial liabilities 2,632,387 2,562,221 601,597 470,271 The following notes are in respect of the foregoing table: • • • Life insurance includes coverage for disability and critical illness. Actuarial liabilities include $81,615 (2014 - $98,666) in assumed reinsurance. The liability for reinsurance contracts held occurs because the reinsurance premium costs exceed the mortality costs assumed in determining the gross liability of a policy contract. Arising from increments and decrements of inforce policies and from the issuance of new policies Arising from changes in assumptions for mortality, lapse, expenses, investment yields and asset default Other changes: Actuarial modelling, refinements, improvements and corrections Other items Total 205,909 270,600 131,327 185,021 (91,068) 2,349 (1,235) (6,378) (22,865) (12,080) - - 1 - - - 90,741 254,491 131,328 185,021 146 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00013.3 Assumptions – life insurance and annuity contracts 13.3 Assumptions – life insurance and annuity contracts (continued) (a) Process used to set actuarial assumptions and margins for adverse deviations (d) Assumptions for investment yields 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. 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. 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. 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 Barbados Jamaica Trinidad & Tobago Other Caribbean USA 2015 6.5% 5.0% – 5.5% 4.75% 2014 6.5% 5.0% 4.5% 4.5% - 6.5% 4.5% - 6.5% 0.85% - 4.75% 0.85% - 4.75% (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. For income taxes levied on net income, actuarial liabilities are adjusted for policy related recognised deferred tax assets and liabilities. 2015 Annual Report 147 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000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 2015 2014 Mortality and morbidity Lapse Investment yields and asset default Operating expenses and taxes Other 82,363 59,595 68,830 11,101 9,997 79,362 61,605 51,630 17,273 2,726 231,886 212,596 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. 148 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00014 OTHER INSURANCE LIABILITIES 14.1 Analysis of other insurance liabilities Dividends on deposit and other policy balances Policy benefits payable Provision for unearned premiums 2015 2014 66,271 105,910 33,710 205,891 68,542 95,276 33,602 197,420 14.2 Policy benefits payable (continued) Gross liability Reinsurers’ share 2015 2014 2015 2014 Movement for the year: Balance, beginning of year 95,276 90,834 Policy benefits incurred 532,532 485,321 31,998 67,528 28,325 51,272 Policy benefits paid (520,933) (479,423) (61,571) (47,477) Effect of exchange rate changes (965) (1,456) (139) (122) Balance, end of year 105,910 95,276 37,816 31,998 14.2 Policy benefits payable Analysis of policy benefits payable: Life insurance and annuity benefits Health claims Property and casualty claims Gross liability Reinsurers’ share 2015 2014 2015 2014 14.3 Provision for unearned premiums 72,120 3,379 30,411 105,910 65,987 3,389 25,900 95,276 19,091 1,363 17,362 37,816 14,711 2,071 15,216 31,998 Analysis of the provision: Property and casualty insurance Health insurance Gross liability Reinsurers’ share 2015 2014 2015 2014 32,399 1,311 33,710 32,413 1,189 33,602 21,356 20,152 - - 21,356 20,152 The provision for unearned premiums is expected to mature within a year of the financial statements’ date. 2015 Annual Report 149 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00014.3 Provision for unearned premiums (continued) 16 NOTES AND LOANS PAYABLE Movement for the year: Balance, beginning of year Premiums written Premium revenue Gross liability Reinsurers’ share 2015 2014 2015 2014 33,602 72,779 33,564 72,704 20,152 48,757 20,153 47,882 (72,683) (72,669) (47,552) (47,883) Effect of exchange rate changes 12 3 (1) - Balance, end of year 33,710 33,602 21,356 20,152 15 INVESTMENT CONTRACT LIABILITIES At amortised cost: Deposit administration liabilities Other investment contracts At fair value through income: Unit linked deposit administration liabilities 2015 2014 Carrying value Fair value Carrying value Fair value 127,882 115,537 243,419 127,780 118,860 246,640 128,404 115,748 244,152 128,404 119,317 247,721 125,177 125,177 116,809 116,809 368,596 371,817 360,961 364,530 2015 2014 Carrying value Fair value Carrying value Fair value 7.5% senior notes due 2016 - - 147,182 154,867 8.875% senior notes due 2022 313,780 350,336 - - 6.5% convertible redeemable preference shares due 2016 5.0% notes due 2016 Finance lease payable 115,488 130,932 107,689 122,863 44,551 1,698 44,551 1,698 43,363 43,363 708 708 475,517 527,517 298,942 321,801 (a) On August 11, 2015 the Group issued seven year senior notes in the amount of $320.0 million which are repayable in 2022. The notes carry a fixed annual rate of interest of 8.875% payable semi-annually. Financial covenants in respect of these notes are summarised in Note 46.3 (a). (b) On December 18, 2013, the Company issued eighteen month notes with a par value of $43,386 which were repayable in 2015 and carried a 4.6% annual rate of interest. Effective June 19, 2015, the notes were extended at an annual rate of interest of 5.0% and a maturity date of May 12, 2016. Financial covenants in respect of these notes are summarised in Note 46.3 (b). (c) Details of the 6.5% convertible redeemable preference shares due 2016 are set out in note 21.2. 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 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. Financial covenants in respect of these notes are summarised in Note 46.3 (c). (d) On September 10, 2015 the Company redeemed, before maturity, the US$150.0 million 7.5% 2016 senior notes at a price of US$160.5 million. 150 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00017 DEPOSIT AND SECURITY LIABILITIES 18 PROVISIONS At amortised cost: Other funding instruments Customer deposits Securities sold for re-purchase Bank overdrafts At fair value through income: 2015 2014 Carrying value Fair value Carrying value Fair value 379,612 669,518 519,608 2,158 381,499 772,011 519,508 2,158 360,810 570,567 664,802 1,459 362,514 589,519 657,506 1,459 1,570,896 1,675,176 1,597,638 1,610,998 Net defined benefit liabilities (note 31) Other provisions 19 INCOME TAX LIABILITIES Deferred income tax liabilities (note 33) Structured products 35,112 35,112 20,068 20,068 Income taxes payable 2015 87,950 256 88,206 2014 77,926 430 78,356 2015 2014 29,785 4,980 34,765 31,557 10,210 41,767 Derivative financial instruments (note 41.6) 1,603 1,603 6,265 6,265 36,715 36,715 26,333 26,333 1,607,611 1,711,891 1,623,971 1,637,331 Other funding instruments consist of loans from banks and other financial institutions and include balances of $167,913 (2014 - $189,928) 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. Income taxes payable are expected to be settled within a year of the financial statements’ date. 20 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Amounts due to policyholders Amounts due to reinsurers Legal claim (i) Other accounts payable and accrued liabilities 2015 2014 15,702 23,792 42,902 119,326 201,722 16,526 28,404 34,174 118,340 197,444 (i) In March 2014, the Supreme Court of Jamaica granted judgement in favour of a claimant in a case brought against Sagicor Bank Jamaica Limited (formerly RBC Royal Bank of Jamaica Limited). This claim pre-dated the acquisition of control of the Bank by Sagicor Group Jamaica Limited, and also pre-dated the acquisition of control of the Bank by RBTT International Limited from Finsac Limited (‘Finsac’) in 2001. By virtue of the Share Sale Agreement entered into between Finsac, RBTT Financial Holdings Limited and RBTT International Limited, Finsac agreed to fully indemnify RBTT International Limited (now SGJ Holdings (St. Lucia) Limited). Though the judgement is being appealed, the amount computed as settlement has been recorded as payable to the claimant and correspondingly receivable from Finsac (Note 12). During 2015, interest was accrued on this liability and resulted in an increase in the amount outstanding to $42.9 million. 2015 Annual Report 151 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00021 COMMON AND PREFERENCE SHARES 21.2 Convertible redeemable preference shares The Company is authorised to issue: • • • 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. On July 18, 2011, the Company issued 120,000,000 convertible redeemable preference shares with the following features: • • Issue price of US $1.00 or Barbados $2.00 per share; Annual dividend rate of 6.5%, dividends to be declared by the Company’s directors and payable 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. • • 21.1 Common shares Issued and fully paid: 2015 2014 Number in 000’s Share capital Number in 000’s Share capital The preference shares are accounted for as a compound financial instrument and were initially recognised in the statement of financial position as a financial liability (note 16) and also as equity (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). Balance, beginning of year 303,917 301,600 303,917 301,600 21.3 Dividends Allotments arising from LTI 577 556 - - Balance, end of year 304,494 302,156 303,917 301,600 The dividends declared and paid during the year in respect of the Company’s convertible redeemable preference shares and common shares are set out in the following table. Treasury shares: Shares held for LTI and ESOP, end of year (note 30.1) (2,126) (2,836) (3,145) (5,611) Per share Total Per share Total 2015 2014 Total 302,368 299,320 300,772 295,989 Dividends declared and paid: The common shares are listed on the Barbados, Trinidad & Tobago and London stock exchanges. Preference shares Common shares 6.50 ¢ 4.0 ¢ 7,800 6.50 ¢ 12,042 4.0 ¢ 19,842 7,800 12,035 19,835 152 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00021.3 Dividends (continued) 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. Dividends proposed: Preference shares - May 15 Common shares - final for current year 2015 2014 Per share Total Per share 3.25 ¢ 2.0 ¢ 3,900 6,090 9,990 3.25 ¢ 2.0 ¢ Total 3,900 6,018 9,918 21.4 Restrictions on common share dividends The Company’s Articles of Incorporation include 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 plan 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. 2015 Annual Report 153 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000 22 RESERVES 2015 Balance, beginning of year Fair value reserves Owner occupied property Available for sale assets Actuarial liabilities Currency translation reserves Preference share reserves Other reserves Total reserves 25,249 43,850 (38,556) (87,946) 10,481 38,157 (8,765) Other comprehensive income from continuing operations allocated to reserves (202) (77,153) 47,329 (8,393) Transactions with holders of equity instruments: Allocated to reserve for equity compensation benefits Eliminated from reserve for equity compensation benefits Transfers to retained earnings and other movements Balance, end of year 2014 Balance, beginning of year Other comprehensive income from continuing operations allocated to reserves Transactions with holders of equity instruments: Allocated to reserve for equity compensation benefits Eliminated from reserve for equity compensation benefits Transfers to retained earnings and other movements - - - - - (2) - - - - - - 25,047 (33,305) 8,773 (96,339) 25,433 (184) 8,798 35,052 (16,779) (21,777) (77,411) (10,535) - - - - - - - - - - - - Balance, end of year 25,249 43,850 (38,556) (87,946) Other reserves comprise reserves for equity compensation benefits of $14,420 (2014 - $16,070) and statutory reserves of $17,497 (2014 - $22,087). 154 2015 Annual Report - (38,419) - - - (6,262) 4,219 3,171 (4,821) (4,590) 31,917 16,743 38,391 - - - (6,262) 10,481 - 2,057 (2,520) 229 38,157 3,171 (4,821) (10,854) (59,688) (4,825) 2,556 2,057 (2,520) (6,033) (8,765) Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 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 2015 2014 2015 2014 Life insurance Annuity Health insurance Property and casualty insurance 65,727 66,669 Movement for the year: Balance, beginning of year Total comprehensive income / (loss) Return of transfer to support profit distribution, to shareholders (950) 343 - (3,159) 2,209 1,314 906 (2,503) 4,053 - (230) (236) Balance, end of year (607) (950) 1,990 1,314 Financial statement amounts: Assets Liabilities Revenues Benefits Expenses Income taxes 84,909 85,516 7,825 6,811 584 122 86,687 87,637 8,524 5,512 606 172 200,009 200,007 198,019 198,693 25,453 22,034 2,037 405 28,636 21,176 2,813 681 The Group has the ability to reduce future policy bonuses and dividends in order to eliminate a deficit in a participating account. Gross premium Ceded to reinsurers 2015 2014 2015 2014 383,655 361,552 30,808 32,445 364,726 309,329 212,130 177,564 155,414 151,571 5,107 47,552 5,672 47,883 969,522 889,121 295,597 263,564 2015 Annual Report 155 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00025 NET INVESTMENT INCOME 25 NET INVESTMENT INCOME (continued) 2015 2014 Further details of interest income and investment gains are set out in the following table. Interest income: 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 2015 2014 211,596 201,441 19,963 9,407 50,402 464 1,681 (81) 17,652 9,683 31,121 1,960 2,422 82 293,432 264,361 14,937 22,366 (842) (4,043) 32,418 21,560 15,087 (626) 11,647 47,668 Investment income: Interest income Dividend income Rental income from investment property Net investment gains Share of operating income of associates and joint venture Other investment income Investment expenses: Allowances for impairment losses Direct operating expenses of investment property Other direct investment expenses 293,432 264,361 3,244 4,165 32,418 3,153 125 2,577 4,760 47,668 4,419 382 336,537 324,167 10,338 1,947 2,023 14,308 12,638 2,410 1,904 16,952 Net investment income 322,229 307,215 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 the net income of the Group. 