Sagicor Financial Company Ltd.
Annual Report 2016

Plain-text annual report

ANNUAL REPORT — 2016 The curious thing about potential, is that talking about it isn’t enough. The power lies in action. That’s why at Sagicor, we make sure people achieve their full financial potential. We work with them to ensure they make prudent and informed financial decisions today, that will lead to a brighter, more prosperous tomorrow. OUR VISION To be a great company, committed to improving the lives of people in the communities in which we operate. 102 INDEX TO THE FINANCIAL STATEMENTS • Financial Statements & Notes 228 SHAREHOLDER INFORMATION • Advisors & Bankers • Offices CONTENTS 6 ABOUT SAGICOR 60 OPERATING AND FINANCIAL REVIEW 10 76 CHAIRMAN’S STATEMENT Financial Highlights BOARD OF DIRECTORS 16 CORPORATE SOCIAL RESPONSIBILITY 50 82 CORPORATE GOVERNANCE 96 HUMAN CAPITAL REPORT EXECUTIVE MANAGEMENT 2016 ANNUAL REPORT 2016 ANNUAL REPORT 3 3 ABOUT SAGICOR There’s no telling which direction your life will take, but by being thoughtful and rigorous now, you can ensure that your future will always be bright. When you place your trust in Sagicor, rest assured that we will be there for you every step of the way to help you reach your full potential. Sagicor supports education at the primary, secondary and tertiary level, and sponsors a number of adult education and development activities. As we move forward through these challenging times in the economic life of our region and the rest of the world, Sagicor’s core business strategies will continue to provide a wide range of financial products and services, while focused on our vision, “To be a great company, committed to improving the lives of people in the communities in which we operate.” AB OUT SAGICOR Sagicor is a dynamic, indigenous Group which has been redefining financial services in the Caribbean. Following a carefully crafted business strategy, the company transformed from a local single-line life insurance company to a financial services group with a solid regional base, before expanding into the international financial services market. After the company demutualised in 2002, Sagicor Financial Corporation was formed as a publicly listed holding company. The word Sagicor means “wise judgment”, and reflects the quality of the financial advice and services we offer. Sagicor now operates in 22 countries in the Caribbean, the USA and Latin America. For 176 years, Sagicor’s business has been based on long-term relationships with its customers, employees, and communities who entrust us with their financial well-being. Our name and reputation draw on the strength, stability and financial prudence that are our heritage, and this identity defines the flexibility that wise financial thinking can bring to our customers throughout their lives. Through local expertise and in partnership with world-class asset managers, reinsurers, together with sound risk management practices, Sagicor is able to provide wise financial advice, that meets the needs of its customers. For many decades, Sagicor provided financial support and voluntary assistance, primarily in the areas of health, education, youth development and sports, to a number of organisations and institutions. Sagicor continues to provide significant support for the prevention of non-communicable diseases by promoting healthy living, and improving access to and facilities for health-care in the region. 6 6 SAGICOR SAGICOR FINANCIAL CORPORATION LIMITED 2016 ANNUAL REPORT 2016 ANNUAL REPORT 7 7 CHAI RMAN’S STATEMENT Our guiding principle has always been to act wisely. By using the knowledge we have acquired over the years, we can do what is best to lead the way, and make everyone’s future as bright as possible. CHAIRMAN’S STATEMENT The economic circumstances of the markets in which the Sagicor Group operated during 2016, showed little improvement over that of 2015. The US economy grew at a pace much lower than expected, while the situation in the Caribbean was very mixed. The performance of the Jamaican economy continued to show signs of improvement, while the economy of Trinidad & Tobago slipped deeper into recession. The economies of Barbados, and those of the Eastern Caribbean, enjoyed the early signs of a return to growth. However, the high debt to GDP ratios continue to constrain the growth, and expose these economies to the negative impact of external shocks. As a result, the environment, for the most part, reflected these economic realities, with businesses experiencing slow revenue growth, and having to rely heavily on strategies which emphasised conservation and operating efficiencies. Within this context, it is my pleasure to report to you on the 2016 financial performance of the Sagicor Group, which experienced a solid performance, with net income for the year closing at US $109.3 million, compared to US $76.8 million in the prior year. Net income attributable to shareholders was US $61.7 million, compared to US $34.7 million in the prior year, an increase of US $27.0 million. Earnings per common share was US 20.0¢, and represented an annualised return on common shareholders’ equity of 12.6%, compared to 7.0% for the prior year. Total revenue increased by 2.7% to US $1,134.1 million, compared to the prior year amount of US $1,104.2 million, an increase of US $29.9 million. Net premium revenue closed at US $664.0 million, marginally under 2015’s net premium revenue of US $673.9 million, and was impacted by lower annuity business written in our USA segment, together with the impact of the depreciation of the Jamaica Dollar to the US dollar on translated premiums. Net investment income closed the period at US $353.4 million, up from US $322.2 million in the prior year, driven mainly by increased realised gains on our international investment portfolios, and exceeded the prior year amount by US $31.2 million, or 9.7%. Fees and other revenue amounted to US $116.8 million, compared to US $109.1 million in 2015, an improvement of US $7.7 million, or 7.1%. Total benefits closed at US $560.4 million, and marginally exceeded the prior year amount of US $552.9 million. Expenses (including agents’ and brokers’ commissions) closed the year at US $424.2 million, and were below the prior year amount of US $427.7 million. Expenses reflected the lower commissions and related expenses, consistent with the lower premium revenue. Premium and asset taxes were also lower when compared to the prior year, and resulted from a reduction in premium and asset taxes in the Jamaica segment. Stephen McNamara, CBE Chairman 10 10 SAGICOR SAGICOR FINANCIAL CORPORATION LIMITED business conservation, and process improvement to positively impact our financial performance and overall financial condition. We recognise the challenges still facing our Caribbean Region, and we will continue to work with other private sector institutions and governments to play our part in the revitalisation of the economies, for the long- term benefit of our customers, shareholders and the communities in which we operate. On behalf of the Board of Sagicor, I wish to thank our Shareholders and Customers for their continued support. Stephen McNamara Chairman March 31, 2017 Total comprehensive income closed the year at US $96.7 million, compared to a loss of US $0.6 million for the prior year. The main contributor to the improvement in comprehensive income was an underlying improvement in net gains on financial assets of US $142.3 million. Included in comprehensive income were net gains for the year on financial assets of US $39.2 million, resulting from mark-to- market gains on financial assets associated with our international portfolios. The Group experienced net declines of US $103.2 million for the 2015 financial year. Retranslation losses amounted to US $28.5 million, compared to US $15.7 million reported in 2015, and resulted from declines in the Jamaica dollar of US $21.0 million and the Trinidad dollar, US $7.5 million, when compared to the United States dollar. In the statement of financial position as at December 31, 2016, assets amounted to US $6.5 billion, compared to US $6.4 billion in the prior year. Liabilities closed at US $5.7 billion, the same level as in 2015. Sagicor’s Group equity totalled US $795.4 million, an increase of US $56.2 million, or 7.6% over the 2015 financial year. The Group’s debt was US $395.2 million. The debt to capital ratio was 33.2%, down from 39.2% for the prior year, and was impacted by the fact that the Company redeemed all its outstanding convertible redeemable preference shares amounting to US $120.0 million during the year. The Board declared dividends of US 2.5 cents per common share, payable on May 15, 2017, which is consistent with the dividends paid on November 15, 2016, and represents a 25% improvement on the dividend paid on May 17, 2016. On June 8, 2016, Shareholders approved the redomiciliation of Sagicor Financial Corporation to Bermuda. This was achieved on July 20, 2016, when the Company was continued under Bermuda Law as Sagicor Financial Corporation Limited. This is the first phase of a three-part process to immunise the Sagicor Group from non- investment grade domiciles, and to protect the credit rating of the Group. The second phase is the incorporation of a reinsurance company in Bermuda, while the third is the re-organisation of the corporate structure to re-organise the main operating entities as direct subsidiaries of Sagicor Financial Corporation Limited. On December 23, 2016, S&P Global Ratings re-affirmed the credit rating of Sagicor Finance (2015) Limited at “BB-“ with stable outlook. Sagicor Finance (2015) Limited is the Sagicor subsidiary through which the Sagicor international corporate bond was issued. During 2017, the company will continue its focus on its corporate re-organisation, 2016 ANNUAL REPORT 2016 ANNUAL REPORT 11 11 F INANCIAL HIGHLIGHTS Amounts in US$ millions unless otherwise stated NET INCOME 1 COMMON DIVIDENDS SHAREHOLDER RETURNS 60 56 75 60 45 30 15 0 14 12 15 10 5 0 BOOK VALUE PER SHARE Amounts in US cents 177 166 300 200 100 0 2016 2015 2016 2015 2016 2015 1 from continuing operations Basic earnings per share 1 19.5¢ 18.2¢ Return on shareholder’s equity 1 12.3% 11.7% 2016 2015 NET INCOME1 REVENUE BENEFITS GROUP RESULTS 108 98 125 100 75 50 25 0 1500 1000 500 0 1,134 1,104 560 553 1000 500 0 2016 2015 2016 2015 2016 2015 1 from continuing operations 12 SAGICOR FINANCIAL CORPORATION LIMITED Amounts in US$ millions unless otherwise stated GROUP FINANCIAL POSITION ASSETS OPERATING LIABILITIES EQUITY & DEBT CAPITAL (TOTAL CAPITAL) 7000 6,532 6,400 6000 5,341 5,139 3000 0 1,191 1,215 1500 1000 500 0 2016 2015 2016 2015 2016 2015 2016 2015 Debt to Capital 33.2% 39.2% MCCSR 291% 301% SAGICOR LIFE INC - NET INCOME SAGICOR GROUP JAMAICA- NET INCOME SAGICOR USA - NET INCOME SEGMENT RESULTS 65 71 100 90 80 50 0 20 10 0 10 7 2016 2015 2016 2015 2016 2015 2016 2015 Revenue 411 471 Assets 1,928 1,904 2016 2015 Revenue 524 511 Assets 2,674 2,513 2016 2015 Revenue 149 78 Assets 1,901 1,783 2016 ANNUAL REPORT 13 3500 0 80 60 40 20 0 CORPORATE & SOCIAL RESP ONSI BILITY Our pride lies in our community. We support the people and places around us, because when they become better, we do too. At Sagicor, we are honoured to give back to our community, because we know that together, we have the power to transform it. I NT RODUCTION The foundation of Sagicor’s business has been built on long-term and meaningful relationships with its customers, communities and employees. As a company whose vision is “committed to improving the lives of people in the communities in which we operate”, our name and reputation draw on the strength, stability and financial prudence that are intrinsically linked to our heritage. For many decades, Sagicor has provided financial support and voluntary assistance in the areas of health, education, youth development and sports to a number of organisations and institutions - with the hope that our investment in the community contributes to its social and economic advancement. Sagicor’s Corporate Social Responsibility (CSR) policies are considered a core and inseparable element of the overall service and products we offer. This approach ensures that our strategic goals offer a sustainable future for both the company and the communities in which we operate. Our values are demonstrated through our CSR policies, which helps pave the way for Sagicor to continue to strengthen the partnerships and relationships it has with its customers, communities and employees. These relationships are further strengthened by our activities and our interactions with the organisations with which we partner and support. 