156 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00026 FEES AND OTHER REVENUE 28 INTEREST EXPENSE 2015 2014 2015 2014 Fee income – assets under administration Fee income – deposit administration and policy funds Commission income on insurance and reinsurance contracts Other fees and commission income Foreign exchange gains Other operating and miscellaneous income 23,328 1,813 32,845 25,937 2,814 22,353 109,090 19,406 1,363 28,653 14,694 3,225 16,003 83,344 Insurance contracts Investment contracts Other funding instruments Customer deposits Securities sold for re-purchase Other items 2,828 14,279 8,098 11,755 21,695 152 58,807 2,607 15,241 6,552 9,989 28,805 545 63,739 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. 27 POLICY BENEFITS AND CHANGE IN ACTUARIAL LIABILITIES Gross benefit Ceded to reinsurers 2015 2014 2015 2014 Life insurance benefits Annuity benefits 206,977 208,096 191,897 149,092 Health insurance claims 114,315 111,486 Property and casualty claims 21,861 20,078 12,591 39,849 2,826 12,207 12,409 23,276 3,420 12,166 Total policy benefits 535,050 488,752 67,473 51,271 Change in actuarial liabilities (note 13.2) 157,887 226,018 131,328 185,021 Total policy benefits and change in actuarial liabilities 692,937 714,770 198,801 236,292 2015 Annual Report 157 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000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: 2015 2014 Administrative staff salaries, directors’ fees and short-term benefits 109,339 Social security and defined contribution retirement costs Equity-settled compensation benefits (note 30.1 to 30.3) Defined benefit expense (note 31 (b)) 8,859 4,646 10,773 133,617 98,529 7,917 3,732 14,936 125,114 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. 2015 2014 Number of grants ‘000 Weighted average price Number of grants ‘000 Weighted Average price Balance, beginning of year Grants issued Grants vested 3,749 2,703 US$1.02 US$0.84 3,524 2,576 US$1.14 US$1.00 (2,695) US$0.96 (897) US$1.07 Grants lapsed/forfeited (230) US$1.04 (1,454) US$1.29 Balance, end of year 3,527 US$0.93 3,749 US$1.02 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: 2015 2014 Number in 000’s $000 Number in 000’s $000 Balance, beginning of year Shares acquired Shares distributed Balance, end of year 2 1,376 (1,377) 1 2 2,469 (2,468) 3 673 753 714 819 (1,424) (1,531) 2 2 158 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 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 was 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: 2015 2014 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. (c) ESOP 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 came into effect during 2013. The shares acquired by the Trustees during the year were as follows: Number of options ‘000 Weighted average exercise price Number of options ‘000 Weighted average exercise price US$1.75 US$1.08 Balance, beginning of year Options granted Options lapsed/forfeited Balance, end of year 16,206 3,029 (2,838) 16,397 US$1.63 US$1.05 US$1.85 US$1.48 13,290 2,916 - Balance, beginning of year - Shares acquired 16,206 US$1.63 Shares distributed Exercisable at the end of the year 9,903 US$1.73 8,022 US$1.85 Balance, end of year 2015 2014 Number in 000’s $000 Number in 000’s $000 3,143 414 (1,432) 2,125 5,609 378 (3,154) 2,833 2,910 286 (53) 3,143 5,436 295 (122) 5,609 Share price at grant date Fair value of options at grant date Expected volatility Expected life Expected dividend yield Risk-free interest rate US $1.05 – 2.50 US$0.23 – 0.69 19.3% – 35.8% 7.0 years 2.6% - 3.8% 4.8% - 6.8% US $1.08 – 2.50 US$0.24 – 0.69 19.3% – 35.8% 7.0 years 2.6% - 3.7% 4.8% - 6.8% 30.2 Sagicor Group Jamaica Limited (a) Long-term incentive plan The Group offers stock grants and stock options to senior executives as part of its long-term incentive plan. The Group has set aside 150,000,000 of its authorised but un-issued shares of J$0.10 each for the stock grants and stock options. 2015 Annual Report 159 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00030.2 Sagicor Group Jamaica Limited (continued) 30.2 Sagicor Group Jamaica Limited (continued) Further details of share options and the assumptions used in determining their pricing are as follows: 2015 2014 Fair value of options outstanding J$53,646,000 J$70,025,000 Share price at grant date Exercise price J$4.20 – 14.10 J$4.20 – 14.10 J$4.20 – 14.10 J$4.20 – 14.10 Standard deviation of expected share price returns 27.0% 27.0% Remaining contractual term Risk-free interest rate 0.08 - 7 years 0.25 - 7 years 9.58% 9.19% 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 $312 (2014 – $711). In January 2007, the Group introduced a new Long Term Incentive (LTI) plan which replaced the previous Stock Option plan. Under the LTI plan, executives are entitled but not obliged to purchase the Group stock at a pre-specified price at some future date. The options are granted each year on the date of the Board of Directors Human Resources Committee meeting following the performance year at which the stock option awards are approved. Stock options vest in 4 equal installments beginning the first December 31 following the grant date and for the next three December 31 dates thereafter (25% per year). Options are not exercisable after the expiration of 7 years from the date of grant. The number of stock options in each stock option award is calculated based on the LTI opportunity via stock options (percentage of applicable salary) divided by the Black-Scholes value of a stock option of Sagicor Group Jamaica Limited stock on 31 March of the measurement year. The exercise price of the options is the closing bid price on 31 March of the measurement year. In December 2013, the Sagicor Group of companies in Jamaica was reorganized to establish a new holding company which directly or indirectly carries the Group’s holdings in member companies. As a consequence Sagicor Life Jamaica (SLJ) was delisted from the Jamaica Stock Exchange (JSE) and Sagicor Group Jamaica Limited (SGJ) was listed. Further, to harmonize compensation plans across the Group and considering the pending delisting of the subsidiary, Sagicor Investments Jamaica Limited (SIJL), all outstanding options in SIJL as at December 2013 were converted to corresponding SGJ options with equivalent monetary value. From the 2013 measurement year, all executives of the Group participate in the SGJ LTI plan. Details of the share options outstanding are set out in the following table. J$ represents Jamaica dollars. 2015 2014 Number of options ‘000 Weighted average exercise price Number of options ‘000 Weighted average exercise price Balance, beginning of year Options granted Options exercised Options lapsed/forfeited Balance, end of year Exercisable at the end of the year 70,025 10,849 (19,657) (7,573) 53,644 36,529 J$8.19 J$9.50 J$7.25 J$9.40 J$8.63 J$8.64 72,148 19,077 (13,826) J$8.22 J$7.11 J$5.68 (7,374) J$10.56 70,025 50,841 J$8.19 J$9.69 160 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00031 EMPLOYEE RETIREMENT BENEFITS 31 EMPLOYEE RETIREMENT BENEFITS (continued) The Group maintains a number of defined contribution and defined benefit retirement benefit plans for eligible sales agents and administrative employees. The plans for sales agents and some administrative employees provide defined contribution benefits. The plans for administrative employees in Barbados, Jamaica, Trinidad, Eastern Caribbean and certain other Caribbean countries provide defined benefits based on final salary and number of years active service. Also, in these countries, retired employees may be eligible for medical and life insurance benefits which are partially or wholly funded by the Group. The principal defined benefit retirement plans are as follows: Funded Plans Unfunded Plans Sagicor Life Barbados & Eastern Caribbean Pension Sagicor Life Trinidad Pension Sagicor Life Jamaica Pension Sagicor Life (Heritage Life of Barbados - Barbados & Eastern Caribbean) Pension Sagicor Investments Jamaica Pension Group medical and life plans The above plans also incorporate employees of the Company and other subsidiaries, whose attributable obligations and attributable assets are separately identified for solvency, contribution rate and reporting purposes. The assets of the Sagicor Life Trinidad and Sagicor Life (Heritage Life of Barbados) pension plans are held under deposit administration contracts with Sagicor Life Inc and because these assets form part of the Group's assets, these plans are presented as unfunded in accordance with IAS 19 (revised). The above pension plans are registered with the relevant regulatory authorities in the Caribbean and are governed by Trust Deeds which conform with the relevant laws. The plans are managed by the Group under the direction of appointed Trustees. The group medical and life obligations arise from employee benefit insurance plans where benefits are extended to retirees. All disclosures in sections 31 (a) to (d) of this note relate only to defined retirement benefit plans. (a) Amounts recognised in the statement of financial position 2015 2014 Present value of funded pension obligations 215,681 186,752 Fair value of retirement plan assets (193,876) (169,380) 21,805 17,372 Present value of unfunded pension obligations Present value of unfunded medical and life benefits Net liability Represented by: Amounts held on deposit by the Group as deposit administration contracts Other recognised liabilities Total recognised liabilities (note 18) Recognised assets (note 12) Net liability 37,763 27,316 86,884 37,611 50,339 87,950 (1,066) 86,884 35,034 24,465 76,871 40,623 37,303 77,926 (1,055) 76,871 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. 2015 Annual Report 161 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00031 EMPLOYEE RETIREMENT BENEFITS (continued) (b) Movements in balances 2015 2014 Retirement obligations Retirement plan assets Total Retirement obligations Retirement plan assets Total Net liability / (asset), beginning of year 246,251 (169,380) Current service cost Interest expense / (income) Past service cost and gains / losses on settlements Net expense recognised in income (Gains) / losses from changes in assumptions (Gains) / losses from changes in experience Return on plan assets excluding interest income Net losses recognised in other comprehensive income Contributions made by the Group Contributions made by employees and retirees Benefits paid Liabilities assumed on acquisition of subsidiary Other items Effect of exchange rate movements Other movements 7,251 18,431 - 25,682 20,513 (6,554) - 13,959 - 6,988 (12,869) - 8,338 (7,589) (5,132) - (15,001) 92 (14,909) (1,466) (7,799) 2,995 (6,270) (8,164) (5,192) 11,460 - (7,272) 5,851 (3,317) Net liability / (asset), end of year 280,760 (193,876) 76,871 7,251 3,430 92 10,773 19,047 (14,353) 2,995 7,689 (8,164) 1,796 (1,409) ----- 1,066 (1,738) (8,449) 86,884 210,356. (136,084) 8,424 18,933 1,766 29,123 (4,848) (8,526) - (13,374) 419. 6,532 (13,088) 31,846 1,150 (6,713) 20,146 - (14,301) 114 (14,187) - (3,670) 2,099 (1,571) (6,297) (5,316) 11,546 (22,268) 105 4,692 (17,538) 246,251 (169,380) 74,272 8,424 4,632 1,880 14,936 (4,848) (12,196) 2,099 (14,945) (5,878) 1,216 (1,542) 9,578 1,255 (2,021) 2,608 76,871 162 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00031 EMPLOYEE RETIREMENT BENEFITS (continued) 31 EMPLOYEE RETIREMENT BENEFITS (continued) (c) Retirement plan assets (d) Significant actuarial assumptions 2015 2014 The significant actuarial assumptions for the principal geographic areas as of December 31, 2015 were as follows: Equity unit linked pension funds under Group management: Sagicor Equity Fund (Barbados) Sagicor Bonds Fund (Barbados) Sagicor Pooled Investment Funds (Jamaica): Equity Funds Mortgage & Real Estate Fund Fixed Income Fund Foreign Currency Funds Money Market Fund Other Funds Other assets Total plan assets 28,828 16,901 23,044 19,887 15,272 16,657 16,423 15,636 152,648 41,228 193,876 24,579 13,847 19,827 13,270 21,689 18,130 5,221 17,161 133,724 35,656 169,380 The equity unit linked pension funds are funds domiciled in Barbados and Jamaica. Annual reports of these funds are available to the public. Pension plans Barbados & Eastern Caribbean Jamaica Trinidad Discount rate - local currency benefits 7.75% Discount rate - US$ indexed benefits Expected return on plan assets Future promotional salary increases n/a 7.75% 3.00% 8.50% 5.00% 9.50% 0.00% 6.50% 2.00% n/a 4.00% n/a 4.00% 2.00% 1.00% 0.00% 3.00% 1.50% for 5 years, 2.75% thereafter 2.00% 3.50% Future inflationary salary increases Future pension increases Future increases in National Insurance Scheme Ceilings Mortality table Termination of active members Early retirement UP94 with projection scale AA GAM1994 with 5 year improvement UP94 with projection scale AA 3% up to age 30, reducing to 1% at age 50, 0% at age 51 10% up to age 30, reducing to 5% at age 50, 0% at age 51 3% up to age 30, reducing to 1% at age 50, 0% at age 51 n/a 100% at the earliest possible age to receive unreduced benefits 100% at the earliest possible age to receive unreduced benefits 2015 Annual Report 163 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00031 EMPLOYEE RETIREMENT BENEFITS (continued) 31 EMPLOYEE RETIREMENT BENEFITS (continued) Group medical and life plans Long term increase in health costs Jamaica 7.00% (e) Sensitivity of actuarial assumptions (f) Amount, timing and uncertainty of future cash flows In addition to the annual actuarial valuations prepared for the purpose of annual financial statement reporting, full actuarial valuations of pension plans are conducted every 1-3 years. These full valuations contain recommendations for Group and employee contribution levels which are implemented by the Group as the recommendations are made. The sensitivity of the pension retirement benefit obligations to individual changes in actuarial assumptions is summarised below: For the 2016 financial year, the total Group contributions to its defined benefits pension plans are estimated at $15,177. Barbados & Eastern Caribbean Jamaica Trinidad Base pension obligation 75,964 138,799 13,977 Change in absolute assumption Increase / (decrease) in pension obligations Decrease discount rate by 1.0% Increase discount rate by 1.0% Decrease salary growth rate by 0.5% Increase salary growth rate by 0.5% Increase average life expectancy by 1 year Decrease average life expectancy by 1 year 10,206 (7,862) (1,916) 2,099 1,895 (994) 17,670 (13,481) (534) 1,903 2,490 (2,518) 2,397 (1,765) (525) 596 486 (217) 164 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00032 INCOME TAXES 32 INCOME TAXES (continued) Group companies are taxed according to the taxation rules of the country where the operations are carried out. The principal rates of taxation are summarised in note 2.18(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: 2015 2014 Income before income tax expense 123,562 117,005 2015 2014 Income tax expense: Current tax Current tax on profits for the year Adjustments to current tax of prior periods Total current tax expense 24,506 (257) 24,249 14,522 26 14,548 Taxation at the applicable rates on income subject to tax 29,228 34,343 Adjustments to current tax for items not subject to / allowed for tax (15,207) (28,838) Other current tax adjustments Adjustments for current tax of prior periods Movement in unrecognised deferred tax asset Deferred tax Deferred tax relating to the origination of temporary differences Decrease/(increase) in deferred tax assets (1,740) (3,373) Deferred tax relating to changes in tax rates or new taxes (Decrease)/increase in deferred tax liabilities Total deferred tax expense Share of tax of associated companies 2,858 1,118 (248) 25,119 4,787 1,414 738 16,700 Deferred tax that arises from the write down / (reversal of a write down) of a tax asset Tax on distribution of profits from policyholder funds Other taxes 175 (257) 8,682 223 387 (383) 1,046 1,225 25,119 (77) 26 7,666 (424) (17) (752) 1,598 3,175 16,700 In addition to the above, the income tax on items in other comprehensive income is set out in note 35. 2015 Annual Report 165 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00033 DEFERRED INCOME TAXES Analysis of deferred income tax assets: Defined benefit liabilities Unrealised losses on financial investments Unused tax losses Other items Total deferred income tax assets (note 11) Deferred income tax assets to be recovered within one year Unrecognised tax balances: Tax losses Potential deferred income tax assets Expiry period for unrecognised tax losses: 2015 2016 2017 2018 2019 2020 2021 2022 2023 After 2023 166 2015 Annual Report 2015 11,031 12,406 21,870 (4,284) 41,023 2,067 237,548 59,404 - 18,765 20,054 25,324 27,785 24,956 20,207 37,007 29,577 33,873 237,548 2014 7,367 1,093 26,376 (6,526) 28,310 26,402 217,561 54,402 14,370 19,362 20,495 25,334 27,627 24,885 18,906 37,006 29,576 - 217,561 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00033 DEFERRED INCOME TAXES Deferred income tax assets movements: 2015 Defined benefit liabilities Unrealised losses on financial investments Unused tax losses Other items Total Balance, beginning of year as previously reported 7,367 1,093 26,376 (6,526) 28,310 (Charged)/credited to: Profit or Loss Other comprehensive income Effects of exchange rate changes Balance, end of year 2014 1,753 2,280 (369) 11,031 238 11,443 (368) 12,406 (3,467) - (1,039) 21,870 3,216 (1,186) 212 (4,284) Balance, beginning of year as previously reported 2,293 3,674 1,427 (2,586) (Charged)/credited to: Profit or Loss Other comprehensive income Assumed on acquisition Effects of exchange rate changes Balance, end of year 10,704 (1,683) (3,652) (295) 7,367 (915) (1,488) 13 (191) 1,093 5,573 - 20,333 (957) 26,376 (11,989) (48) 7,801 296 (6,526) 1,740 12,537 (1,564) 41,023 4,808 3,373 (3,219) 24,495 (1,147) 28,310 2015 Annual Report 167 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00033 DEFERRED INCOME TAXES (continued) Analysis of deferred income tax liability: Accelerated tax depreciation Policy liabilities taxable in the future Defined benefit assets Accrued interest 2015 2014 1,806 58,377 133 944 1,775 40,064 84 963 Unrealised gains on financial investments (1,023) 22,486 Off-settable tax assets in respect of unused tax losses and other items Other items Total (note 19) (30,851) (34,214) 399 29,785 399 31,557 Deferred income tax liabilities to be settled within one year 5,728 4,816 168 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00033 DEFERRED INCOME TAXES Deferred income tax liabilities movements: Accelerated tax depreciation Policy liabilities taxable in the future Defined benefit assets Accrued interest Unrealised gains on financial investments Off-settable tax assets in respect of unused tax losses and other items Other Items Total 2015 Balance, beginning of year as previously reported 1,775 40,064 (Charged)/credited to: Profit or Loss Other comprehensive income Equity Balance, end of year 2014 84 56 (7) - 31 - - (487) 18,800 - 1,806 58,377 133 Balance, beginning of year as previously reported 1,769 40,577 (Charged)/credited to: Profit or Loss Other comprehensive income Effects of exchange rate changes Balance, end of year 6 - - 7,928 (8,441) - 1,775 40,064 39 - 45 - 84 963 22,486 (34,214) 399 31,557 (20) - 1 944 902 61 - - 963 (85) (23,425) 1 (1,023) 3,363 - - (30,851) - - - 2,858 (4,632) 2 399 29,785 9,758 (31,102) 591 22,534 96 12,575 57 22,486 (3,112) - - (192) - - 4,787 4,179 57 (34,214) 399 31,557 2015 Annual Report 169 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 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. 2015 2014 The table below derives the earnings attributable to common shareholders and the basic earnings per common share. Earnings / (loss) attributable to common shareholders 33,141 25,832 Weighted average number of shares in issue in thousands 301,924 301,554 2015 2014 LTI restricted share grants ESOP shares 4,201 3,006 2,981 2,744 Adjusted weighted average number of shares in issue 309,131 307,279 Fully diluted earnings / (loss) per common share 10.7¢ 8.4¢ Attributable to: Continuing operations Discontinued operation 17.3¢ (6.6)¢ 16.6¢ (8.2)¢ Net income / (loss) 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 / (loss) attributable to common shareholders 34,679 6,483 27,370 6,483 (221) (221) (7,800) 33,141 (7,800) 25,832 Weighted average number of shares in issue in thousands 301,924 301,554 Basic earnings / (loss) per common share 11.0¢ 8.6¢ Attributable to: Continuing operations Discontinued operation 18.2¢ (7.2)¢ 17.3¢ (8.7)¢ 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. 170 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00035 OTHER COMPREHENSIVE INCOME (OCI) Schedule to OCI from continuing operations 2015 2014 After tax OCI is attributable to After tax OCI is attributable to OCI tax expense Shareholders Participating policyholders Non- controlling interests Total OCI tax expense Shareholders Participating policyholders Non- controlling interests Total Items that may be reclassified subsequently to income: Available for sale assets: Gains / (losses) arising on revaluation 31,306. (72,866) (Gains) / losses transferred to income Net change in actuarial liabilities Retranslation of foreign currency operations Items that will not be reclassified subsequently to income: Gains / (losses) arising on revaluation of owner- occupied property Defined benefit gains / (losses) Other items 3,533 (18,800) - (4,287) 47,329 (8,393) 16,039 (38,217) (1,159) (202) 2,258 (3,447) - - 1,099 (3,649) 867 - (867) (36) (36) - - - - (31,102) (103,101) (15,278). 36,707 (1,792) 3,471 38,386 3,112 1,884 (7,257) (33,363) (1,175) 48,346 (15,686) (71,616) 1,158. 8,503 - (1,655) (21,777) (10,535) (5,617). 2,740 - (1,175) 1,807 47 62 - (11,548) (9,252) (2,830) (19,970) (22,036) (6,450) (143) (345) (48) (184) (1,984) (5,431) (1,733) - - - (2,127) (5,776) (1,781) 7,971 (108) 7,679 - - - - 211 27 5,241 13,212 - (108) 5,452 13,131 Total OCI movements 17,158 (41,866) (36) (35,490) (77,392) (7,398) 10,419 62 (3,800) 6,681 Allocated to equity reserves Allocated to retained earnings (38,419) (3,447) (41,866) 2,556 7,863 10,419 2015 Annual Report 171 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000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. 2015 2014 (296,676) (32,418) 1,025 26,559 96,041 18,687 (1,093) (12,908) (266,938) (47,668) (29,051) 40,997 86,283 20,220 44 10,258 (200,783) (185,855) 5,118 9,472 (151,201) (222,964) (15,875) (51,613) 934 (43,147) 5,647 8,189 (27,133) 8,463 (35,500) (4,491) (17,510) (3,632) 37,346 (16,956) (269,081) (245,772) 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 2015 2014 (111) 5,229 5,118 (1,638) 11,110 9,472 (1,351,966) (1,037,913) 1,200,765 (151,201) 814,949 (222,964) (55,395) 39,520 (15,875) 7,020 12,190 8,881 137,800 (137,084) 29,707 58,514 (70,757) 79,220 8,463 2,930 1,314 55,072 32,877 151,980 61,803 305,976 Adjustments for non-cash items, interest and dividends: Interest and dividend income Net investment gains (Gain) / loss arising on acquisition Net increase in actuarial liabilities 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 172 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00036.2 Investing activities Property, plant and equipment: Purchases Disposal proceeds 36.3 Financing activities Other notes and loans payable: Proceeds Repayments 36.4 Cash and cash equivalents Cash resources Call deposits and other liquid balances Bank overdrafts Other short-term borrowings 2015 2014 (18,175) 1,589 (16,586) (23,324) 2,408 (20,916) 2015 2014 310,545 (154,087) 156,458 - (683) (683) 2015 2014 250,489 183,068 (2,158) (46,520) 384,879 402,525 57,782 (1,459) (17,654) 441,194 37 SUBSIDIARY ACQUISITION AND OWNERSHIP CHANGES On June 27, 2014, the Group acquired 100% of the share capital of RBC Royal Bank (Jamaica) Limited and its subsidiary, RBC Securities (Jamaica) Limited. The net assets acquired amounted to $113,429 for a purchase consideration of $84,378. This gave rise to negative goodwill of $29,051. The acquisition was recorded based on provisionally determined values in 2014. These balances were finalized during the year. The adjustments made during the measurement period of $1.0 million was recognised during the current year as they were not material to the Group. Management has assessed the bank's ability to recognise the deferred tax asset arising from tax losses and has deemed it appropriate to have such recognition based on projections of future profits. Banking operations of the acquired and existing bank were combined during 2014, management has restructured the organization to remove duplication of resources and costs. Net assets acquired: Property, plant and equipment Intangible assets Financial investments Deferred tax asset Miscellaneous assets and receivables Cash resources Other insurance liabilities Deposit and security liabilities Provisions Income tax liabilities Accounts payable and accrued liabilities Total net assets Share of net assets acquired Purchase consideration and related costs Goodwill arising on acquisition (note 8) Fair Value Acquiree's carrying value 14,041 10,304 255,036 30,602 45,948 178,778 (10,957) 6,390 8,816 255,036 - 17,503 178,778 (10,957) (356,044) (356,044) (6,107) (4,228) (9,770) 79,417 (40,281) (4,228) (9,770) 113,429 113,429 84,378 (29,051) Total Revenue Net Income Details of acquiree’s net income and total revenue: For the year ended December 31, 2014 Consolidated from acquisition date to December 31, 2014 56,317 18,626 (7,425) (5,049) 2015 Annual Report 173 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000As of December 31, 2015, the price adjustments have been estimated at £31,058,000 ($46,026) which has been recorded as a liability to AmTrust. The anticipated settlement dates are as follows: 38 DISCONTINUED OPERATION 38 Discontinued operation (continued) On July 29, 2013, the Company entered into an agreement to sell Sagicor Europe and its subsidiaries to AmTrust Financial Services, Inc. (AmTrust), subject to regulatory approvals. Final regulatory approvals were obtained on December 23, 2013, on which date the sale was completed. The operations of the Sagicor Europe operating segment are presented as discontinued operations in these financial statements and a financial liability has been included for the settlement of open underwriting years. The Group's effective shareholder's interest in these companies prior to divestment was 100% and the effective legal interest was 93%. March 31, 2015 March 31, 2016 March 31, 2019 The consideration for the sale was £56,178,000 ($91,913), representing the assumption by AmTrust of indebtedness of Sagicor Europe and its subsidiaries to Sagicor. Movement in Price Adjustments The terms of the sale required the Company to take certain actions and provide certain commitments which included: (i) The purchase prior to the sale by Sagicor of the legal 7% shareholding interest held by the minority shareholders; Future price adjustments to the consideration, representing adjusted profits or losses from January 1, 2013 in the run-off of the 2011, 2012 and 2013 underwriting years of account of syndicates 1206 and 44, the total price adjustments subject to a limit. (ii) Balance Payable end 2014 Payment made Experience loss for 2015 Net currency movements Payable end 2015 2014 21,069 30,682 (5,955) 45,796 2015 - 46,525 (499) 46,026 2015 45,796 (21,231) 23,013 (1,552) 46,026 Immediately prior to the sale, Sagicor purchased the minority shareholdings for $1,157. The minority shareholders were participating employees who had subscribed in cash for shares of Sagicor Europe. Each participating employee had contracted with Sagicor Europe and the Company under a share subscription agreement. Under the provisions of these agreements, participating employees could exercise a put option to the Company to acquire their shares at the prevailing fair value. The first tranches of put options vested in 2012 and 2013 representing 7% of the total shareholding and were exercised for cash consideration of $1,305. The put options were accounted for as cash settled share based payment arrangements. The price adjustments were subject to a limit based on the terms of the agreement. As at December 31, 2015, the limit was fully utilised. The Group therefore has no further contingent liability for future price adjustments. 