16 SAGICOR FINANCIAL CORPORATION LIMITED HEALTH THE BARBADOS DIABETES FOUNDATION - SAGICOR GROUP OF COMPANIES Sagicor presented a donation of BBD $50,000 to the Barbados Diabetes Foundation in memory of Dr Oscar Jordan, a former board member and Chairman of the Barbados Diabetes Foundation. Dr Jordan dedicated his life to medicine and creating national awareness about diabetes and hypertension in Barbados. Sagicor’s gift was a tribute to his name and to a cause to which he was most passionate. The presentation was made to his widow, Mrs Marsha Jordan, who was accompanied by two of their children, Julian Jordan and Claire Jordan. SAGICOR GLOBEATHON 5K WALK & RUN TO END GYNAECOLOGICAL CANCERS - SAGICOR LIFE INC - BARBADOS As champions of wellness and initiatives that raise awareness about the prevention and control of chronic non-communicable diseases, Sagicor Life Inc (SLI) and Sagicor General Insurance Inc (SGI) in Barbados proudly returned as title-sponsors of the 4th Annual Sagicor Globeathon event. In September, approximately 2500 people participated in the 5K Walk & Run, the only international movement focused on the prevention and early detection of all gynaecological cancers including uterine (endometrial), cervical, ovarian, vaginal and vulvar. The movement to end women’s cancers was also supported by international gynaecologists, gynaecological oncologists and doctors, as well as gynaecological cancer survivors. All proceeds from the event were donated to the Gynaecological Cancer and Diagnostic Unit at the Queen Elizabeth Hospital. 1 2 The mission of the Globeathon is to increase awareness of women’s cancers, address disparities, and transcend the barriers of ethnicity, race, politics, geography, financial position, culture and religion through educational outreach and global community engagement. 1. (l to r) Sagicor Group Chairman, Stephen McNamara; Sagicor Group Director, Dr Jeannine Comma; Marsha Jordan; Claire Jordan; Julian Jordan; Barbados Diabetes Foundation CEO, Callie Boyea, and Sagicor Group President and CEO, Dodridge Miler, at the presentation to the Barbados Diabetes Foundation in honour of the late As a result of his first place finish in the 2015 event, runner Oein Josiah travelled to Jamaica to participate in the Sagicor Sigma Corporate Run 2016. Sagicor Life Inc Barbados and Sagicor Group Jamaica coordinated his travel to Jamaica to join over 24,000 participants running and walking to support various charities. Josiah placed 7th overall in the event. Dr Oscar Jordan. 2. Runners at the start line of the 2016 Globeathon to End Gynaecological Cancers. 2016 ANNUAL REPORT 17 ROTARY CLUB’S 3RD ANNUAL AUTISM WALK - SAGICOR LIFE (EASTERN CARIBBEAN) INC - ANTIGUA In April, staff of SLI walked to raise funds for persons affected by autism. An enthusiastic and uniformed team, bedecked in Sagicor shirts, joined other participants of the Rotary Club in Antigua’s 3rd Annual Autism Walk. The proceeds were donated towards the purchase of educational materials and seminars for children, as well as for parents of children with autism and other learning disabilities. Team Sagicor received an award for Best Dressed Team in their Sagicor 175 Endowment Plan polo shirts. QUEEN ELIZABETH HOSPITAL CHRISTMAS DONATION - SAGICOR GENERAL INSURANCE INC - BARBADOS Knowing that the holiday season can be a challenging time for children in hospital, the staff of SGI felt the need to spread some holiday cheer, and ensured that the children in the Paediatric Unit of the Queen Elizabeth Hospital were not forgotten during the Christmas season. Members of the Social Club of Sagicor General rallied to donate a television with DVD player and an electrical fan for the children hospitalised in two wards. 3 SAGICOR PHOENIX WALK/RUN - SAGICOR LIFE INC – TRINIDAD AND TOBAGO Sagicor Life Inc continued its 175th celebrations in Trinidad and Tobago with the Sagicor Phoenix Walk/Run, one lap around the Queen’s Park Savannah. More than 2,500 participants, including Sagicor staff, family members, clients and suppliers, and members of the public ran or walked for charity, while being entertained by three light shows along the way, the rhythmic sounds of Hands of Rhythm and the high energy of Outlaws International Tassa Drummers. The event raised TT $100,000, of which donations were presented to the LIFE Centre for Autism in Petit Valley, and the Friends of the Blood Bank Association. 3. Participants warming up at the beginning of the Phoenix Walk and Run in Belize. 4. Runners and walkers after the 2016 Sagicor Phoenix Run in Port of Spain, Trinidad and 4 Tobago. 18 SAGICOR FINANCIAL CORPORATION LIMITED SAGICOR PHOENIX WALK/RUN - SAGICOR LIFE INC – BELIZE Sagicor Life Inc partnered with the Kidney Association of Belize to advocate, “Prevention is better than treatment”, and hosted the inaugural Sagicor Phoenix Walk/Run in Belize. With a view to making a positive impact in its community, Sagicor Life supported the Association’s objective of educating Belizeans on the prevention of kidney disease. The event raised BD $13,475 towards the Kidney Associations efforts. SIGMA RUN 2016 - SAGICOR GROUP JAMAICA LIMITED - JAMAICA In February, the Sagicor Foundation hosted its 18th Annual Sigma Corporate Run, with approximately 24,000 persons in attendance, raising a total of JA $43 million in cash and kind for its beneficiaries: children with cancer across Jamaica, the Black River Hospital Paediatric Unit and the Jamaica Cancer Society. The Black River Hospital was presented with an arterial blood gas analyser - a machine to test or measure the oxygen and carbon dioxide levels in babies and children - to strengthen their paediatric unit, while the other two beneficiaries took responsibility for sourcing the other equipment to strengthen their respective units. 5 5. School children accompanied by Sagicor volunteers at an Adopt-a-School event. CORNWALL REGIONAL HOSPITAL SIGMA RUN HAND OVER - SAGICOR GROUP JAMAICA LIMITED - JAMAICA Equipment and supplies valuing JA $16 million were handed over to the special care nursery and paediatric units of the Cornwall Regional Hospital from the proceeds of the 2015 Sagicor Sigma Corporate Run in the second quarter. The money was used to purchase and retrofit the air conditioning for the Special Care Unit, purchase ventilators, incubators, respirators, humidifiers and accessories, suction machines and other much-needed equipment for the Special Care Unit. Welcome and directional signage with the Sagicor Foundation branding was also donated and unveiled in a ceremony at the institution in June. SAGICOR FOUNDATION ADOPT-A-SCHOOL WELLNESS HEALTH TOUR - SAGICOR GROUP JAMAICA LIMITED - JAMAICA All the schools taking part in the Sagicor Foundation Adopt-a-School programme in Jamaica were visited by the Mobile Wellness Unit, from which wellness checks were conducted for each student. Dubbed as the Sagicor Back-to-School Health Tour, staff from each branch attached to the institutions visited the schools, where close to 500 children were also given back-to-school supplies. Some of the tests offered were vision, height, weight and hearing. 2016 ANNUAL REPORT 19 RELAY FOR LIFE – OCHO RIOS AND KINGSTON - SAGICOR GROUP JAMAICA LIMITED - JAMAICA The Sagicor Foundation partnered with the Jamaica Cancer Society for its inaugural Relay for Life Cancer Walk. This was the second of two stagings held at the Turtle River Park in Ocho Rios to foster awareness, and in memory of those who have lost their battle to breast cancer. Sagicor staff turned out in large numbers to support the cause, ensuring that Sagicor’s support was the largest team of the night. NIGHT OF HEROES - SAGICOR LIFE INSURANCE COMPANY - USA For the third year, members of SLIC were in attendance at the annual “Night of Heroes”, an awards reception celebrating the success of the Tampa Bay Chapter of the Arthritis Foundation’s two major annual fundraisers, the Jingle Bell Run and the Walk to Cure Arthritis. In 2016, Sagicor was recognised for its fundraising efforts as the 2nd place corporate team in the 2016 Walk to Cure Arthritis event. 2016 WALK TO CURE ARTHRITIS - SAGICOR LIFE INSURANCE COMPANY - USA In May, Sagicor Life Insurance Company’s (SLIC) Tampa staff participated in the 2016 Walk to Cure Arthritis at Al Lopez Park in Tampa, Florida. Team Sagicor not only participated in the Walk, which consisted of a 3-mile course through the park, but also raised funds to help the one-day event raise a total of USD $86,566. This was the 8th year of Sagicor’s participation, with all proceeds going to the Arthritis Foundation. The Walk to Cure Arthritis takes place in a number of cities throughout the United States annually, and the funds raised go to research aimed at finding a cure for arthritis, America’s leading cause of disability. PHOENIX CHILDREN’S HOSPITAL RADIOTHON - SAGICOR LIFE INSURANCE COMPANY - USA SLIC is committed to supporting many worthy causes in its communities, one of which is Phoenix Children’s Hospital (PCH) in Arizona. For several years, SLIC has donated money and volunteer time to PCH, and has partnered with a television station to host a telethon, and a radio station to host a radiothon. As well as pledging and donating funds towards both events, staff from the Scottsdale office volunteered to work as greeters who signed in other volunteers, as well as answered calls and took donations on the phone bank. Now in its 16th year, the annual Give-A-Thon for PCH, themed “Champions of Hope”, became the top fundraiser of its kind in the United States, raising USD $1.57 million in just 19 hours. Through the support from corporate bodies and the general public, PCH has been able to expand its facilities and extend its services into communities around the state with specialty and urgent care centers, and is now one of the ten largest children’s hospitals in the United States. ANNUAL PHOENIX CHILDREN’S HOSPITAL GOLF TOURNAMENT - SAGICOR LIFE INSURANCE COMPANY - USA In December, representatives from SLIC participated in the 18th Annual Phoenix Children’s Hospital Golf Tournament. The Sagicor team narrowly missed the winning position, losing the tie-breaker for lowest score. 