174 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00038 Discontinued operation (continued) The net loss recognised in the statement of income and the statement of comprehensive income is as follows. Statement of income Currency translation gain / (loss) Other expenses Movement in price adjustment Net loss and total comprehensive loss 39 CONTINGENT LIABILITIES 2015 1,552 (187) (23,013) (21,648) 2014 417 (592) (26,192) (26,367) 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: 2015 2014 Customer guarantees and letters of credit (1) 27,154 16,288 (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. (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. 2015 Annual Report 175 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00040 FAIR VALUE OF PROPERTY 40 Fair value of property (continued) For Level 3 investment property, reasonable changes in fair value would affect net income. For Level 3 owner occupied property, reasonable changes in fair value would affect other comprehensive income. The following table represents the movements in Level 3 property for the current year. Investment property Owner-occupied property Lands Land and buildings Total Balance, beginning of year 88,766 38,220 77,901 204,887 Additions Transfers in / (out) Fair value changes recorded in net investment income Fair value changes recorded in other comprehensive income Depreciation 111 (3,410) (816) - - - (22) - - - Disposals and divestitures (5,255) (167) 967 3,416 - 815 (1,079) (109) Effect of exchange rate changes (224) - (1,217) 1,078 (16) (816) 815 (1,079) (5,531) (1,441) Balance, end of year 79,172 38,031 80,694 197,897 Investment and owner-occupied property are carried at fair value as determined by independent valuations 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. The highest and best use of a property may also be considered in determining its fair value. Some tracts of land are currently used for farming operations or are un-developed or are leased to third parties. In determining the fair value of all lands, their potential for development within a reasonable period is assessed, and if such potential exists, the fair value reflects that potential. These lands are mostly in Barbados and the Group has adopted a policy of orderly development and transformation to realise their full potential over time. The fair value hierarchy has been applied to the valuations of the Group's property. The different levels of the hierarchy are as follows: • • • Level 1 - fair value is determined by quoted un-adjusted prices in active markets for identical assets; Level 2 - fair value is determined by inputs other than quoted prices in active markets that are observable for the asset either directly or indirectly; Level 3 - fair value is determined from inputs that are not based on observable market data. The results of applying the fair value hierarchy to the Group's property as of December 31, 2015 are as follows: Investment property Owner-occupied lands Owner-occupied land and buildings Level 1 Level 2 Level 3 Total - - - - - - - - 79,172 38,031 80,694 79,172 38,031 80,694 197,897 197,897 176 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041 FINANCIAL RISK 41.1 Credit risk The Group’s activities of issuing insurance contracts, of accepting funds from depositors, of investing insurance premium and deposit receipts in a variety of financial and other assets, banking and dealing in securities, exposes the Group to various insurance and financial risks. Financial risks include credit 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 liabilities of discontinued operation. 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 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. Category Sagicor Risk Rating Investment grade Non- investment grade Watch t l f u a e d - n o N Default 1 2 3 4 5 6 7 8 9 Classification S&P Moody’s Fitch AM Best Minimal risk AAA, AA Aaa, Aa AAA, AA aaa, aa Low risk Moderate risk Acceptable risk Average risk A BBB BB B A Baa Ba B A BBB BB B a bbb bb b Higher risk CCC, CC Caa, Ca CCC, CC ccc, cc Special mention Substandard Doubtful C D C C 10 Loss c d C DDD DD D 2015 Annual Report 177 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.1 Credit risk (continued) 41.1 Credit risk (continued) 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 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. Investment portfolios Lending portfolios Reinsurance assets Other financial assets 2015 $000 3,937,104 909,570 644,463 151,842 % 68.4 15.8 11.2 2.6 2014 $000 4,008,176 838,301 507,019 145,891 % 71.4 14.9 9.0 2.6 Total financial statement exposures 5,642,979 98.0 5,499,387 97.9 Loan commitments Customer guarantees and letters of credit Other 69,936 27,154 19,380 Total off financial statement exposures 116,470 1.2 0.5 0.3 2.0 69,307 16,288 25,415 111,010 1.2 0.4 0.5 2.1 Total 5,759,449 100.0% 5,610,397 100.0% 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. 178 2015 Annual Report The Group’s largest exposures to individual counterparty credit risks as of December 31, 2015 and 2014 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. Sagicor Risk Rating 2015 Sagicor Risk Rating 2014 Investment portfolios: Government of Jamaica Government of Trinidad and Tobago Government of Barbados The Bank of Nova Scotia Government of St Lucia The Federal National Mortgage Association The Federal Home Loan Mortgage Corporation Lending portfolios: Value Assets International S.A. and Egret Limited Reinsurance assets: Guggenheim Partners(1) 5 2 5 2 5 1 1 3 3 901,896 200,307 307,185 185,743 81,412 101,356 67,523 29,780 543,329 5 2 5 1 5 1 1 4 5 929,353 156,574 297,742 86,405 79,013 91,943 81,139 32,611 412,516 (1)The reinsurance asset held in the name of Guggenheim Partners are secured by assets held in trust totalling $573,774 (2014 - $421,098). Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.1 Credit risk (continued) (a) Investment portfolios 41.1 Credit risk (continued) (b) Lending portfolios The results of the risk rating of investment portfolios are as follows: The results of the risk rating of lending portfolios are as follows: Investment portfolios Risk Rating Classification 1 2 3 4 5 6 7 8 Minimal risk Low risk Moderate risk Acceptable risk Average risk Higher risk Special mention Substandard 2015 2014 Exposure $000 Exposure % Exposure $000 Exposure % 317,670 794,812 1,026,099 193,025 1,518,308 23,472 18 2,683 8% 20% 26% 5% 39% 1% 0% 0% 99% 1% 587,359 642,099 994,603 119,418 1,610,551 11,575 5,692 10,851 3,982,148 26,028 15% 16% 25% 3% 40% 0% 0% 0% 99% 1% TOTAL RATED EXPOSURES 3,876,087 UN-RATED EXPOSURES 61,017 Lending portfolios Risk Rating Classification 1 2 3 4 5 6 7 8 9 Minimal risk Low risk Moderate risk Acceptable risk Average risk Higher risk Special mention Substandard Doubtful 10 Loss 2015 2014 Exposure $000 Exposure % Exposure $000 Exposure % 455,471 77,350 184,911 30,282 26,653 8,852 23,345 8,953 4,693 9,699 50% 9% 20% 3% 3% 1% 3% 1% 1% 1% 92% 8% 407,558 57,952 198,498 16,919 30,102 12,779 647 13,763 5,665 11,020 754,903 83,398 49% 7% 24% 2% 4% 2% 0% 2% 1% 1% 92% 8% TOTAL 3,937,104 100% 4,008,176 100% TOTAL RATED EXPOSURES 830,209 UN-RATED EXPOSURES 79,361 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. TOTAL 909,570 100% 838,301 100% 2015 Annual Report 179 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.1 Credit risk (continued) 41.1 Credit risk (continued) Exposure to credit risk is also managed in part by obtaining collateral and guarantees for lending portfolios. For mortgage loans, the collateral is real estate property, and the approved loan limit is 80% to 95% of collateral value. For finance loans and finance leases, the collateral often comprises a vehicle or other form of security and the approved loan / lease limit is 90% of the collateral value. Unsecured finance loans and finance leases are only granted when the initial amount is less than $5,001. Policy loans are advanced on the security of the underlying insurance policy cash values. Cash loans are advanced to a maximum of 80% to 100% of the cash surrender value. Automatic premium loans may be advanced to the extent of available cash surrender value. 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. Exposure to the lending portfolios by geographic area is as follows. Barbados Jamaica Trinidad & Tobago Other Caribbean USA 2015 2014 203,250 389,521 150,387 108,598 57,814 909,570 212,236 361,387 111,662 97,585 55,431 838,301 (c) Past due and impaired financial assets A financial asset is past due when a counterparty has failed to make payment when contractually due. The Group is most exposed to the risk of past due assets with respect to its debt securities, mortgage loans, finance loans and finance leases. Debt securities are assessed for impairment when amounts are past due, when the borrower is experiencing cash flow difficulties, or when the borrower’s credit rating has been downgraded. 180 2015 Annual Report Debt securities Mortgage loans Finance loans & leases 2015 Neither past due nor impaired 3,410,331 275,500 369,137 Past due up to 3 months, but not impaired 3,706 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 - - - Total past due but not impaired 3,706 30,483 3,891 11,137 2,490 48,001 59,836 982 - - 60,818 Impaired assets (net of impairment) 3,682 17,422 6,206 Total carrying value 3,417,719 340,923 436,161 Accumulated allowances on impaired assets Accrued interest on impaired assets 723 10 2,754 462 15,779 49 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.1 Credit risk (continued) Debt securities Mortgage loans Finance loans & leases 2014 Neither past due nor impaired 3,435,400 233,202 330,215 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 683 125 - - 23,810 67,037 8,944 9,177 4,765 419 - - Total past due but not impaired 808 46,696 67,456 Impaired assets (net of impairment) 11,341 14,335 12,914 Total carrying value 3,447,549 294,233 410,585 Accumulated allowances on impaired assets Accrued interest on impaired assets 9,334 216 3,976 400 20,575 212 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. 41.1 Credit risk (continued) (e) Renegotiated assets The Group may renegotiate the terms of any financial investment to facilitate borrowers in financial difficulty. Arrangements to waive, adjust or postpone scheduled amounts due may be entered into. The Group classifies these amounts as past due, unless the original agreement is formally revised, modified or substituted. 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. 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. 2015 Annual Report 181 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.2 Liquidity risk (continued) (a) Insurance liabilities 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. Expected discounted cash flows Maturing within 1 year 206,721 103,394 310,115 193,615 95,220 288,835 Maturing 1 to 5 years 631,453 15,500 646,953 597,671 13,691 611,362 Maturing after 5 years 1,794,213 53,287 1,847,500 1,770,935 54,907 1,825,842 Total 2,632,387 172,181 2,804,568 2,562,221 163,818 2,726,039 2015 Actuarial liabilities Other insurance liabilities Total 2014 Actuarial liabilities Other insurance liabilities Total 182 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 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. 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 Total financial liabilities Off financial statement commitments: Loan commitments Non-cancellable operating lease and rental payments Operating lease and capital commitments Total off financial statements commitments 2015 - Contractual un-discounted cash flows 2014 - 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 310,094 194,461 361,328 591,403 23,799 524,578 1,052 2,158 158,072 2,166,945 69,936 25,311 14,275 109,522 54,054 143,079 15,626 78,632 12,268 28 551 - 51,631 355,869 - 8,721 3,765 12,486 9,834 348,400 12,305 701 - - - - 373,982 685,940 389,259 670,736 36,067 524,606 1,603 2,158 314,269 56,353 330,844 532,004 1,221 669,455 9,063 1,459 747 210,450 117,784 371,987 2,894,801 2,032,452 - 2,644 - 2,644 69,936 36,676 18,040 124,652 47,732 4,553 22,730 75,015 43,026 275,644 31,778 44,978 18,860 122 1,425 - 45,859 461,692 7,656 7,875 1,542 17,073 9,241 - 11,527 4 - - - - 34,870 55,642 13,919 4,324 2,486 20,729 366,536 331,997 374,149 576,986 20,081 669,577 10,488 1,459 198,513 2,549,786 69,307 16,752 26,758 112,817 Total 2,276,467 368,355 374,631 3,019,453 2,107,467 478,765 76,371 2,662,603 2015 Annual Report 183 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.2 Liquidity risk (continued) (c) Financial and insurance assets 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 2015 – Contractual or expected discounted cash flows 2014 – 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 389,557 872,098 2,156,064 3,417,719 427,885 892,531 2,127,133 3,447,549 20,890 5,319 73,664 8,064 256,636 14,928 79,535 37,366 42,398 47,431 229,755 36,484 13,746 64,948 - 1,927 551 248,411 5,295 - 43,800 - 283,549 113,421 297,549 - 2,269 - 273,651 205 - 2,734 20,734 340,923 132,486 436,161 8,064 260,832 15,479 601,597 42,866 42,398 93,965 24,449 5,237 106,041 31,487 116,070 21,845 52,877 32,082 39,731 42,436 250,489 402,525 28,132 14,298 143,164 37 8,530 1,423 168,454 4,449 - 3,010 - 241,652 113,948 161,380 - 1,978 - 248,940 217 - 37,446 294,233 133,483 410,585 31,524 126,578 23,268 470,271 36,748 39,731 82,892 - 402,525 1,205,543 1,287,260 3,150,176 5,642,979 1,302,665 1,264,028 2,932,694 5,499,387 184 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000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. 2015 Annual Report 185 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 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. Exposure within 1 year Exposure 1 to 5 years 33,518 308,644 159,911 364,132 477,934 22,927 516,944 - 2,158 981 4,860 51,442 1,042 8,688 78,511 11,966 171 - - 42,904 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 Derivative financial instruments Bank overdrafts Accounts payable and accrued liabilities 2015 Exposure after 5 years Not exposed to interest 53,287 8,510 80,516 - 316,740 (2,176) 6,242 701 550 112,372 219 2,493 1,603 - - - - - - Total 172,181 368,596 475,517 379,612 669,518 35,112 519,608 1,603 2,158 Exposure within 1 year Exposure 1 to 5 years 43,990 312,935 4,859 40,052 708 298,637 325,194 533,351 184 655,048 4,600 1,459 8,117 28,443 37,048 13,149 6,158 - - 292 2014 Exposure after 5 years Not exposed to interest 60,547 - (403) 492 164 6,735 3,596 1,665 - 54,422 7,974 - 6,681 4 - - - - - Total 163,818 360,961 298,942 360,810 570,567 20,068 664,802 6,265 1,459 157,837 201,722 189,035 197,444 Total 1,887,149 199,584 385,480 353,414 2,825,627 1,885,586 428,638 69,081 261,831 2,645,136 186 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000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. 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 Exposure within 1 year Exposure 1 to 5 years 2015 Exposure after 5 years Not exposed to interest Total Exposure within 1 year Exposure 1 to 5 years 2014 Exposure after 5 years Not exposed to interest Total 585,718 785,142 1,996,826 50,033 3,417,719 627,847 828,091 1,942,487 49,124 3,447,549 - 40,595 4,302 374,909 8,041 256,385 - 112 1,495 797 153,277 - 53,664 13,510 25,663 - 1,908 - - - 43,337 - - 214,957 214,957 243,497 110,311 34,390 - 1,902 - 205 - - - 3,167 4,363 1,199 23 637 15,479 42,549 40,903 49,831 97,212 340,923 132,486 436,161 8,064 260,832 15,479 42,866 42,398 93,965 742 49,590 4,358 288,177 31,378 115,621 4,999 2,281 2,286 5,229 - 33,754 14,049 64,861 - 8,422 - - - 605 - - 193,532 194,274 207,015 110,646 55,637 - 1,570 - 217 - 12 - 3,874 4,430 1,910 146 965 18,269 34,250 37,445 77,046 294,233 133,483 410,585 31,524 126,578 23,268 36,748 39,731 82,892 128,532 402,525 250,489 273,993 1,425,631 923,224 2,387,131 520,353 5,256,339 1,406,501 949,782 2,317,584 549,523 5,223,390 2015 Annual Report 187 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 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 2015 2014 6.4% 6.5% 7.3% 12.7% 2.4% 0.9% 5.2% 8.3% 2.2% 1.9% 3.7% 6.3% 6.6% 7.5% 11.4% 5.6% 1.7% 5.4% 8.3% 2.0% 2.6% 5.0% 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. Change in interest rate JMD USD 2015 Effect on net income Effect on TCI Change in interest rate JMD USD 2014 Effect on net income Effect on TCI - 1% - 0.5% 4,145 10,219 - 1% - 0.5% (996) 11,653 +2.5% + 2% (6,838) (35,879) +2.5% + 2% 1,799 (37,376) 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. 188 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.4 Foreign exchange risk (continued) 2015 US$ 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 Total monetary assets 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 Total monetary liabilities Other liabilities (2) Total liabilities of continuing operations Net position 459,902 782,475 355,091 146,006 2,698,719 169,471 4,611,664 11,040 25,533 21,349 517,824 200,772 718,596 392,022 70,336 34,561 19,980 91,187 26,870 30,769 665,725 12,787 678,512 40,084 1,189 76,047 45,720 905,431 324,237 1,229,668 271,391 18,878 66,619 - 476,088 37,236 85,701 955,913 4,756 960,669 268,999 11,068 10,338 39,224 415,721 86,074 501,795 330,099 28,989 135,169 - 1,548 14,732 12,973 523,510 20,089 543,599 (41,804) 1,792 12,873 14,825 175,496 28,755 204,251 63,948 9,113 49,993 - 14,929 988 10,130 149,101 2,789 151,890 52,361 618,240 7,368 89,379 3,413,706 119,332 3,533,038 1,500,972 33,929 74,847 455,537 1,003,153 2,815 50,510 3,121,763 26,944 3,148,707 384,331 1,134 4,204 39,992 214,801 (2,264) 644,463 136,363 250,489 5,642,979 756,906 212,537 6,399,885 73,955 10,936 7,407 - 20,706 5,565 11,639 130,208 1,110 131,318 81,219 2,632,387 172,181 368,596 475,517 1,607,611 88,206 201,722 5,546,220 68,475 5,614,695 785,190 (1) Monetary balances only (2) Non-monetary balances, income tax balances and retirement plan assets 2015 Annual Report 189 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.4 Foreign exchange risk (continued) 2014 US$ 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 Total monetary assets 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 Total monetary liabilities Other liabilities (2) Total liabilities of continuing operations Net position 478,885 689,190 289,162 135,458 2,684,225 190,300 4,467,220 10,174 16,357 16,313 521,729 211,032 732,761 401,181 68,178 34,726 18,630 87,245 26,744 29,863 666,567 13,059 679,626 53,135 911 65,213 48,162 803,476 275,029 1,078,505 270,145 18,861 66,206 - 521,969 29,400 79,045 985,626 6,258 991,884 86,621 10,149 10,382 71,990 381,683 83,939 465,622 327,944 26,603 126,811 - 1,774 13,586 12,912 509,630 22,208 531,838 (66,216) 2,507 8,400 9,137 155,502 33,860 189,362 71,624 9,351 48,703 - 12,293 1,026 7,677 150,674 3,652 154,326 35,036 481,543 17,751 205,568 3,389,087 66,396 3,455,483 1,404,396 27,799 76,544 280,312 969,762 1,492 64,800 2,825,105 29,110 2,854,215 601,268 1,735 4,520 51,355 247,910 10,777 258,687 86,931 13,026 7,971 - 30,928 6,108 3,147 148,111 1,082 149,193 109,494 507,019 122,623 402,525 5,499,387 681,033 6,180,420 2,562,221 163,818 360,961 298,942 1,623,971 78,356 197,444 5,285,713 75,369 5,361,082 819,338 (1) Monetary balances only (2) Non-monetary balances, income tax balances and retirement plan assets 190 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.4 Foreign exchange risk (continued) 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, 2015 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). Financial position: Assets Liabilities Net position Represented by: Amounts denominated in JMD USD Total amounts Effect of a 10% depreciation 1,316,478 1,057,465 2,373,943 (131,647) 996,823 319,655 981,039 1,977,862 76,426 396,081 • 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 results at a different rate of exchange results in either less or more income being consolidated in the Group’s income statement. • 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. Income statement: Revenue Benefits Expenses Income taxes Net income Represented by: 427,495 (223,756) (142,339) (20,202) 41,198 55,620 483,115 (34,893) (12,274) (236,030) (8,723) (151,062) - 34,623 (20,202) 75,821 Currency risk relating to the future cash flows of monetary balances Currency risk of reported results of foreign operations (99,682) (31,965) (31,965) 22,376 14,234 2,020 3,737 7,856 (4,119) 3,737 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. 2015 Annual Report 191 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.5 Fair value of financial instruments 41.5 Fair value of financial instruments (continued) The fair value of financial instruments is 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. (ii) Level 2 – inputs that are observable for the instrument, either directly or indirectly 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. 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. 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 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, primarily 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 fair value through income include mortgage loans, debt securities and equities 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 the preceding section (ii) for non traded financial assets and liabilities may also used in determining the fair value of Level 3 instruments. 192 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.5 Fair value of financial instruments (continued) (a) Financial instruments carried at fair value Available for sale securities: Debt securities Equity securities Investments at fair value through income: Debt securities Equity securities Derivative financial instruments Mortgage loans Deposits Total assets Total assets by percentage Investment contracts: Unit linked deposit administration liabilities Deposit and security liabilities: Structured products Derivative financial instruments Total liabilities Total liabilities by percentage 2015 2014 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 355,330 46,644 401,974 15,820 12,100 - - 56 27,976 429,950 16% - - - - - 0% 1,929,520 29,538 1,959,058 35,048 110,267 1,603 - - 146,918 2,105,976 77% - - 1,603 1,603 1,603 1% 26,741 12,198 38,939 85,859 4,210 13,876 47,052 - 150,997 189,936 7% 2,311,591 88,380 2,399,971 136,727 126,577 15,479 47,052 56 325,891 2,725,862 100% 125,177 125,177 35,112 - 35,112 160,289 99% 35,112 1,603 36,715 161,892 100% 396,980 36,010 432,990 22,824 20,841 - - - 43,665 476,655 17% - - - - - 0% 1,947,067 29,200 1,976,267 49,495 91,108 6,663 - - 147,266 2,123,533 77% - - 6,265 6,265 6,265 4% 12,967 11,011 23,978 70,521 6,104 16,605 38,718 - 131,948 155,926 6% 2,357,014 76,221 2,433,235 142,840 118,053 23,268 38,718 - 322,879 2,756,114 100% 116,809 116,809 20,068 - 20,068 136,877 96% 20,068 6,265 26,333 143,142 100% 2015 Annual Report 193 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.5 Fair value of financial instruments (continued) Balances totalling $4,805 have been transferred from Level 1 to Level 2 in 2015 (2014 - Nil). Transfers from Level 2 to Level 1 in 2015 – Nil (2014 - $27,696). For Level 3 instruments, reasonable changes in inputs which could be applied to the valuation of available for sale securities would affect other comprehensive income. Reasonable changes in inputs which could be applied to the valuations of investments designated at fair value are largely offset in income, since the changes in fair value are borne by contract holders. Changes in the valuations of structured products reflect changes in the underlying securities and are borne by the contract holders. The following table presents the movements in Level 3 instruments for the year. 2015 Available for sale securities Investments at fair value through income Derivative instruments Total assets Balance, beginning of year Additions Transfers into Level 3 classification Issues Settlements Fair value changes recorded within net investment income Fair value changes recorded within interest expense Fair value changes recorded in other comprehensive income 23,978 21,934 1,873 - - 342 - (54) 115,343 54,379 - - - 16,605 18,771 - - - 155,926 95,084 1,873 - - 2,202 (3,287) (743) 6,846 - - - - - (54) - 19 Disposals (8,163) (32,262) (18,213) (58,638) (44,376) 2014 Total assets 149,673 43,634 - - - 2015 2014 Policy liabilities Structured products Total liabilities Total liabilities 116,809 20,068 136,877 131,745 - - 18,757 (8,471) - (682) - - - - - 16,437 - - - - - - (1,236) 125,177 (1,393) 35,112 - - - - 35,194 (8,471) 19,851 (6,332) - - (682) (742) - - - (2,629) - - (7,766) 121 160,289 136,877 - - (682) (742) - - - (3,512) - 130 13,876 189,936 155,926 (4,538) (3,930) 4,018 - - - - (682) - - Transfers to instruments carried at amortised cost Effect of exchange rate changes Balance, end of year Fair value changes recorded in investment income for instruments held at end of year Fair value changes recorded in interest expense for instruments held at end of year - (971) 38,939 3 - - (2,541) 137,121 605 - 194 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.5 Fair value of financial instruments (continued) 41.5 Fair value of financial instruments (continued) (b) Financial instruments carried at amortised cost Level 1 Level 2 Level 3 Total The carrying values of the Group’s non-traded financial assets and financial liabilities carried at amortised cost approximate their fair value in notes 10, 12, and 20. The fair value hierarchy of other financial instruments carried at amortised cost as of December 31, 2015 is set out in the following tables. Investment contracts: Deposit administration liabilities Other investment contracts Held to maturity securities: Debt securities Loans and receivables: Debt securities Mortgage loans Policy loans Finance loans and finance leases Securities purchased for resale Level 1 Level 2 Level 3 Total 21,940 - 21,940 Notes and loans payable: Convertible redeemable preference shares Notes and lease payables 347,859 635,204 983,063 22,480 271,561 294,041 Deposit and security liabilities - - - 141,950 141,950 419,214 419,214 Other funding instruments Customer deposits 8,064 8,064 Securities sold for repurchase 370,339 1,475,993 1,846,332 392,279 1,475,993 1,868,272 - - - - - - - - - - - - - - - - - - - - - - 127,780 127,780 118,860 118,860 246,640 246,640 130,932 - 130,932 350,336 46,249 396,585 481,268 46,249 527,517 - 381,499 381,499 1,759 770,252 772,011 - 519,508 519,508 1,759 1,671,259 1,673,018 483,027 1,964,148 2,447,175 2015 Annual Report 195 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.5 Fair value of financial instruments (continued) 41.6 Derivative financial instruments and hedging activities (continued) 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. 2015 Derivatives held for trading: Equity indexed options 2014 Derivatives held for trading: Cross currency swap Equity indexed options Contract / notional amount Fair value Assets Liabilities 643,667 643,667 15,479 15,479 19,226 473,982 493,208 5,022 18,246 23,268 1,603 1,603 4,626 1,639 6,265 (c) Equity price risk 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. Sensitivity The sensitivity to fair value changes in equity securities arises from those instruments classified as available for sale. There is no significant sensitivity to those instruments classified at fair value through income, since fair value changes are borne by policy contract holders. The effects of an across the board 20% change in equity prices of the Group’s available for sale equity securities as of December 31, 2015 on total comprehensive income before tax (TCIBT) are as follows. Available for sale equities Carrying value Listed on Caribbean stock exchanges and markets Listed on US stock exchanges and markets Listed on other exchanges and markets 21,483 59,649 7,248 88,380 20% change on TCIBT 4,297 11,930 1,450 17,677 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. 