20 SAGICOR FINANCIAL CORPORATION LIMITED 6 6. Members of Team Sagicor at the 2016 Walk to Cure Arthritis. JOHNS HOPKINS ALL CHILDREN’S HOSPITAL RADIOTHON - SAGICOR LIFE INSURANCE COMPANY - USA Staff from SLICS’s Tampa office volunteered to work the phone banks at Johns Hopkins All Children’s Hospital’s for the 9th Annual US 103.5 FM Cares for Kids Radiothon. The staff also presented a USD $10,000 donation, on behalf of Sagicor, towards the hospital’s fundraising efforts. Patients and families from the local area came to share powerful stories about the role that All Children’s has played, and continues to play, in their lives. While some members of the Sagicor management team spoke on air about Sagicor, its mission and its commitment to its communities, others worked the phones and processed donations. 8 9 7 7. SLIC staff volunteering at the Phoenix Children’s Hospital Telethon phone banks, (8) the Radiothon, and (9) the annual Give-A-Thon for the John Hopkins All Children’s Hospital. 2016 ANNUAL REPORT 21 EDUCATION SAGICOR CAVE HILL SCHOOL OF BUSINESS AND MANAGEMENT - SAGICOR FINANCIAL CORPORATION LIMITED - BARBADOS At the end of 2016, the Cave Hill School of Business Inc - The University of the West Indies (CSHB) was renamed in honour of its major benefactor and long-term strategic partner, Sagicor Financial Corporation Limited. During a ceremony hosted at the CHSB Conference facility, the unveiling of Sagicor Cave Hill School of Business and Management U.W.I. was conducted in the presence of more than one hundred key stakeholders, as well as local and regional media representatives. Sagicor has been a strategic partner of CHSB-UWI for over ten years. The renaming of the business school is a component of a mutually beneficial collaborative agreement which was signed on July 18, 2014. The significant value derived from the partnership between Sagicor and CHSB will enhance the business school’s capacity for efficient delivery and promotion of programmes which, through advanced technology and a dedicated customer-centered methodology, will improve the CHSB experience for companies and clients of the organisation. 2 SAGICOR VISIONARIES’ CHALLENGE – SAGICOR GROUP OF COMPANIES The Sagicor Group of Companies concluded the 2016 Sagicor Visionaries’ Challenge with the finalists participating at the STEM Ambassador Programme in Tampa, Florida. The focus of the programme, hosted by the museum of Science and Industry (MOSI) was on teaching participants how design-thinking could be used to tackle real-world challenges, such as transportation and climate change. Teams were challenged to design and build a Hydrogen Fuel Cell Vehicle using rapid prototyping techniques, and technologies such as 3d printing, as well as present out-of-the-box solutions. The participants also designed, tested and launched high-flying chemical rockets, and visited the Kennedy Space Centre. There was also a tour of the College of Arts and Sciences and Engineering Departments at the University of South Florida. 22 SAGICOR FINANCIAL CORPORATION LIMITED Schools from Antigua & Barbuda, Barbados, Belize, Dominica, Guyana, St Lucia, Tampa (Hillsborough County) and Trinidad & Tobago were invited to work with a teacher at their institution to identify a problem facing their school or community. Using science, technology, engineering and mathematics (STEM), they had to develop effective, 1 innovative and sustainable solutions to the problem identified. The competition was intended to: • Ignite interest among youth in the Challenge Territories for innovation in STEM to help build and integrate sustainable communities throughout the Caribbean. • Integrate knowledge gained from formal and informal education to enable tomorrow’s leaders to build a more sustainable Caribbean. • Boost institutional capacity in STEM in the secondary schools in the Challenge territories. STEM education is a vital part of Sagicor’s educational CSR programme. Through the implementation of the Sagicor Visionaries Challenge, STEM affects what is nearest and dearest to us - our children. STEM is essential to their future in 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 to the future of the Caribbean region, as it shapes our everyday experiences, and is at the core of our natural world. It is for these reasons that the Sagicor Visionaries’ Challenge was developed and launched. 1. The unveiling of the Sagicor Cave Hill School of Business and Management. (l to r) The Honourable Donville Inniss, Minister of Minister of Industry, International Business, Commerce & Small Business Development; Professor Sir Hilary Beckles, Vice- Chancellor of The University of the West Indies, Dr Jeannine Comma, Chief Executive Officer and Managing Director of The Sagicor Cave Hill School of Business; Stephen McNamara, Sagicor Group Chairman; Dr Charmaine Gardner, Sagicor Cave Hill School of Business Chairman, Professor V Eudine Barriteau, Pro Vice-Chancellor and Principal of The University of the West Indies, Dodridge Miller, Sagicor Group President and Chief Executive Officer. 2. Sagicor Visionaries’ Challenge winners in the zero gravity chamber at the Kennedy Centre, Florida. 3. and 4. (above and below) Participants of the 2016 STEM Ambassador Programme in Tampa. 3 4 2016 ANNUAL REPORT 23 SAGICOR VISIONARIES – SAGICOR LIFE INC, BARBADOS The winning team from Barbados, Queen’s College, designed the Sweet Coconut Grey Water Filtration System, aimed at recycling grey water from domestic uses to flush the toilets in schools and homes. of the Sagicor Visionaries’ Challenge with their Project Eco-Clean. The Project also placed second in the Regional competition and received a special prize for “Most Community Involvement”, and “Most Relevant to School or Community”. The Eco-Clean objective was to create environmentally-friendly by-products from used cooking oil, and to encourage households, schools, communities and fast food outlets to adopt this efficient method for the disposal of used cooking oil. Guyana: In Guyana, the Bygeval Secondary School placed first, with a two-member team. With the recent uptake in mosquito-borne diseases, such as Chikungunya and Zika, the winning project “The Eradicator” aimed to address the problem with a new, environmentally-friendly and health conscious mosquito repellent. SAGICOR VISIONARIES - SAGICOR LIFE INC, BELIZE During 2016, Sargassum seaweed plagued several Caribbean coastlines. This natural occurrence provided the inspiration for the team from Belize High School, to use the sargassum as a raw material to create saleable products, such as a body scrub, and milkshake. The idea won the national title. 5. Trinidad and Tobago’s national winners from Five Rivers Secondary School with their teacher, and members of the Sagicor’s management team. The students opined that water scarcity is a problem which has been plaguing the Barbadian community for years, to the point where Barbados is now ranked on the global scale as one of the most water- scarce countries. However, regardless of this crisis, water is still being wasted via various domestic and recreational activities. With prolonged water wastage, Barbados’ reservoirs may become depleted, leaving the country to depend on expensive desalination processes and water imports. This could result in implications for the environment, economy, society and overall development. The solution to water scarcity presented by Queen’s College, the Sweet Coconut Greywater filter, is constructed almost entirely of recycled, natural and easily-sourced materials, and does not require extreme skill to set up, nor does it occupy a large area. The filter uses coconut shells and other materials to filter waste-water for other uses. Overall, the created design is cost-effective and its complexity reduced, so that the average person can utilise it. Queen’s College also won a number of special awards, such as Most Community Involvement, Most Creative and Innovative, Best Project Solution and Most Relevant to School or Community. SAGICOR VISIONARIES - SAGICOR LIFE (EASTERN CARIBBEAN) INC, ANTIGUA The St Anthony’s Secondary School was presented with the prizes won during the regional round of the Sagicor Visionaries Challenge. SLI Antigua representatives awarded Zion Michael 2nd runner-up with her project “Organic Waste Reduction in Residential Areas”. The School also received a special award for the Best Presentation, which factored in the display model created, and the representative’s oral presentation. Along with a trophy, St Anthony’s received USD $1,000. 5 SAGICOR VISIONARIES - SAGICOR LIFE INC, TRINIDAD AND TOBAGO In Trinidad, Five Rivers Secondary School walked away as national winners 24 SAGICOR FINANCIAL CORPORATION LIMITED SAGICOR VISIONARIES - SAGICOR LIFE INSURANCE COMPANY - USA The U.S. finalists for the 2016 Sagicor Visionaries’ Challenge were announced at a special meeting for participants. Mr. Jai Patel, from Walker Middle School, for Generator Turbine Power; Ms. Hannah Anderson, from Indian Rocks Christian School, for Height of a Bouncing Ball, and Mr. Anish Amin, from Walker Middle School, for Sinkhole, competed against each other to determine which project and student would represent the U.S. against Visionaries’ winners from the other participating schools. Jai Patel and his Generator Turbine Power project emerged as the winner. The winner and runners-up each received a laptop and a trophy, while their schools received a cash donation to further develop STEM programmes for all students. Jai and his teacher, Nancy Robords, went on to attend the STEM Ambassador Programme. 6 SCHOOL GRANTS - SAGICOR LIFE (EASTERN CARIBBEAN) INC - DOMINICA Sagicor’s Dominica office embarked upon an awards programme whereby children could benefit from financial grants based on their academic performance. Each year, the Dominica office will award XCD $500 and $1,000, to two students transitioning from primary to secondary school, and two students transitioning from secondary school to college respectively. In order to be considered for the grants, students are required to submit copies of their common entrance grades or official CXC results, along with their applications. Secondary school students are also required to submit an essay of 500-750 words entitled “How will my chosen area of study contribute to my career plans?” Guided by the belief that the Company has a fundamental responsibility to contribute to enhancing and sustaining the lives of people within the communities we serve, this initiative is in alignment with Sagicor’s vision and its dedication to support the areas of education and youth development. Sagicor recognises the significance of the transitioning phases from the primary to secondary to tertiary institutions, and sees this programme as a most important investment in education. The grants will serve as rewards for good academic performance and encouragement for continued excellence in students’ academic endeavours. The awards programme will run for three years. 