196 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.6 Derivative financial instruments and hedging activities (continued) (i) Cross currency swap A Group company entered into a currency swap with an initial notional principal amount of Euro 45 million which matured in February 2015. Under the terms of this swap, the Group company paid Euro at a rate of 5% and received 4.26% in US dollars on the notional principal amount. The Group company obtained 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. (ii) Equity indexed options The Group has purchased equity indexed options in respect of structured products and in respect of life and annuity insurance contracts. For certain structured product contracts with customers (note 17), equity indexed options give the holder the ability to participate in the upward movement of an equity index while being protected from downward risk. The Group is exposed to credit risk on purchased options only, and only to the extent of the carrying amount, which is their fair value. For certain universal life and annuity insurance contracts, 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. 2015 Annual Report 197 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00041.7 Offsetting Financial Assets and Liabilities The Group is eligible to present certain financial assets and financial liabilities on a net basis on the balance sheet pursuant to criteria described in Note 1 “Accounting Policies: 2.15 Offsetting financial instruments”. The following tables provide information on the impact of offsetting on the consolidated balance sheet, as well as the financial impact of netting for instruments subject to an enforceable master netting arrangement or similar agreement as well as available cash and financial instrument collateral. 2015 ASSETS Financial investments Securities purchases under resale agreement Derivative financial instruments LIABILITIES Security Liabilities Derivative financial instruments 2014 ASSETS Financial investments Securities purchases under resale agreement Derivative financial instruments LIABILITIES Security Liabilities Derivative financial instruments 198 2015 Annual Report Gross amounts of financial assets Gross amounts set off on the balance sheet Net amounts of financial assets presented on the balance sheet Impact of master netting arrangements Financial instruments collateral Net amount 4,803,078 8,064 15,479 4,826,621 1,606,008 1,603 1,607,611 4,606,702 31,524 23,268 4,661,494 1,617,706 6,265 1,623,971 - - - - - - - - - - - - - - 4,803,078 8,064 15,479 4,826,621 1,606,008 1,603 1,607,611 4,606,702 31,524 23,268 4,661,494 1,617,706 6,265 1,623,971 (629,825) - (1,603) (631,428) (614,643) (1,603) (616,246) (785,673) - (6,663) (792,336) (741,188) (6,265) (747,453) (302,098) - - (302,098) (255,860) - (255,860) (314,174) - - (314,174) (262,777) - (262,777) 3,871,155 8,064 13,876 3,893,095 735,505 - 735,505 3,506,855 31,524 16,605 3,554,984 613,741 - 613,741 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00042 INSURANCE RISK – PROPERTY & CASUALTY CONTRACTS 42.2 Claims risk (continued) Property and casualty insurers in the Group are exposed to insurance risks such as underwriting, claims and availability of reinsurance, and to credit risk in respect of reinsurance counterparties. 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. The principal insurance risks affecting property and casualty contracts are disclosed in the following sections. 42.1 Underwriting 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, including benchmark exposure rates and historic experience are used and are generally applied by class of insurance. All methods produce a technical price, which is compared against the market to establish a price margin. 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. 42.2 Claims risk Incurred claims are triggered by an event and may be categorised as: • losses, which are expected to be of reasonable frequency and are less than attritional established threshold amounts; • • large losses, which are expected to be relatively infrequent and 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. The insurer may also obtain additional information from loss adjustors, medical reports and other specialist sources. 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 or fraudulent 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. Concentration of risk is mitigated through risk selection, line sizes, event limits, quota share reinsurance and excess of loss reinsurance. Total insurance coverage on insurance policies provides a quantitative measure of absolute risk. However, claims arising in any one year are a very small proportion in relation to the total insurance coverage provided. The total amounts insured by the Group at December 31, gross and net of reinsurance, are summarised by class of insurance. 2015 Annual Report 199 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00042.2 Claims risk (continued) 42.3 Reinsurance risk (continued) Total insurance coverage 2015 2014 Property Motor Accident and liability Total Gross Net Gross Net Gross Net Gross Net 6,726,203 1,004,774 346,729 173,364 2,162,735 1,034,289 9,235,667 2,212,427 6,196,281 1,435,522 356,963 178,482 2,153,760 1,035,102 8,707,004 2,649,106 The insurer 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. A realistic disaster scenario modelled for 2015 is presented below and results in estimated gross and net losses. A Barbados and St. Lucia windstorm having a 200 year return period. 283,372 5,000 Gross loss Net loss 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. For other insurance risks, insurers limit their exposure by event or 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. Claim amounts in excess of reinsurance treaty limits revert to the insurer. Principal features of retention program used by Sagicor General for its property insurance class is summarised in the following table. The occurrence of one or more catastrophic events in any year may have a material impact on the reported net income of the Group. Type of risk Retention by insurers - currency amounts in thousands 42.3 Reinsurance risk 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. 200 2015 Annual Report Property • maximum retention of $3,500 for a single event; • maximum retention of $5,000 for a catastrophic event; • • quota share retention to maximum of 20% in respect of treaty limits; quota share retention is further reduced to a maximum of $375 per event. The effects of reinsurance ceded are disclosed in notes 14, 24 and 27 and information on reinsurance balances is included in notes 10, 20 and 41. Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00042.3 Reinsurance risk (continued) 43.1 Contracts without investment returns (continued) 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 200 year return period affecting Barbados and St. Lucia and an earthquake with a 250 year return period affecting Trinidad within a 24 hour period. The reinsurance recoveries derived from the foregoing are assigned internal credit ratings as follows: Risk Rating Classification Exposure $000 Exposure % 1 2 3 4 5 6 7 8 Minimal risk Low risk Moderate risk Acceptable risk Average risk Higher risk Special mention Substandard 210,125 422,997 - - - - - - 33% 67% 0% 0% 0% 0% 0% 0% TOTAL 633,122 100% 43 INSURANCE RISK – LIFE, ANNUITY & HEALTH CONTRACTS (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. 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. 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 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. 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. 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. 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. 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). 2015 Annual Report 201 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00043.1 Contracts without investment returns (continued) 43.2 Contracts with investment returns The cost of health related claims depends on the incidence of beneficiaries becoming ill, the duration of their illness, and the cost of providing medical services. An increase in any of these three factors will result in increased health insurance claims. In such circumstances, the insurer may adjust the pricing or re-pricing of these contracts. For health insurance contracts, the concentration of insurance risk is illustrated by the distribution of premium revenue by the location of the insured persons. Life and annuity insurance contracts with investment returns generally have durations of 5 or more years. The contract terms provide for the policyholder to pay either a single premium at contract inception, or periodic premiums over the duration of the contract. From the premium received, acquisition expenses and maintenance expenses are financed. Investment returns are credited to the policy and are available to fund surrender, withdrawal and maturity policy benefits. The principal risks associated with these policies are in respect of product design and pricing, mortality and longevity, lapse, expense and investment. 2015 Premium revenue by location of insureds Gross Ceded Net (a) Product design and pricing risk Barbados Jamaica Trinidad & Tobago Other Caribbean USA Total (c) Sensitivity of incurred claims 20,432 80,996 26,981 26,951 54 994 2,141 637 1,258 77 19,438 78,855 26,344 25,693 (23) 155,414 5,107 150,307 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. Risks are priced to achieve an adequate return on capital on the insurer’s business as a whole. In determining the pricing of a contract, the insurer considers the age of the policyholder and/or beneficiary, the expenses and taxes associated with the contract, the prospective investment returns to be credited to the contract, and the guaranteed values within the contract. Pricing inadequacy may arise either from the use of inadequate experience and statistical data in deriving pricing factors or from future changes in the economic environment. The sensitivity of term life and critical illness claims is included in the related disclosure on other long- term contracts in note 43.4. The impact on gross claims of increasing the total liability by 5% for un- reinsured health insurance claims is illustrated in the following table. 2015 2014 Liability 5% increase in liability Liability 5% increase in liability 40,845 3,379 44,224 2,042 169 2,211 48,507 3,389 51,896 2,425 169 2,594 Actuarial liability Claims payable 202 2015 Annual Report (b) Mortality and longevity risk Mortality risk is the risk that worsening mortality rates will result in an increase of death claims. Longevity risk is the risk that improving mortality rates will lengthen the payout period of annuities. For contracts providing death benefits, higher mortality rates will result in an increase in death claims over time. For contracts providing the payout of annuities, improving mortality rates will lead to increased annuity benefits over time. Insurers annually review their mortality experience and compare it to industry mortality tables. This review may result in future adjustments to the pricing or re-pricing of these contracts. Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00043.2 Contracts with investment returns (continued) 43.2 Contracts with investment returns (continued) Mortality risk may be concentrated in geographic locations, affecting the risk profile of the insurer. The most significant exposure for this type of risk arises where a single event or pandemic could result in a large number of claims. Total insurance coverage on insurance policies provides a quantitative measure of absolute mortality risk. However, claims arising in any one year are a very small proportion in relation to the total insurance coverage provided. The total amounts insured by the Group in respect of both contracts with or without investment returns at December 31, gross and net of reinsurance, are summarised by geographic area below. Total insurance coverage Individual contracts Group contracts Individual contracts Group contracts 2015 2014 Barbados Jamaica Gross Net Gross Net 3,717,465 1,319,187 3,575,173 1,293,251 3,404,278 1,272,561 3,245,153 1,244,721 6,788,633 4,722,254 6,579,009 4,894,151 6,633,173 4,693,456 6,396,752 4,875,291 Trinidad & Tobago Gross 3,299,470 2,591,709 3,040,062 1,775,661 Net 2,699,592 2,460,183 2,458,724 1,660,732 Other Caribbean Gross 7,425,375 1,993,205 7,248,379 2,382,119 USA Total Net Gross Net Gross Net 6,315,588 1,718,537 6,025,887 2,100,054 5,416,515 1,944,902 45,491 43,300 4,630,990 1,821,525 50,022 47,230 26,647,458 10,671,846 25,073,613 10,395,204 20,997,533 10,188,037 19,948,041 9,928,028 Total liability under annuity contracts which represents the present value of future annuity benefits provides a good measure of longevity risk exposure. Total liability under annuity contracts Individual contracts Group contracts Individual contracts Group contracts 2015 2014 Barbados Jamaica Gross Net Gross Net Trinidad & Tobago Gross Net Other Caribbean Gross USA Total Net Gross Net Gross Net 114,475 114,475 509 509 113,108 113,108 24,171 24,171 946,891 375,338 1,199,154 627,601 46,288 46,288 285,843 285,843 - - - - 26,447 7,988 358,578 340,119 99,604 99,604 541 541 112,401 112,401 19,998 19,998 852,121 418,838 1,084,665 651,382 54,160 54,160 266,893 266,893 - - 69 69 29,757 9,076 350,879 330,198 2015 Annual Report 203 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00043.2 Contracts with investment returns (continued) 43.3 Reinsurance risk (c) Lapse risk Lapse risk is that, on average, policyholders will terminate their policies ahead of the insurer’s expectation. Early lapse may result in the following: • • Acquisition costs are not recovered from the policyholder; In order to settle benefits, investments are liquidated prematurely resulting in a loss to the insurer; • Maintenance expenses are allocated to the remaining policies, resulting in an increase in expense risk. (d) Expense risk The Group monitors policy acquisition and policy maintenance expenses. Expenses are managed through policy design, fees charged and expense control. However, there are a significant number of inforce contracts for which insurers have limited or no ability to re-price for increases in expenses caused by inflation or other factors. Therefore growth in maintenance expenses has to be funded either by increasing the volume of inforce policies or by productivity gains. Failure to achieve these goals will require increases in actuarial liabilities held. (e) Investment risk A substantial proportion of the Group’s financial investments support insurer obligations under life and annuity contracts with investment returns. The financial risks outlined in note 41 pertaining to credit, liquidity, interest rate, foreign exchange and equity price are considered integral investment risks associated with these insurance contracts. Asset defaults, mismatches in asset and liability cash flows, interest rate and equity price volatility generally have the effect of increasing investment risk and consequential increases in actuarial liabilities held. 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 $88 Health insurance contracts with groups Retention per individual to a maximum of $88 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 $292 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, 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)). 204 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00043.4 Sensitivity arising from the valuation of actuarial liabilities (continued) 43.4 Sensitivity arising from the valuation of actuarial liabilities (continued) Under Canadian accepted actuarial standards, the AA is required to test the actuarial liability under economic scenarios. The scenarios developed and tested by insurers were as follows. Sensitivity Scenario 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 segment Sagicor Jamaica segment Sagicor Life USA segment 2015 2014 2015 2014 2015 2014 Base net actuarial liability 939,819 882,151 326,652 488,320 562,236 715,303 Scenario increase in liability increase in liability increase in liability Worsening rate of lapse 127,997 120,151 40,153 41,484 9,123 27,804 High interest rate (76,882) (76,586) (101,205) (98,548) (33,619) (42,745) Low interest rate 151,291 143,890 136,247 126,221 38,922 49,378 Worsening mortality/ morbidity 34,191 33,049 33,891 26,624 12,737 15,295 Higher expenses 19,174 26,770 15,972 16,860 3,846 4,983 Sagicor Life Inc segment Sagicor Jamaica Segment Sagicor USA segment Worsening rate of lapse Lapse rates were either doubled or halved, and the more adverse result was selected. High interest rate Low interest rate Worsening mortality and morbidity 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. Assumed increases in the investment portfolio yield rates of 0.5% for 10 years. Assumed decreases in investment portfolio yield rates of 0.5% per year for 10 years. Mortality and morbidity rates for insurance and critical illness products were increased by 3% of the base rate per year for 5 years. For annuity products, the mortality rates were decreased by 3% of the base rate for 5 years. For 2015, lapse rates were increased or reduced by 30%, and the more adverse result was selected. For 2014, lapse rates were doubled or halved. A 1% increase was applied to the investment portfolio rate. A 1% decrease was applied to the investment portfolio rate. For life insurance products only, the base assumed rates were increased annually by 3% cumulatively over the next 5 years. For annuity products, the mortality rates were decreased by 3% of the base rate for 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. 2015 Annual Report 205 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00043.5 Dynamic capital adequacy testing (DCAT) 44 FIDUCIARY RISK 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 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 services give rise to fiduciary risk that may expose the Group to claims for mal-administration or under-performance of these funds. 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. In the ordinary course of business, the Group manages assets of pension funds, mutual funds and unit trusts which are held in a fiduciary capacity and are not included in the Group’s financial statements. The investments and cash under administration are summarised in the following table. 2015 2014 Pension and insurance fund assets 1,576,696 1,324,229 Mutual fund, unit trust and other investment fund assets 796,775 581,393 2,373,471 1,905,622 The purpose of the DCAT is Fee income under administration is discussed in Note 26. • • • 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. 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. To satisfy the above requirements, invested assets and cash totalling $1,313,013 (2014 - $1,169,848) have been deposited with regulators or are held in trust to the order of regulators. In some countries where the Group operates, there are exchange controls or other restrictions on the remittance of funds out of those countries. 206 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00046 CAPITAL MANAGEMENT 46.2 Capital adequacy 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. 46.1 Capital resources The principal capital resources of the Group are as follows: Shareholders’ equity Non-controlling interest Notes and loans payable 2015 2014 506,046 231,735 475,517 531,698 241,480 298,942 Total financial statement capital resources 1,213,298 1,072,120 The Group deploys its capital resources through its operating activities. These operating activities are carried out by subsidiary companies which are either insurance entities or provide other financial services. The capital is deployed in such a manner as to ensure that subsidiaries have adequate and sufficient capital resources to carry out their activities and to meet regulatory requirements. The capital adequacy of the principal operating subsidiaries is discussed in this section. (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, certain subsidiaries of the Group seek 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 Capital and Surplus 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 221% (2014 – 273%). 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. 2015 Annual Report 207 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00046.2 Capital adequacy (continued) 46.2 Capital adequacy (continued) (i) Sagicor Life Jamaica (b) Sagicor Investments Jamaica Limited and Sagicor Bank Jamaica Limited 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, 2015 and 2014, this ratio was 202% and 182% 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, 2015 and 2014 respectively. 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 2015 and 2014, all applicable externally imposed capital requirements were complied with. Sagicor Investments Jamaica Sagicor Bank Jamaica 2015 2014 2015 2014 14% 10% 13% 10% 14% 10% 15% 10% Actual capital base to risk weighted assets Required capital base to risk weighted assets 208 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00046.3 Financial covenants (a) 8.875% Senior Notes 46.3 Financial covenants (continued) (b) 5.0% notes due 2016 Under the indenture entered into by the Group on the issue of these senior notes the Group has to comply with a number of covenants as follows: COVENANT DESCRIPTION Limitation of indebtedness Limitation on restricted payments covenant Limitation on restricted distributions from subsidiaries Under this covenant, the Group is restricted to incremental borrowing up to a prescribed level. The Group must maintain a fixed charge coverage ratio, in excess of 2:1 in order to incur additional debt. This covenant limits cash outflows, dividends, acquisition and investments by the Company. The Group must maintain a fixed charge coverage ratio of 2:1 and an MCCSR capital ratio in excess of 175%. limits This covenant encumbrances or distributions to the Parent. the subsidiaries restrictions on their ability from creating to make Limitation on sale of assets of subsidiary stock This covenant restricts the Company from selling material subsidiary assets without using the proceeds to either reinvest in the business or offer to buy back bondholders. Limitation on affiliate transactions Change in control Limitation on liens Optional Redemption This covenant restricts affiliate transactions of the Company. This covenant allows investors to put their bonds back to the Company at a certain value when a specified event has changed ownership/control of the Company. This covenant restricts the Company’s ability to secure future debt with the Company’s assets. The notes are redeemable at the Company’s option after August 11, 2018 at specified redemption rates. Under an indenture and a trust deed entered into by the Group on the issue of the senior notes and notes respectively (see note 16), the Group has to comply with permitted lien covenants, 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 and notes are secured equitably and rateably with (or, if the obligation to be secured by lien, this is subordinated in right of payment to the senior notes and notes, prior to) the obligations so secured for so long as such obligations are so secured. Permitted liens are liens existing on the dates of issue of the senior notes and notes respectively, 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 and trust deed). As of December 31, 2015 and 2014, the Group satisfied these requirements. (c) International Finance Corporation (IFC) 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. 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. 2015 Annual Report 209 Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $00047 RELATED PARTY TRANSACTIONS 48 EVENTS AFTER DECEMBER 31, 2015 On March 21, 2016, the Company redeemed the 5.0% US$43.4 million notes due May 12, 2016. Additionally, on the same date, notes in the amount of US$75.0 million due April 14, 2017 at an annual rate of interest of 5.0%, were issued. Other than as disclosed in notes 5, 9, 12, 26, 30, 31 and 44, there are no material related party transactions except as disclosed below. 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 2015 2014 Salaries, directors’ fees and other short-term benefits Equity-settled compensation benefits Pension and other retirement benefits 20,176 3,377 1,717 25,270 20,177 2,324 1,672 24,173 Balance, beginning of year Advances Repayments Effects of exchange rate changes Balance, end of year Mortgage loans Other loans Total loans 5,167 726 (402) 1 5,492 412 585 (144) (17) 836 5,579 1,311 (546) (16) 6,328 Interest rates prevailing during the year 3.75% - 7.00% 4.00% - 14.00% 210 2015 Annual Report Sagicor Financial CorporationNotes to the Financial Statements Sagicor Financial Corporation Year ended December 31, 2015 Amounts expressed in US $000SHAREHOLDER INFORMATION THE LAMBS Tampa Bay, USA For the Lambs, teaching is a family affair. Dr. Jack Lamb, a descendant of several generations of educators, is a retired teacher and past chairman of the eighth largest school district in the United States. His wife Nora is also a retired teacher, and their daughter is a school administrator in the same district. Living in the moment, while still being prepared for what’s ahead, is a life lesson Jack has learned well. For him, “Planning for the future means never procrastinating.” This includes protecting what’s most important to him: Nora, his best friend and loving partner of 58 years. Jack is an active member of the West Tampa Chamber of Commerce, and it was there that he met his colleague and trusted Sagicor agent Dawn Hudson. She helped him purchase a life insurance policy and leverage money he already had in the bank to create a larger estate. “I have confidence in Sagicor’s business acumen and it gives me peace of mind,” says Jack. After working hard over the years to provide for his family, he wanted to make sure they always had someone to take care of them. With Sagicor, Jack has learned he can count on their wisdom and expertise to carry on and protect his loved ones for years to come. SHAREHOLDER INFORMATION DIVIDENDS An interim dividend of US 2 cents per common share, approved for the half-year ended June 30, 2015, was paid on November 16, 2015 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 20, 2015. A final common dividend of US 2 cents per common share, payable on May 17, 2016, was approved for the financial year ended December 31, 2015 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, 2016. The total dividend on common shares for the 2015 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 16, 2015 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 20, 2015. A final dividend of US 3.25 cents per convertible redeemable preference share, payable on May 17, 2016, was approved for the financial year ended December 31, 2015 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, 2016. The total convertible redeem- able preference dividend for the 2015 financial year amounted to US 6.50 cents per share. SHARES The following Shareholders own more than 5% and 3% respectively of the capital of the Company as at December 31, 2015: Common Shares Convertible Redeemable Preference Shares Number of Shares Percentage Number of Shares Percentage International Finance Corporation: 12,269,938 National Insurance Board, Barbados: 18,950,000 Republic Bank Limited – 1162: N/A 4.03 6.22 N/A 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, 2015 and as at December 31, 2014 is set out below, 577,111 new common shares were issued in 2015 for the performance year 2014 under the approved Long Term Incentive Plan. Common Shares Convertible Redeemable Preference Shares As at 31-Dec-15 As at 31-Dec-14 As at 31-Dec-15 As at 31-Dec-14 304,494,131 303,917,020 120,000,000 120,000,000 214 2015 Annual Report Sagicor Financial CorporationLONG TERM INCENTIVE PLAN (LTI) The Tables below show grants of restricted stock and stock options as at December 31, 2015 under the LTI for Executives. Restricted Stock As of December 31, 2015 Value attributable to Stock Grant Awards Made and in Effect Vested Not Vested Vested in 2015 1.98, 2.01, 2.50 1,302,161 1,302,161 1.58, 2.50 1,033,058 1,033,058 745,651 745,651 628,838 628,838 981,822 981,822 1.60 1.48 1.53 1.15 1,766,099 1,297,108 468,991 1.075 2,469,939 1,249,399 1,220,540 1.05 2,668,460 964,954 1,703,506, 0 0 0 0 0 0 0 0 0 341,248 503,884 855,020 999,556 Award Year 2006 – 2008 2009 2010 2011 2012 2013 2014 2015 US$ US$ US$ US$ US$ US$ US$ US$ 11,596,028 8,202,991 3,393,037 2,699,708 Allocated for settlement of tax 2015 (875,927) Total converted to shares 2015 1,823,781 Sagicor celebrates 175 Years of Wise Financial Thinking for Life. And looks forward to a future of more historic milestones and successes. 