6. Recipients of the School Grants with members of the management team at the Dominica office. DOMINICAN CUB SCOUTS - SAGICOR LIFE (EASTERN CARIBBEAN) INC - DOMINICA In the summer of 2016, SLI made a donation to the Dominican Cub Scouts to assist with their travel to the 14th Annual Caribbean Cuboree. The event, hosted in Guyana, brought together more than 800 cubs between the ages of 7 and 11, from fourteen Caribbean countries. The aim of the Cuboree was to provide a forum for cubs to interact with each other and to foster lasting friendships. Scouts believe that this is fundamental in creating a better world, where people learn from, and support each other, and treat each other equally. Sagicor’s contribution assisted in providing a productive outlet with positive exposure to different cultures and experiences, which all go a long way in helping to mold and prepare the youth for the future. ROTARACT CLUB OF GRENADA - SAGICOR LIFE (EASTERN CARIBBEAN) INC - GRENADA Sagicor’s Grenada office sponsored the Rotaract Club of Grenada’s 29th Annual National Spelling ‘Bee’ Competition, by providing prizes to winning students. Eleven primary schools from Grenada, Carriacou and Petite Martinique were represented in the finals of the Competition. 2016 ANNUAL REPORT 25 SAGICOR INSPIRE PROJECT - SAGICOR GROUP JAMAICA LIMITED - JAMAICA Approximately 130 selected young leaders and high achievers from tertiary institutions across Jamaica were treated to a highly motivational and impactful weekend at the Hilton Rose Hall Resort and Spa in Montego Bay. Known as the “Inspire Project”, this event was conceptualised with the intent of empowering, inspiring and motivating future leaders who have demonstrated remarkable academic accomplishments and/or leadership at their respective institutions. The inaugural Sagicor Inspire Project accomplished just that and more, as these young leaders experienced an unforgettable weekend. After the arrival fanfare and a smooth check-in process, the students were immediately ushered to the first series of activities, the Power Hour Sessions with the Sagicor Executive team, who shared their business and personal success stories to help boost the minds of the future leaders, in preparation for their venture into the workplace. On the second day, the young leaders were treated to a number of inspirational speakers on the main stage before heading off to one of three breakout sessions entitled, “Brand Me”, “Smart Financing”, and “Preparing for Work”. During the main session, participants were ‘inspired’ by motivational speaker, Michael Maragh; Lifestyle doyenne, Novia McDonald Whyte; Sagicor Top Financial Advisor, Loeri Robinson, and The Apprentice’s first black winner, motivational speaker and businessman Dr. Randal Pinkett. The weekend culminated with an informative breakfast session where Group President and CEO, Richard Byles, imparted life lessons which he has garnered over an illustrious business career. Students were invited to put questions to the executives before leaving the ballroom, being inspired in order to inspire. 7. A group photo of Sagicor Inspire Project’s high achievers 8 Assistant Team Captains of the Adopt-a-school programme with students from their Adopted Schools after the launch of the 2016 Adopt-a-School programme.. 26 SAGICOR FINANCIAL CORPORATION LIMITED 7 ADOPT-A-SCHOOL PROGRAMME - SAGICOR GROUP JAMAICA LIMITED - JAMAICA In May, the Sagicor Foundation Adopt-A-School 2016 programme was launched with Sagicor’s Bank, Life, and Investments branches coming together to offer support to ten early childhood Iinstitutions. The first set of activities in the schools began on Labour Day, May 23, as Sagicor Branch Managers and team members across the island refurbished their assigned school by repainting the edifice, fixing and improving the play areas, and renovating the kitchens and bathrooms. The programme was expected to impact over 1000 students across the island. During May, Child’s Month, Sagicor Foundation and Lasco iCool partnered to provide over 300 students to a day of fun, frolic and edutainment at the Hope Zoo, dubbed “Reading is cool.” The event was held in honour of the nation’s children, which was a part of the thrust by both companies to culminate May’s Child Month activities. The students were chosen from Sagicor’s existing list of Adopt-a-school locations across the island, as well as schools that have a close relationship with the Lasco Group. In December, the volunteer captains from the tag team branches across the island organised a children’s treat for students from the respective adopted schools in Jamaica. All students from the nine early childhood adopted schools ended the school year enjoying a Christmas treat with Sagicor staff. Each child received a toy courtesy of the Sagicor Foundation. SCHOLARSHIP AWARDS - SAGICOR GROUP JAMAICA LIMITED - JAMAICA The Sagicor Foundation awarded and recognised outstanding GSAT and tertiary scholarship awardees at its Scholarship Awards Ceremony at the Jamaica Pegasus Hotel. Twenty-seven tertiary students were selected to receive a total of JA $6,750,000 towards their tuition fees. Successful recipients were selected on the basis of academic merit, leadership, community involvement and financial need. Fifteen students, who excelled in the Grade Six Achievement Test (GSAT), were awarded academic scholarships to secondary institutions valued at JAD $750,000. In addition, the Champion girl and boy from the JTA/Sagicor Athletics Championship were awarded academic scholarships to the secondary school of their choice. The scholarship programme started in 2009, and there are currently 53 students benefiting from the initiative. A total of JAD $15.5 million was invested in the programme for 2016 for new and returning scholars. SCHOOL SUPPLIES DRIVE - SAGICOR LIFE INSURANCE COMPANY - USA SLIC Staff from the Scottsdale and Mesa offices started the year with a Potluck Fundraiser, with all funds going to the Company’s school charities. The Client Services and Records Management Departments provided a fabulous array of food and treats for employees to purchase. The Tampa office raised money for the school supply drive with an “Italian Themed Lunch and Raffle”. In April, the team hosted a lunch, and tickets for the meal were purchased in advance. As an added touch, a surprise bonus raffle for movie tickets and Butterball Grocery Gift Cheques was also offered. 8 2016 ANNUAL REPORT 27 In May, the Scottsdale office held another fundraiser for the School Supplies Drive. Each executive was given a designated donation jug, in which staff placed their nominations for the executive they wanted to see dressed in a costume. The three executives with the most nominations received the honour of wearing a costume for a day. The winning costumes included a Black and Blue Power Ranger, an Elvis look-alike, and an old-time Mariachi singer. HILLSBOROUGH EDUCATION FOUNDATION VOLUNTEERS - SAGICOR LIFE INSURANCE COMPANY - USA In June, volunteers from the Tampa office offered their assistance to the Teaching Tools Store, sorting and packing donated school supplies. The Teaching Tools Store is part of the Hillsborough Education Foundation, and provides free school supplies to economically disadvantaged students who attend schools designated as “Title 1”. Of the 266 schools in Hillsborough County, 164 qualify for the Title 1 designation. The Teaching Tools Store relies on donations from the community and dedicated volunteers who sort donations, stock shelves and assist teachers in procuring supplies to take back to their classrooms. Sagicor has been involved with the Hillsborough Education Foundation for a number of years, and is proud to support the Foundation. ANNUAL BACK-TO-SCHOOL CLOTHING DRIVE - SAGICOR LIFE INSURANCE COMPANY - USA Staff from the Scottsdale and Mesa Riverview offices volunteered at Grand Canyon University Arena to assist children from Kindergarten to 6th Grade with much needed supplies. Volunteers helped with registering students and distributing badges; stuffing and distributing backpacks; escorting students through each department as a ‘personal shopper’; measuring and making sure the clothes and shoes fit each student; scanning clothing items into computer inventory and placing backorders. The Back-to-School Clothing Drive’s mission is to provide school supplies and essentials to children in need, with a goal of supplying more than 25,000 children who attend Title 1 public elementary schools in Maricopa County with new uniforms and outfits, backpacks and school supplies. Thirty-nine volunteers from Sagicor donated over 234 hours in a variety of capacities. 9 10 9. SLIC volunteers at the School Supplies Drive. 10. Staff from SLIC sorting and packaging donated school supplies for the Hillsborough Education Foundation. 11. Sagicor Foundation Board of directors, R. Danny Williams, Richard Byles, Stephen Facey and Chantal Hylton-Tonnes, with the 2016 scholars at the Awards Ceremony at the Jamaica Pegasus Hotel. 28 SAGICOR FINANCIAL CORPORATION LIMITED whole. PCA Tampa Bay will soon name 25 scholarship finalists who will be interviewed by members of a selection committee, an experience that in and of itself, helps prepare the candidates for life beyond their sports endeavours. SAGICOR SPONSORS 2017 PCA-TAMPA BAY SCHOLARSHIP PROGRAMME - SAGICOR LIFE INSURANCE COMPANY - USA In September 2016, SLIC increased its commitment to the Tampa Bay Chapter of the Positive Coaching Alliance (PCA) by becoming the presenting sponsor of the Class of 2017 Triple-Impact Competitor Scholarship Awards. PCA Tampa Bay was originally launched in 2014 with financial support from the Tampa Bay Rays, Tampa Bay Lightning, Triad Foundation, Sagicor and other local Tampa Bay companies. PCA develops “better athletes, better people” through resources for youth and high school sports, coaches, parents, administrators and student-athletes. Nationally, PCA has reached over 8.6 million with their programmes. The PCA Tampa Bay Scholarship Programme honours area high school student-athletes who impact sport on three levels: by improving themselves; teammates, and the game as a 11 2016 ANNUAL REPORT 29 YOUTH & COMM UNITY DEVE LO P M E N T HELPING HAITI - SAGICOR GROUP OF COMPANIES In October, Hurricane Matthew struck Haiti, leaving more than 1,000 people dead and over 100,000 homeless. The United Nations estimated that at least 1.4 million Haitians were in need of urgent assistance, as clean water, food and medicine were in short supply. The cholera epidemic was worsening, with the World Health Organisation reporting 800 new cases per week after Matthew’s passing. Knowing that Haiti was still recovering from the devastating 7.0 earthquake of 2010, the Sagicor family in the United States, Barbados, Trinidad and Tobago, and the Eastern Caribbean raised a total of USD $20,711 for Haiti. The Sagicor Group of Companies donated the money to Shashamane Sunrise, a US-based non-profit organisation that is assisting Haiti in its recovery. Shashamane Sunrise, in collaboration with the Edeyo Foundation and the Children of the Caribbean Foundation, is targeting relief efforts on rebuilding a school and delivering much- needed food and medical supplies, as well as school supplies to the community. 1 BARBADOS 50TH INDEPENDENCE ANNIVERSARY CELEBRATIONS - SAGICOR LIFE INC - BARBADOS On November 30, Barbados marked its 50th Anniversary of Independence, and Sagicor Life Inc celebrated the Golden Jubilee by sponsoring the momentous occasion. For over 20 years, Sagicor Life Inc has sponsored the annual Lighting Ceremony on November 1, which marks the beginning of the official activities for the month, and signals the illumination of landmarks and roundabouts across the island. Celebrations were also extended to customers through a project, spearheaded by Sagicor’s Customer Experience department, recognising “A Special Moment in the Life of Eight Long-time Clients”. Those clients celebrated either their 50th birthday or their 50th Anniversary as a Sagicor customer during the month of November 2016, and were treated to a special luncheon with senior executives as a show of appreciation for their loyal patronage. 30 SAGICOR FINANCIAL CORPORATION LIMITED 1 2 .1. (l to r) Anderson King Vice President, Corporate Communications and Marketing; Wendy Fitzwilliam and Dr. Rene Williamson, Ambassador and Executive Chairman for the Shashamane Sunrise Foundation; Robert Trestrail, Executive Vice President and General Manager, Sagicor Life Inc Trinidad and Tobago, and Diane Loutan-Ali, Vice President, Branch Operations, Sagicor General Insurance, Trinidad and Tobago, at the presentation of Sagicor’s donation to rebuild the Marion School in Haiti. HOSTING OF THE BROKEN TRIDENT - SAGICOR LIFE INC & SAGICOR GENERAL INSURANCE INC - BARBADOS In addition to having the honour of ushering in Barbados’ 50th Anniversary Celebrations, Sagicor Life Inc also hosted the Commemorative Broken Trident on November 1, at the Belleville Branch, Collymore Rock, and on November 2, at the Wildey location, as one of the national activities of the “Carrying Our Pride” programme. Staff and clients were invited to view the Broken Trident and sign the Pledge Book. Sagicor Directors, in Barbados for Board Meetings, were on hand for a commemorative photo with the Broken Trident. Sagicor General Insurance also hosted the Broken Trident at its Haggatt Hall offices. To loud applause from staff members lining the stairways, the Broken Trident was handed over to customer Kimberley Lavine, who passed it on to SGI President and CEO, David Alleyne, who proudly accepted it and briefly addressed staff on the significance of the occasion. TED X - SAGICOR LIFE INC - BARBADOS Sagicor Life Inc sponsored the Ted X Bridgetown Forum for the first time. The event featured speakers discussing the various areas in which they specialise, and sharing inspirational life experiences. The objective of the event was to share ideas and encourage constructive action among participants. Under the theme “Crafting Our Fate”, speakers included calypsonian, The Mighty Gabby; Peter Wickham, researcher and political analyst; a visually impaired young woman, Janeil Odle; Dr. Srinivasa Popuri, an expert on sustainable technologies, and Gabriel Abed, CEO of the Barbadian digital currency facilitation company, Bitt. SAGICOR’S WATER RELIEF EFFORTS - SAGICOR LIFE INC - BARBADOS The Barbados Water Authority was faced with considerable challenges that affected the supply of water to many areas of Barbados. As a result, some of the rural communities were without water for extended periods. Realising that they were in a position to provide some relief, staff rallied to assist in mitigating the impact of the crisis. In October, Sagicor Life Inc and Sagicor General Insurance collaborated for the first water relief distribution mission. Under the guidance of the Barbados Water Authority, staff volunteered to go 3 4 2016 ANNUAL REPORT 31 2. The Sagicor-sponsored Garfield Sobers Roundabout decorated and lit in Barbados Independence colours. 3. Members of the Sagicor Group and Sagicor Life Inc Board with the commemorative Broken Trident. (l to r) Andrew Aleong; Peter Clarke; Dodridge Miller; Richard Kellman; Dr Jeannine Comma; Chairman, Stephen McNamara; Pat Downes-Grant; Ian Carrington; Ravi Rambarran, and David Wright. 4. Sagicor General Insurance Inc President and Chief Executive Office, David Alleyne, shares a pose with customer, Kimberley Lavine. into the affected communities of Hillaby, Mount Hillaby and White Hill in St Andrew, as well as Farm Park in St Thomas, and distributed over 100 cases of bottled water, all of which were donated by Sagicor staff. After the initial distribution, Sagicor liaised with the Barbados Water Authority to determine which districts were in greater need. Every Sunday during November and December, volunteers visited the communities of Rock Hall, St Andrew; Four Hill, Gays, French Village and Mount Brevitor in St Peter, along with Horse Hill, Suriname and Bowling Alley in St Joseph delivering water to residents. Advisors and staff from multiple departments distributed over 1,000 gallons of bottled water. FINANCIAL INFORMATION MONTH - SAGICOR LIFE (EASTERN CARIBBEAN) INC – DOMINICA During October, the Sagicor team in Dominica partnered with the Eastern Caribbean Central Bank in its activities surrounding Financial Information Month. One of the activities, “Visit a School”, welcomed the adoption of the Kalleb Laurent Primary School by Sagicor. Sagicor representatives visited the school as part of an outreach programme, and held sessions with grades 3 and 4 children to sensitise them to the different Eastern Caribbean currency notes, and discussed ways in which they could save money. 5 6 5. SLI staff member distributing water as part of the Sagicor Water Relief efforts. 6. Avril Elie from Sagicor Life (Eastern Caribbean) Inc’s Dominica office with children form the Kalleb Laurent Primary School for a “Financial Information Month” activity. 7. Members of the Sagicor St Vincent team take some time out with the Coast Guard Youth Development Summer Programme Participants. 8. Team members from Sagicor General Insurance Inc present a door prize to a BIBA Networking Event participant. 7 9. One of many vehicles on display at the Classic Cars Exhibition. 32 SAGICOR FINANCIAL CORPORATION LIMITED 8 9 ST VINCENT AND THE GRENADINES COASTGUARD YOUTH DEVELOPMENT SUMMER PROGRAMME - SAGICOR LIFE (EASTERN CARIBBEAN) INC - ST VINCENT AND THE GRENADINES The St Vincent and the Grenadines office renewed its annual sponsorship of the St Vincent and the Grenadines Coastguard Youth Development Summer Programme, which provides constructive activities for young people between the ages of 14 and 18. The 2016 programme exposed participants to new learning skills, enabling them to gain new perspectives in areas such as social and professional etiquette, first aid, leadership development, swimming and lifesaving, human sexuality and conflict resolution. Members of the St Vincent office also conducted sessions on budgeting and saving for the participants. Sagicor’s commitment to the programme supports the Coastguard’s continued contribution to the development of the youth of St Vincent and the Grenadines. NINE MORNING FESTIVAL - SAGICOR LIFE (EASTERN CARIBBEAN) INC – ST VINCENT AND THE GRENADINES The St Vincent and the Grenadines office once again provided support for the national Nine Morning Festival, with a donation towards the activities in the southern village of Stubbs. The Nine Morning Festival is a unique Vincentian festivity associated with the Christmas season, and is celebrated on the mornings of the nine days leading up to Christmas with various exhibitions and concerts. BIBA NETWORKING EVENT - SAGICOR GENERAL INSURANCE INC - BARBADOS Close to two hundred professionals from various sectors came together for the BIBA Networking Event at the Concorde Experience, Barbados. The event was jointly sponsored by Sagicor General Insurance, Courtesy Garage and Globe Finance. The session coincided with 50th Independence anniversary celebrations across the country. Conversations ranged from the recall of jokes among friends, to more serious issues like the continued challenging state of the economy and the importance of the island’s 50th anniversary of political independence from Britain. In between the chatter and mingling, several lucky attendees also took away vouchers for products and services from the sponsors following a business card draw. CLASSIC CARS - SAGICOR GENERAL INSURANCE INC - BARBADOS Sagicor General Insurance Inc continued its support of the “Classic Cars” Exhibition, where hundreds witnessed a live auction of an attractive 1937 Ford Coupe changing ownership at Content, St Thomas, Barbados. The curvy and distinctive-looking vehicle fetched a price of BDS $50 000, and was reportedly purchased by a Canadian-based buyer. The salmon and black 80-year-old car was among the star attractions at the show, where more than 50 classic and retro vehicles were showcased. The event was jointly sponsored by Courtesy Garage and Sagicor General Insurance, and brought together members and cars from the Barbados Association of Classic Cars and the Retro & Classic Car Association – the two leading clubs on the 2016 ANNUAL REPORT 33 island. Several prizes were presented on the day, including “Car of The Show” (a 1967 Honda Mark 1 convertible) and “Most Original Car” (a 1983 Subaru GLF). Close to 600 automobile enthusiasts, motorsport fans and visitors were among those taken back in time during the exhibition, which also featured several vintage cars that were no longer in production. Sagicor General used the occasion to promote its recently launched Key Protector Classic & Retro Motor Policy. PROFESSIONAL INDEMNITY (PI) AND DIRECTORS AND OFFICERS (D&O) LIABILITY SEMINAR - SAGICOR GENERAL INSURANCE INC - BARBADOS Efforts to implement stricter corporate governance regulations in Barbados and the wider Caribbean are also exposing Directors of companies and professional service providers to higher risks in an increasingly litigious environment. In such circumstances, with the growing need to provide cover and security for these increasing exposures, Sagicor General Insurance teamed with Empirical Insurance Brokers, Guardian General and global reinsurer, Munich RE, to refocus and enhance their products which cover Professional Indemnity (PI) and Directors and Officers (D&O) liability insurance. The companies hosted a seminar at Hilton Barbados, to update Directors and Officers of companies and professional service providers on liability insurance exposure and coverage. Representatives from Sagicor General Insurance informed participants that individuals, partners and firms were eligible to be insured under Professional Indemnity Insurance. The audience also received valuable information on how Professional Indemnity Insurance could be extended to cover such areas as defamation, where unintentional libel or slander may arise by reason of words written or spoken by the Insured in the performance of their professional business activity. 10 11 EDUCATIONAL SESSION WITH DOCTORS - SAGICOR GENERAL INSURANCE INC - BARBADOS Some of the challenges facing doctors and the insurance industry came under the microscope during an interactive seminar hosted by Sagicor 34 SAGICOR FINANCIAL CORPORATION LIMITED 10. Members of the panel from Sagicor General Insurance, Empirical Brokers, Guardian General and Munich Re updating their audience on liability insurance exposure and coverage. 