2015 2015 Annual Report 215 Sagicor Financial CorporationAward Year Exercise Price of Stock Option Awards Made and in Effect Vested Exercised Not Exercised Not Vested Vested in 2015 Stock Options As of December 31, 2015 US$ 1.98 US$ 2.01 589,295 589,295 120,443 468,852 1,277,358 1,277,358 72,839 1,204,519 US$ 2.50 904,410 904,410 US$ 2.50 1,072,268 1,072,268 US$ 1.60 1,587,117 1,587,117 US$ 1.48 1,994,973 1,994,973 US$ 1.53 1,234,879 926,148 US$ 1.15 1,931,334 1,060,081 US$ 1.075 2,971,336 742,820 US$ 1.05 3,029,195 0 0 0 0 0 0 0 0 0 904,410 1,072,268 1,587,117 1,994,973 926,148 1,060,081 0 0 0 0 0 0 308,731 871,253 0 0 0 0 0 498,754 308,715 482,839 742,820 0 742,820 2,228,516 0 3,029,195 16,592,165 10,154,470 193,282 9,961,188 6,437,695 2,033,128 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 216 2015 Annual Report Sagicor Financial CorporationANALYSIS OF COMMON SHAREHOLDING Common Shareholders by Size of Holding Number of Common Shareholders by Size of Holding as at December 31, 2015 (with 2014 Comparison) Size of Holding Number of Shareholders Percentage of Shareholders Total Shares Held Percentage of Shares Held 2015 2014 2015 2014 2015 2014 2015 2014 1 - 1,000 6,338 6,335 1,001 - 2,500 15,012 15,009 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 6,986 3,961 2,878 666 226 26 7,003 4,031 2,920 663 230 24 17.56 41.59 19.36 10.97 7.97 1.85 0.63 0.07 17.49 3,783,419 3,823,240 41.44 24,933,801 24,897,535 19.34 24,239,516 24,306,373 11.13 28,276,741 28,825,664 8.06 41,452,604 42,058,378 1.83 31,271,160 31,454,944 0.64 66,788,027 67,944,123 0.07 83,748,863 80,606,763 1.24 8.19 7.96 9.29 13.61 10.27 21.93 27.51 1.26 8.19 8.00 9.48 13.84 10.35 22.36 26.52 Total 36,093 36,215 100.00 100.00 304,494,131 303,917,020 100.00 100.00 2015 Annual Report 217 Sagicor Financial CorporationCommon Shareholders by Country of Residence Number of Common Shareholders by Country of Residence and by Type as at December 31, 2015 Country Directors, Management, Staff, Advisors Companies Individuals Total Trinidad and Tobago Barbados Eastern Caribbean Other Caribbean Other Total Shareholders % Shareholders % Shareholders % Shareholders % 100 472 26 13 24 635 0.28 1.31 0.07 0.04 0.07 1.77 610 254 35 34 5 938 1.69 0.70 0.10 0.09 0.01 2.59 14,889 11,244 6,970 168 1,249 41.25 31.15 19.31 0.47 3.46 15,599 11,970 7,031 215 1,278 43.22 33.16 19.48 0.60 3.54 34,520 95.64 36,093 100.00 Common Shares held by Country of Residence Number of Common Shares Held by Country of Residence and by Type as at December 31, 2015 Country Directors, Management, Staff, Advisors Companies Individuals Total Shares % Shares % Shares % Shares % Trinidad and Tobago 2,149,438 0.71 71,235,325 23.39 82,464,633 27.08 155,849,396 51.18 Barbados 7,059,964 2.32 36,981,248 12.15 55,291,467 18.16 99,332,679 32.63 Eastern Caribbean 75,077 0.02 1,377,215 0.45 19,690,635 6.47 21,142,927 6.94 Other Caribbean 1,350,921 0.44 3,646,368 1.20 1,316,081 0.43 6,313,370 2.07 Other Total 3,961,802 1.30 12,805,249 4.21 5,088,708 1.67 21,855,759 7.18 14,597,202 4.79 126,045,405 41.40 163,851,524 53.81 304,494,131 100.00 218 2015 Annual Report Sagicor Financial CorporationANALYSIS OF CONVERTIBLE REDEEMABLE PREFERENCE SHAREHOLDING Preference Shareholders by Size of Holding Number of Preference Shareholders by Size of Holding as at December 31, 2015 (with 2014 Comparison) Size of Holding Number of Percentage of Shareholders Total Shares Held Shareholders Percentage of Shares Held 2015 2014 2015 2014 2015 2014 2015 2014 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 417 184 254 108 70 70 32 7 417 186 256 109 77 71 31 7 36.52 16.11 22.24 9.46 6.13 6.13 2.80 0.61 36.13 16.12 22.18 9.45 6.67 6.15 2.69 0.61 225,813 227,309 0.19 365,964 371,404 0.30 1,168,621 1,177,810 948,598 954,598 1,280,595 1,419,995 4,161,549 4,224,049 0.97 0.79 1.07 3.47 13,077,500 12,902,500 10.90 98,771,360 98,722,335 82.31 0.19 0.31 0.98 0.80 1.18 3.52 10.75 82.27 Total 1,142 1,154 100.00 100.00 120,000,000 120,000,000 100.00 100.00 Preference Shareholders by Country of Residence Number of Preference Shareholders by Country of Residence and by Type as at December 31, 2015 Country Directors, Management, Staff, Advisors Companies Individuals Total Shareholders % Shareholders % Shareholders % Shareholders % USA Trinidad and Tobago Barbados Other Total 2 10 35 0 47 0.18 0.88 3.06 - 4.12 1 90 44 - 135 0.09 7.88 3.85 - 11.82 3 395 559 3 960 0.26 34.59 48.95 0.26 6 495 638 3 0.53 43.35 55.86 0.26 84.06 1,142 100.00 2015 Annual Report 219 Sagicor Financial CorporationPreference Shares held by Country of Residence Number of Preference Shares Held by Country of Residence and by Type as at December 31, 2015 Country Directors, Management, Staff, Advisors Companies Individuals Total Shares % Shares % Shares % Shares % USA 55,000 0.05 78,339,530 65.28 21,095 0.02 78,415,625 65.35 Trinidad and Tobago 250,000 0.21 15,207,507 12.67 4,294,940 3.58 19,752,447 16.46 Barbados Other Total 2,172,950 1.81 19,524,245 16.27 130,633 0.11 21,827,828 18.19 - - - - 4,100 0.00 4,100 0.00 2,477,950 2.07 113,071,282 94.22 4,450,768 3.71 120,000,000 100.00 220 2015 Annual Report Sagicor Financial Corporation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 AUDITOR PricewaterhouseCoopers SRL LEGAL ADVISORS Allen & Overy LLP, London, United Kingdom Carrington & Sealy, Barbados Barry L V Gale, QC, LLB (Hons), Barbados Patterson K H Cheltenham, QC, LLM, Barbados M Hamel Smith & Co, Trinidad and Tobago Hobsons, Trinidad and Tobago Holman Fenwick Willan LLP, London, United Kingdom Paul Hastings LLP, USA 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 2015 Annual Report 221 Sagicor Financial CorporationOFFICES Belize Sagicor Life Inc Agencies Coney Drve Business Plaza Anguilla Sagicor Corporate Head Office Coney Drve Malliouhana Anico Insurance Co Ltd SAGICOR FINANCIAL CORPORATION Belize City, Belize Manico Headuarters Cosley Drve, The Valley Tel: Cecil F de Caires Building Wildey, St Michael Tel: (501)223-3147 Fax: (501) 223-7390 Email: info@sagicor.com Curaçao Schottegatweg Oost #11 Tel: (599) 9 736-8558 Fax: (599) 9 736-8575 Email: info_curacao@sagicor.com Curaçao (264) 497-3712 Fax: (264) 497-3710 Aruba Lyder Insurance Consultants Seroe Blanco 56A Tel: (297) 582-6133 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 Wildey, St Michael Barbados Grenada Tel: (246) 467-7500 Fax: (246) 436-8829 Email: contactus@sagicor.com Website: www.sagicorlife.com TransNemwil Complex The Villa St George’s Tel: (473) 440-1223 Fax: (473) 440-4169 Sagicor Life Inc Branch Offices Email: info_grenada@sagicor.com Dominica St Lucia WillCher Services Inc 44 Hillsborough Street Sagicor Financial Centre Corner Hillsborough & Independence Streets Choc Estate, Castries Tel: (758) 452-3169 Fax: (758) 450-3787 Roseau Tel: (767) 440-2562 Fax: (767) 440-2563 Email: info_stlucia@sagicor.com Email: info_dominica@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 Haiti Cabinet d’Assurance Fritz de Catalogne Angles Rues de Peuple et des Miracles Port-au-Prince Tel: (509) 3701 1737 Barbados Tel: (246) 467-7500 Fax: (246) 436-8829 Email: info@sagicor.com Website: www.sagicor.com Subsidiaries SAGICOR LIFE INC Sagicor Financial Centre Cecil F de Caires Building Barbados 1st Avenue, Belleville St Michael Tel: (246) 467-7700 Fax: (246) 429-4148 Email: info@sagicor.com Antigua Sagicor Financial Centre #9 Sir Sydney Walling Highway St John’s Tel: (268) 480-5500 Fax: (268) 480-5520 Email: info_antigua@sagicor.com Email: comments@sagicor.com 222 2015 Annual Report Sagicor Financial CorporationMontserrat Sagicor Life Inc C/o V. Yvette Fenton-Ryan Ryan Investments P. O. Box 280 Brades Montserrat Tel: (664) 491-3403 Fax: (664) 491-7307 St Maarten C/o Charlisa NV, SAGICOR LIFE (EASTERN CARIBBEAN) INC Sagicor Financial Centre Choc Estate Castries, St. Lucia Tel: (758) 456-1700 Fax: (758) 450-3787 SAGICOR GENERAL INSURANCE INC P. O. Box 150 Beckwith Place, Lower Broad Street Bridgetown, Barbados Tel: (246) 431-2886 Fax: (246) 228-8266 Walter Nisbeth Road #99B Phillipsburg Email: sgi-info@sagicorgeneral.com Tel: (721) 542-2070 Fax: (721) 542-3079 Email: capital@sintmaarten.net St Kitts Sagicor Life Inc Sagicor General Insurance Inc Haggatt Hall St Michael Tel: (246) 431-2800 Fax: (246) 426-0752 C/o The St Kitts Nevis Anguilla Trading and Email: sgi-info@sagicorgeneral.com Development Co. Ltd Central Street, Basseterre Tel: (869) 465-9476 Fax: (869) 465 6437 St Vincent S. V. Browne Frenches Kingstown Tel: (784) 456-1159 Fax: (784) 456-2232 St Lucia Sagicor Life Inc Sagicor Financial Centre Choc Estate Castries St Lucia Tel: (758) 452-0994 Fax: (758) 450-4870 Trinidad and Tobago 122 St Vincent Street Port of Spain Tel: (868) 623-4744 Fax: (868) 628-1639 or (868) 625-1927 Sagicor General Insurance Agencies HHV Whitchurch & Company Limited Old Street PO Box 771 Roseau Dominica Tel: (767) 448-2182 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 Linmores Building Castries St Lucia Tel: (758) 451-7829 Fax: (758) 451-7271 Email: jemax@candw.lc GLOBE FINANCE INC Shirley House Hastings Main Road Christ Church Tel: (246) 426-4755 Fax: (246) 426-4772 Website: www.globefinanceinc.com 2015 Annual Report 223 Sagicor Financial CorporationSAGICOR FUNDS INCORPORATED BARBADOS FARMS LIMITED Cecil F de Caires Building Wildey, St Michael Barbados Bulkeley Tel: (246) 467-7500 Fax: (246) 436-8829 Email: info@sagicor.com St George Barbados Tel: (246) 427-5299 Fax: (246) 437-8873 LOJ HOLDINGS LIMITED 28-48 Barbados Avenue Kingston 5, Jamaica Tel: (876) 929-8920(-9) Fax: (876) 960-1927 SAGICOR ASSET MANAGEMENT INC SAGICOR LIFE JAMAICA LIMITED SAGICOR PANAMA SA 28-48 Barbados Avenue Ave Samuel Lewis y Calle Santa Rita Kingston 5, Jamaica Cecil F de Caires Building Wildey, St Michael Barbados Tel: (246) 467-7500 Fax: (246) 426-1153 Email: info@sagicor.com SAGICOR FINANCE INC Castries St Lucia Tel: (758) 452-4272 Fax: (758) 452-4279 Sagicor Financial Centre Choc Estate Email: capital1@sinfo.net Edificio Plaza Obarrio 3er Piso Oficina 201 Panama City, Panama Tel: (507) 223-1511 Fax: (507) 264-1949 Tel: (876) 929-8920(-9) Fax: (876) 960-1927 Website: www.sagicorjamaica.com EMPLOYEE BENEFITS ADMINISTRATORS LIMITED 28-48 Barbados Avenue Kingston 5, Jamaica CAPITAL LIFE INSURANCE COMPANY BAHAMAS Tel: (876) 929-8920(-9) Fax: (876) 960-1927 LIMITED Website: www.sagicorjamaica.com C/o Family Guardian Insurance Company Limited East Bay & Shirley Street SAGICOR LIFE OF THE CAYMAN ISLANDS LTD SAGICOR ASSET MANAGEMENT (TRINIDAD AND PO Box SS-6232 TOBAGO) LIMITED Sagicor Financial Centre 16 Queen’s Park West, Port of Spain Trinidad Tel: (868) 628-1636/7/8 Fax: (868) 628-1639 Nassau, NP Bahamas Tel: (242) 393-4000 Fax: (242) 393-1100 Email: info@familyguardian.com SAGICOR LIFE ARUBA NV Fergusonstraat #106 NATIONWIDE INSURANCE COMPANY LIMITED AHMO Plaza Building, Suites 1 and 2 Sagicor Financial Centre 16 Queen’s Park West Port of Spain, Trinidad Tel: (868) 628-1636 Fax: (868) 628-1639 Email: comments@sagicor.com 224 2015 Annual Report Oranjestad, Aruba Tel: (297) 582-3967 Fax: (297) 582-6004 Email: calico@setarnet.aw 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 Financial CorporationSAGICOR PROPERTY MANAGEMENT SERVICES SAGICOR BANK JAMAICA LIMITED Associated Companies LIMTED 78a Hagley Park Road Kingston 10 Jamaica Tel: (876) 929-9182 Fax: (876) 929-9187 Sagicor Bank Building 60 Knutsford Boulevard Kingston 5, Jamaica Tel: (876) 929-5583 Fax: (876) 926-4385 Website: www.sagicorjamaica.com 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 RE INSURANCE LTD SAGICOR USA, INC Global House, 198 North Church Street 4010 W. Boy Scout Blvd, Suite 800 RGM LTD Albion Plaza Energy Centre 22-24 Victoria Avenue Port of Spain Trinidad Tel: (868) 625-6505 Fax: (868) 624-7607 George Town, Grand Cayman Tampa, Florida 33607, USA Cayman Islands Tel: (345) 949-8211 Fax: (345) 949-8262 Tel: (813)-287-1602 Fax: (813)-287-7420 Email: global@candw.ky SAGICOR LIFE INSURANCE COMPANY 4010 W. Boy Scout Blvd, Suite 800 HEALTH CORPORATION JAMAICA LTD Tampa, Florida 33607, USA SAGICOR INSURANCE BROKERS LIMITED Tel: (813) 287-1602 28-48 Barbados Avenue Kingston 5, Jamaica Tel: (876) 929-8920(-9) Fax: (876) 960-1927 Website: www.sagicorjamaica.com Fax: (813) 287-7420 4343 N. Scottsdale Road, Suite 300 Scottsdale, Arizona, 85251, USA Tel: 1-800-531-5067 Fax: (480) 425-5150 SAGICOR INVESTMENTS JAMAICA LIMITED Website: www.sagicorlifeusa.com Sagicor Bank Building 60 Knutsford Boulevard Kingston 5, Jamaica Tel: (876) 929-5583 Fax: (876) 926-4385 SAGICOR FINANCE LIMITED Maples Corporate Services Limited Ugland House South Church Street Email: options@sagicor.com George Town, Grand Cayman Website: www.sagicorjamaica.com Cayman Islands 2015 Annual Report 225 Sagicor Financial Corporation

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