11. Dr Michael Hoyos addressing doctors during an interactive seminar hosted by Sagicor General Insurance Inc. General Insurance. In a changing environment which has seen major global growth in the specialty area of Insurance Medicine, several of the island’s young doctors were recently provided with timely advice and had their questions answered during the evening session. Featured presenter for the event, Dr. Michael Hoyos, underscored the fact that doctors had an important role to play in helping all parties to achieve accurate and fair assessments of claims in events where patients suffered injuries. Dr Hoyos, a physician with over 40 years’ experience, cautioned his younger colleagues that insurance reports had to be clinically accurate, thorough and supported by scientific tests. He further stressed that any opinions offered must be based on the whole picture, taking into account the clinical status of the patient, as well as the impact of the injury on the person. Dr Lana Husbands also presented on the not-so-obvious infections which affected babies and children. She advised her audience that, since babies and toddlers are unable to speak for themselves, it was imperative that doctors are thorough in their assessments. Dr Husbands offered tips on when parents and doctors should be concerned, and cautioned that the presence of fever could be a sign of a simple illness or something more severe. SGI is of the view that such educational sessions should be staged specifically for health-care professionals, as liability issues and the adjudication of claims were critical matters facing the Insurance industry on a daily basis. 2016 ANNUAL REPORT 35 HABITAT FOR HUMANITY - SAGICOR LIFE INC - TRINIDAD AND TOBAGO Sagicor staff, advisors, and management team, as part of the 175th anniversary celebrations, joined forces with Habitat for Humanity Trinidad and Tobago, to assist future homeowner, Sumintra, and her children, in building and painting their home in Central Trinidad. This partnership fulfilled a cherished dream of Sumintra’s - that all three of her children can live together in a home of their own. Early in 2016, Sagicor staff contributed 175 man-hours to help Sumintra cast the apron surrounding the existing 36 SAGICOR FINANCIAL CORPORATION LIMITED 13 foundation. In November, they painted the two-bedroom house in Cashew Gardens, and then, in conjunction with the Ministry of Housing and Urban Development, presented the keys to Sumintra and her children. Working with Habitat for Humanity was a natural fit for Sagicor, as it is committed to improving the lives of the people in the communities in which the company operates. The home has afforded Sumintra the opportunity to build a strong foundation for her family. ETIENNE CHARLES MUSICAL EDUCATIONAL OUTREACH - SAGICOR LIFE INC – TRINIDAD AND TOBAGO Sagicor’s Trinidad and Tobago office was pleased to support Trinidad- born jazz maestro Etienne Charles and his group, Creole Soul, with the Caribbean premiere and educational outreach residency of his latest album, San Jose Suite. Mr Charles’ compositional work explores and highlights the experiences of indigenous people and African immigrants, with respect to three San Jose settlements established in Trinidad and Tobago, Costa Rica, and California, USA. Sagicor Life Inc recognised the value of Etienne’s work and felt it necessary to support the educational outreach performances at the Princess Elizabeth Centre, St Dominic’s Children’s Home and St Mary’s Children’s Home. Sagicor’s silver sponsorship provided the opportunity to interact with the younger generation, and introduce them to live music, while at the same time, sparking their interest in the creative arts. 14 ADOPT-A-PROJECT - SAGICOR LIFE INC - TRINIDAD AND TOBAGO The staff engaged in their second annual Adopt-A-Project campaign, completing ten projects, as they partnered with local communities to address specific needs in the areas of youth development through sport, education and health. Sagicor staff partnered with various organisations throughout Trinidad and Tobago, namely, the Cerebral Palsy Society of Trinidad and Tobago; the St Dominic’s Children’s Home; the Tacarigua Anglican Primary School; the Credo Sophia House for Girls; the Bon Accord Government Primary School; the San Fernando Methodist School; the Animals Alive Sanctuary; St Ursula’s Girls’ Anglican School; the Servol Life Centre in Diego Martin; the St James Police Youth Centre; and the St Andrew’s Home for Elderly Women. 13. SLI TT staff members busy at work on a housing project for Habitat For Humanity. 14. Etienne Charles and his band, Creole Soul, at the Musical Educational Outreach project. 15. SLI TT staff members hard at work at the St Ursula’s Girls’ Anglican School, refurbishing the library as part of Sagicor’s Adopt-A-Project campaign. 15 2016 ANNUAL REPORT 37 RJR SPORTSMAN & SPORTSWOMAN AWARDS - SAGICOR GROUP JAMAICA LIMITED - JAMAICA Olympian Shelly-Ann Fraser-Pryce received the Iconic award at the RJR Sportsman & Sportswoman Awards in 2016. Ms Fraser Price was also presented with a JAD $200,000 cheque, which she will donate to a charity of her choice, to be used for that organisation’s continued philanthropic efforts. SAGICOR EMPLOYEE VOLUNTEER PROGRAMME - SAGICOR GROUP JAMAICA LIMITED - JAMAICA The Sagicor Employee Volunteer Programme in Jamaica was officially launched. A portal was created for all Sagicor staff members interested in participating in the company’s CSR initiatives. Since its inception in January 2016, there are now close to 500 volunteers in the Sagicor Employee Volunteer Programme. Additional volunteers will be added in February 2017. ST MARY’S FOOD BANK - SAGICOR LIFE INSURANCE COMPANY - USA In 2016, fourteen staff members from the west side of metropolitan Phoenix volunteered at the St Mary’s West Side Food Bank. During a 4-hour shift, the team was tasked with preparing and labelling pasta bags for hungry families. On another occasion, a group of SLIC actuaries volunteered their time at the St Mary’s Food Bank, located in downtown Phoenix, packing food boxes, and loading and delivering food in grocery carts. During August, two teams from the Scottsdale office held two ‘50/50’ raffles to raise money for St Mary’s Food Bank. The month-long raffles raised just under USD $2,000, with 50% of the proceeds going to the St Mary’s Food Bank, and one lucky recipient receiving the other half. Every $1.00 donated, provided 8 meals. Another team in Scottsdale, as part of their fundraising efforts, sponsored four volunteer opportunities at various St Mary’s Food Bank locations. The team worked an assembly line, putting together boxes, filling them with items donated from suppliers and, after quality checking, they passed them on for sealing. Along with a group of fifteen middle school children, they worked with employees from other companies and individual volunteers. 38 SAGICOR FINANCIAL CORPORATION LIMITED In September, another Scottsdale team kicked off their fundraising efforts by raffling a 1-hour massage and spa gift basket. During the period of the raffle, massages by a staff member who is also a licensed massage therapist, were available at a discounted rate. Proceeds from the raffle went directly to the Food Bank. During October, staff from the Scottsdale and Mesa Riverview offices volunteered at some of the St Mary’s Food Banks around the Greater Phoenix area. The team fulfilled the service-hour requirements, and were gratified, knowing that some of the food that the volunteers had prepared, packed and helped to distribute was purchased with money, which they had donated. The Scottsdale Office staff were very creative in organising special corn hole tournaments. The first tournament was for individual players, and was priced at $5 for one round to see who could land the most bags and get the highest point total. However, the twist was that they had to spin the wheel to find out how they were to toss the bags. The second tournament consisted of teams of two players competing under similar rules, except that the throwers were blindfolded. The idea was for the teammate to help the blindfolded thrower find the board. 16. Staff from SLIC’s Arizona office go to work on a Habitat For Humanity site in the Northwest Valley. 17. A staff member from Team Sagicor took time out to “sign” the interior of a home built for a Habitat for Humanity project. HABITAT FOR HUMANITY - SAGICOR LIFE INSURANCE COMPANY - USA In February, SLIC staff from the Scottsdale Office and their family members donated their time and talents at a Habitat for Humanity site in the Northwest Valley. The main goal was to put a new layer of shingles on the roof. Altogether, Sagicor had sixteen volunteers on site performing a variety of tasks, including cutting shingles to the proper size and shape; transporting the shingles to the people on the roof; placing and nailing down the shingles; sanding and scraping old paint off the eaves, repainting them, and general cleaning up. The future homeowners were also on hand to work alongside the staff. A subsequent visit saw twelve staff and their family members from the Scottsdale Office donate their time and talents at a Habitat for Humanity site in the downtown Phoenix area. The volunteers worked for a full day installing trim and baseboards throughout the house; mounting and caulking shelves in closets; hanging doors; spackling and cleaning up in preparation for painting. The future homeowner was on hand, working beside the Sagicor volunteers. In November, a team of volunteers from the Tampa office spent several hours working on another Habitat for Humanity project. The team installed insulation inside the home; placed roof soffit under the exterior overhang, and painted a coat of primer on the entire exterior of the house. Towards the end of the day, Sagicor staff members were invited to “sign” the interior of the house with messages for the future homeowner, Miriam, and her family. Besides assisting Miriam, Team Sagicor left the project with a sense of accomplishment and a few handy skills. KNIGHTS OF COLUMBUS GOLF FUNDRAISER - SAGICOR LIFE INSURANCE COMPANY - USA Sagicor recently sponsored a hole in the Knights of Columbus (KofC) golf outing and fundraiser. The KofC support many charitable organisations that assist the less fortunate, and were able to make an immediate USD $5,000 donation to St Vincent de Paul, a charitable organisation. Sagicor’s participation helped the event to raise over USD $11,000 that will be channeled back into the community. 16 17 2016 ANNUAL REPORT 39 SALVATION ARMY WATER DRIVE - SAGICOR LIFE INSURANCE COMPANY - USA Staff members from the Scottsdale office spearheaded a project involving the purchase of cinnamon rolls. The 200 rolls were then purchased by other staff members, family member, friends or neighbors, and the funds raised were donated to the Salvation Army Water Drive. The fundraising for the Salvation Army Funds for Water continued in the Scottsdale office with an ice cream treat event. Instead of purchasing an ice cream bar or sandwich for themselves, employees purchased ‘tokens of appreciation’ to give to other staff members, which could then be exchanged for a treat during the designated exchange times. 240 tokens of appreciation were sold. 18 RAYS’ JOHN HOPKINS ALL CHILDREN’S HOSPITAL VISIT - SAGICOR LIFE INSURANCE COMPANY - USA SLIC has been a proud sponsor of the Tampa Bay Rays since 2009, and as part of that sponsorship, Sagicor and the Rays conduct a series of visits to John Hopkins All Children’s Hospital during the baseball season. Annually, Sagicor staff members, Rays’ players and the team mascot, Raymond, visit the hospital to brighten the spirits of the young patients and their families. In June, Rays’ players 1st base, Logan Morrison, and catcher, Curt Casali, made the rounds with Sagicor staff members. Logan and Curt visited the children, autographing baseball cards and passing out Sagicor Rays’ co-branded baseball-shaped pillows. The older children enjoyed the opportunity to meet a major league ball player and talk baseball, while the younger kids were more interested in the antics of Raymond. 18. Tampa Bay Ray players, Logan Morrison and Curt Casali visit a young patient at the John Hopkins All Children’s Hospital. 19. SLIC volunteer with children from the BT Washington Elementary School at Tampa’s 19 Lowry Park Zoo 40 SAGICOR FINANCIAL CORPORATION LIMITED 99.5 QYK GUITAR PULL - SAGICOR LIFE INSURANCE COMPANY - USA Two of Sagicor’s Tampa Career Agents participated in the 2nd Annual 99.5 QYK Guitar Pull in November. The event featured up-and-coming country singers, who took turns playing their acoustic guitars and singing their hits. The sold-out Guitar Pull was held at the Mahaffey Theater in downtown St Petersburg, and included country stars Gary Allan, Tyler Farr, Josh Turner, Chris Lane, Chase Bryant and Kane Brown. This is the second year that Sagicor sponsored the Guitar Pull, by providing free parking to those in attendance. Before the show and at intermission, the Career Agents manned a Sagicor booth, where guests could register for a chance to win a guitar. At the event, reality TV celebrity and proprietor of Gas Monkey Garage, Richard Rawlings, stopped by to register for the guitar, as did hundreds of other guests, who also requested additional information on Sagicor. The following month, as part of Kids’ Spirits Day, Sagicor staff members were joined by the Rays’ pitcher, Chase Whitley; outfielder, Steven Souza Jr., and Raymond the mascot for a visit to the hospital. The Kids’ Spirits Day programme began in 2010 as a display of support for children, families and staff at the hospital. The season’s third and final John Hopkins All Children’s Hospital Visit took place in August. Rays’ players’ shortstop, Matt Duffy; outfielder, Mikie Mahtook, and Raymond, visited the children for approximately two hours. During the visit, the players and Raymond stopped in the young patients’ rooms to say hello, and Mikie Mahtook spent some time with the children who had recently undergone bone marrow transplants. TASTES FROM AROUND THE WORLD - SAGICOR LIFE INSURANCE COMPANY - USA The Tampa office recently held a unique and delicious fundraiser to assist the Metropolitan Ministries Food Drive. In July, the office hosted its second event, “A Taste from Around the World Potluck”. A team of staff members chose a country to represent; usually the country of their birth or ancestry or because they have some other connection to it. Participants donated money in exchange for a passport and a map to help them travel to all of the thirteen exotic locations. At each stop, the travelers got a stamp in their passport and a chance to enjoy the dishes, desserts and drinks, as well as the atmosphere from the different countries. Participants also received additional bonuses, in the form of golden stars hidden along the route that could be redeemed for Sagicor Treasures. BT WASHINGTON HOLIDAY PARTY - SAGICOR LIFE INSURANCE COMPANY - USA Sagicor’s annual holiday party for the 3rd grade class of B T Washington Elementary took place in December at Tampa’s Lowry Park Zoo. Staff members volunteered to help the teachers keep the children organised. They were treated to lunch, saw the animals and enjoyed rides at the Zoo. At the end of the event, every child was given a holiday bag filled with presents. This year the Tampa Bay Rays donated items to be included in the bags. 2016 ANNUAL REPORT 41 SPORT 1 2 NATIONAL SPORTS COUNCIL SUMMER SPORTS CAMP - SAGICOR LIFE INC - BARBADOS Sagicor Life Inc continued its strong support of sport and youth development through sponsorship of the annual National Sports Council Summer Camp. In addition to sporting activities, the much-needed funding was used to coordinate workshops which shared helpful “life” tips and provided guidance for the campers. In 2016, Sagicor youth leader-in-training and Captain of the West Indies Cricket Team, Jason Holder, addressed the cricket group, while nutritionist Kimberley Rudder, spoke on nutrition and wellness. BARBADOS BODY BUILDING CAC CHAMPIONSHIPS - SAGICOR GENERAL INSURANCE INC - BARBADOS Sagicor General Insurance sponsored 3 athletes of the 24-member Barbados contingent who attended the 2016 IFBB /CAC Bodybuilding and Fitness Championships in the Dominican Republic. At the sponsorship presentation, first-timer Lynette Thompson, a Body Fitness competitor; Melissa Burrowes, defending champion in Bikini Fitness, and Marlon Dottin, the 2014 CAC champion in the Men’s Physique Competition, spoke about their future ambitions and aspirations, and shared their excitement to be competing in the region’s premier amateur Bodybuilding Championships. The team left Barbados for the 44th Central American and Caribbean Championships (CAC) with high hopes of again capturing the overall team title, one that Barbados has won on thirty-one occasions. 3 42 SAGICOR FINANCIAL CORPORATION LIMITED 1. Captain of the West Indies Cricket Team, Jason Holder, with the cricket group at the National Sports Council Summer Camp. 2. Nutritionist, Kimberley Rudder, engaging summer camp participants on the benefits of good nutrition and wellness. 3. (l to r) Body Builders Marlon Dottin, Melissa Burrowes and Lynette Thompson at the sponsorship presentation for the CAC Championships with Sagicor General Insurance Inc’s Roger Spencer SAGICOR GENERAL INSURANCE T20 - SAGICOR GENERAL INSURANCE INC - BARBADOS Sagicor General Insurance hosted the 2016 SGI T20 Competition. The cricket tournament, organised by the Barbados Cricket Association, was overhauled in order to generate greater interest in the Twenty/20 form of the game. In its new structure, the tournament was divided into two phases, where the island’s ten Division 1 teams were split into two zones of five, and played each other in a round-robin format, with the top two zone winners advancing to the second phase of the tournament, where they joined the ten Elite division teams in the Super 12 phase. This new format is a step towards generating renewed interest in the game, and showing young men and women that T20 is the way that cricket has been evolving for the last few years. Following a commanding 66-run victory over the Barbados Defence Force Sports Programme (BDFSP), the students from the Cave Hill Campus of the University of the West Indies celebrated their capture of the Sagicor General Insurance T20 cricket championship. Sagicor UWI, who previously won Sagicor T20 cups in 2012, 2013 and 2015, collected the champion’s cheque of BBD $20 000, while BDFSP took the runners-up cash prize of BBD $10 000. All players and officials were also presented with commemorative medals. SAGICOR JUNIOR TENNIS TOURNAMENT - SAGICOR LIFE INC - TRINIDAD AND TOBAGO Sagicor hosted the 14th edition of the Sagicor Junior Tennis Tournament at the Eddie Taylor Public Courts, Nelson Mandela Park, where 120 contenders vied for top trophies and cash prizes. An integral part of the event is the Red Star Under-10 Tournament, an introductory beginners’ Tournament, where participants’ siblings were given the opportunity to show their skill. 4 .4. Sagicor UWI cricket team enjoying a victorious moment after winning the Sagicor 5 General Insurance T20 tournament 5. Doubles players taking instructions from a match official on the terms of play at the Sagicor Junior Tennis Tournament. 2016 ANNUAL REPORT 43 ST ANDREWS INVITATIONAL GOLF TOURNAMENT - SAGICOR LIFE INC – TRINIDAD AND TOBAGO The Sagicor St Andrews Invitational Golf Tournament, now in its 16th year, took place in April with over 100 golfers taking to the greens. Former West Indies cricketer, Brian Lara, and football icon, Russell Latapy, both took part in the Championship flight, as they had achieved the handicap necessary to participate. Funds were donated to the Friends of the Blood Bank Association. JTA/SAGICOR NATIONAL ATHLETIC CHAMPIONSHIPS - SAGICOR GROUP JAMAICA LIMITED - JAMAICA The Sagicor Foundation once again partnered with the Jamaica Teachers’ Association (JTA) to stage the 33rd JTA/Sagicor National Athletic Championships, from May 20 to 21, 2016 at the National Stadium. Approximately JAD $6 million was donated towards the staging of the meet, enabling student athletes an opportunity to put their athletic talent on display. Additionally, Sagicor has upheld its charitable tradition over the years by offering two five-year scholarships at the secondary level to the champion boy and girl of the meet. Over 1,200 primary school athletes participated in 52 track and field events, with the parish of St Andrew emerging the winner. 7 6. A St Andrews Golf Club committee member demonstrates the correct way to hold a golf club during the “Kids on the Greens” coaching session. 7. The Sagicor High Five Station at the Rays Fan Fest, St Petersburg, Florida. 6 8. Sagicor presenting the University of South Florida’s Homecoming Game. 44 SAGICOR FINANCIAL CORPORATION LIMITED 8 RAYS FAN FEST - SAGICOR LIFE INSURANCE COMPANY - USA The 20th annual Rays Fan Fest was held at Tropicana Field, located in downtown St Petersburg, Florida. Representatives from SLIC managed the Sagicor-branded event tent, distributing Sagicor branded baseball figurines. Fans visiting the tent could also register for a chance to win official Tampa Bay Rays’ baseball memorabilia, including an Evan Longoria autographed bat, a Chris Archer autographed baseball and a Desmond Jennings autographed jersey. The Rays Fan Fest signals the start of Spring Training and the pending kick off to the season opener. The free event offers Rays’ fans the opportunity to mingle with players, coaches, alumni and broadcasters. There was also a Rays Charity Yard Sale that featured some unique, game- used memorabilia, dating back to the club’s inaugural season. All proceeds from the yard sale were donated to the Rays’ Baseball Foundation. SLIC sponsored the Coaches Clinic, “Run the Bases”, and the “Kid’s High Five Station”, where children got the chance to “high five” a Rays Player after he crossed home plate. Attendance was close to 20,000 at that event. RAYS MAJOR LEAGUE BASEBALL - SAGICOR LIFE INSURANCE COMPANY - USA The Sagicor-sponsored Tampa Bay Rays was one of the six teams to kick off the 2016 Major League Baseball Season in April, with a nationally televised game. The Sagicor brand was well represented by the new format of the outfield wall signage. Even though they lost their first game, the Rays and the Toronto Blue Jays tied in the opening series at two games each. SAGICOR PRESENTS USF FOOTBALL GAME - SAGICOR LIFE INSURANCE COMPANY - USA Sagicor Life Insurance Company was the game presenter for the University of South Florida’s (USF) Homecoming Game. Sagicor received extraordinary recognition as game presenter, since its logo and branding appeared throughout the stadium on all of the various digital displays during the entire game. 2016 ANNUAL REPORT 45 9. Runners at the beginning of the Sagicor Lightning Bolt Run. 9 LIGHTNING BOLT RUN - SAGICOR LIFE INSURANCE COMPANY - USA Sagicor Life Insurance Company was proud to sponsor and participate in the Tampa Bay Lightning’s 15th Annual Bolt Run, held in March, in downtown Tampa. Approximately 3,000 runners came out for the 5k, 5 Mile and 1 Mile Family Fun Runs. Proceeds from the race went to the Lightning Foundation and to local charities. Runners enjoyed a post-race party on the arena’s plaza, and received tickets to the Lightning’s game that night. The Tampa Bay Lightning advanced to rounds two and three of the National Hockey League’s 2016 Stanley Cup Playoffs. The Lightning team has consistently played to sold-out crowds throughout the season, following their participation in the 2015 Stanley Cup Finals. 46 SAGICOR FINANCIAL CORPORATION LIMITED HUMAN CAPITAL REP ORT Doing better tomorrow starts with being better today. That is why we are always changing and evolving to continue to provide the best quality service we can. That is our most important purpose, and why we strive for excellence every day. HU MAN CAPITAL REPORT BUILDING LEADERSHIP CAPACITY Succession Planning The Human Resources Committee of the Board of Directors continued its oversight of the Succession Planning process for management. A select committee interviewed sixty employees of Sagicor Financial Corporation Limited (SFCL); Sagicor Life Inc (SLI); Sagicor Group Jamaica (SGJ); Sagicor Life Insurance Company Inc (SLIC), and Sagicor General Insurance Inc (SGI), and completed detailed position profiles that included key responsibilities, skills, experiences, attributes, and competencies. The Committee also identified potential successor candidates for key roles. The next phase of the process will see the completion of assessments of individual leadership and management capabilities to identify potential areas for further development in 2017. Regional and International Transfers Sagicor Life (Eastern Caribbean) Inc (SLI EC) strengthened its management with certain key appointments and transfers to support the establishment of the new business entity. Trevor Vigo was appointed to the post of Chief Operating Officer. Eon Phillips and Shaunita Jordan were both transferred from the SLI Barbados operations to the post of Assistant Vice President, Administration, and the post of Legal Counsel respectively. Brenton Hilaire was appointed to the post of Agency Manager in Dominica. Melinda McClean, from our Barbados office, was appointed to the post of Quality Assurance Analyst with SLIC in Scottsdale, Arizona. ENGAGING EMPLOYEES Annual Kick-Off Meetings At the beginning of 2016, Kick-Off - or Blast-Off - meetings were hosted throughout the Sagicor Group of companies. The meetings were scheduled in the new year, when there was a high level of optimism and a sense of a fresh start across the Group. The meetings allowed staff and management to celebrate and share accomplishments for the past year, as well as reinforce Sagicor’s core values, company vision and mission. They also encouraged greater focus on goals and objectives, and on the key initiatives to be undertaken for the coming year. In an effort to make the meetings as 1 2 50 SAGICOR FINANCIAL CORPORATION LIMITED PEOPLE DEVELOPMENT SLI completed the final phase of training provided under the Competency Based Training Fund (an Inter-American Development Bank project) with the Government of Barbados. Employees who successfully complete the programme will be awarded internationally-recognised National Vocational Qualification (NVQ) certification. The final assessments are scheduled to be completed by the end of Q2 in 2017. 3 In SLI Trinidad and Tobago, six hundred and fifteen man-hours were invested in the training of administrative staff and Sagicor Advisors. The New Advisor suite of programmes focused on strengthening the onboarding and development of key skills for new advisors. The Management suite included critical thinking, decision making and finance for non-financial managers. The ‘Priority You’ customer care project launched with a code of practice and customer care charter, and provided specialised training for supervisors as one of the pillars of the initiative. Sagicor Life (Eastern Caribbean) Inc provided a series of workshops on employee benefits administration, the Sagicor product suite, regulatory compliance and business continuity management. 4 Sagicor Group Jamaica rolled out mandatory training aligned to the organisation’s strategic objectives for: • Product Knowledge • Exceptional Client Service • Anti-Money Laundering (AML)/Counter Financing of Terrorism engaging as possible, a motivational component was added, introducing world-renowned motivational speakers, or life coaches, who further drove the overall company messages and objectives. 1. Members of the Sagicor team chanting “Sagicor Strong” during one of the many moving presentations at the 2016 Sagicor Blast Off held at the Jamaica Conference (CFT) • Information Security Centre. 2. (L-R) Richard Byles, President & CEO, Sagicor Group Jamaica greets motivational speaker, Simon T. Bailey who delivered a moving speech to Sagicor team members at Sagicor Blast Off 2016. 3. Staff at the Trinidad and Tobago Blast-Off meetings. 4. World-renowned speaker, Lisa Nichols, with staff after the Sagicor Life Inc annual Kick- Off meeting in Barbados. Sagicor Life Insurance Company provided leadership development training during 2016. Leadership training videos were incorporated into the monthly managers’ meetings with a view to enhancing their current skills in the areas of communication, handling troubled employees, accountability and performance management. 2016 ANNUAL REPORT 51 INDUSTRY-SPECIFIC TRAINING Specialist (ACAMS); • Kareem Prescod - Certificate in Academy Life Underwriting (AALU) • Marissa Rudal - Fellow, Life Management Institute (FLMI). Sagicor Group Jamaica • Arlene Jarret - Financial Services Certified Professional (FSCP); • Sophia Morris - Financial Services Certified Professional (FSCP); • Derrick Lewis - Financial Services Certified Professional (FSCP), and • Shelley Ebanks-McGregor - A Doctorate in Organizational Leadership and Human Resource Management. Regulatory and Corporate Compliance The Sagicor Group maintains a rigorous programme of mandatory annual training and testing of employees on Foreign Account Tax Compliance Act (FATCA) and Anti-Money Laundering (AML) via an online platform. Safety and health committee meetings, fire drills, and a review of business continuity plans were facilitated during the past year. Compliance with the Company’s Code of Business Conduct and Ethics was supported by an annual disclosure certification process and mandatory online training. Two new Information Security courses were launched in 2016 to strengthen the company’s Information Technology Policy on information security. All new employees to the Sagicor Group companies were required to complete mandatory programmes provided by LOMA, as part of the induction process, and to provide a solid understanding of insurance products. Typical designations included the Associate Customer Service (ACS); Associate Life Management (ALMI); Associate Reinsurance Administration (ARA); Associate Insurance Regulatory Compliance (AIRC), and the rigorous and coveted Fellow of the Life Management Institute (FLMI). Changes to the regulatory environment and robust internal control procedures require certification in Anti Money Laundering (ACAMS), and The Certified Internal Auditor (CIA) designations. Notable professional achievements in 2016 included: Sagicor Life Inc - Barbados • Alison Clarke - Fellow, Life Management Institute (FLMI); • Nikita Hazelwood - Certified Equity Professional (CEP); • Kim Jones - Certified Business Continuity Professional (CBCP); • Sabrina Murray - Certified Internal Auditor (CIA); • Nicholas Neckles - Chartered Financial Analyst (CFA); • Nicole Patrick - Certified Anti-Money Laundering Specialist (ACAMS), and • Kaywanah Springer-Martin - a Masters of Laws in International Finance and Banking Law. Sagicor Life (Eastern Caribbean) Inc • Marisia James - Fellow, Life Management Institute (FLMI); • Beverley Snagg - Fellow, Life Management Institute (FLMI); • Abigail Thomas - Fellow, Life Management Institute (FLMI), and • Valda Victorine - Faustine - Fellow, Life Management Institute (FLMI). Sagicor Life Inc - Trinidad and Tobago • Adele Adams-Shand - Certified Internal Auditor (CIA), and • Nathalia Nasib-Cletus – Certified Anti-Money Laundering 52 SAGICOR FINANCIAL CORPORATION LIMITED NATIONAL AWARDS Richard Byles, President and CEO of Sagicor Group Jamaica, was honoured by the University College of the Caribbean (UCC) for his contributions to the Jamaican business community. Mr Byles was conferred with the Doctor of Business degree in July 2016, a degree that is awarded to individuals who have made significant contributions in a field or activity that merits special recognition. CELEBRATING OUR TOP PERFORMERS The Employee Rewards and Recognition Programmes culminate with an Awards function, celebrating and recognising the Group’s top performers The prestigious Sagicorian Award is presented in two categories, and recognises the most outstanding administrative employee and the most outstanding manager in the Sagicor Group of Companies. Andre Latchman - The Sagicorian - Employee of the Year Andre Latchman is an Assistant Manager, Learning and Development, at Sagicor Life Jamaica, who distinguished himself as a Client Experience Specialist, Trainer par excellence and team player. In 2015, he designed a new Client Experience Programme for Sagicor Group Jamaica. He has been heavily involved in several civic, social, and service events, including a Beach Clean-Up campaign, and an initiative to provide relief and assistance to the poor. Tricia de Gannes - The Sagicorian – Group Manager of the Year As Manager of the Advisor Relations Department in Trinidad and Tobago, Tricia made a significant impact on the company’s operations in 2015, when she implemented and refined measures to monitor and drive sales performance, facilitated the outstanding lapse policies project, and assisted in the development of the Trainee Manager Programme. Tricia is actively involved in community service, and through her church, has played a key role in its annual initiative to assist families in Guyana’s interior. Letisha Brathwaite - Group Contributor of the Year Letisha Brathwaite is an Underwriter at Sagicor General Insurance Inc in Port of Spain, Trinidad and Tobago. During 2015, she made an outstanding contribution to Sagicor General’s new business growth, resulting in a 92% increase in premium income in 2015. 2016 ANNUAL REPORT 53 David Lynch – Group Pioneer of the Year Jennifer Tross- Clarke -Most Outstanding Sagicor Advisor – Sagicor Life (Eastern Caribbean) Inc David Lynch is a Supervisor in the Finance Department of Sagicor Life Inc in Barbados. He was awarded Pioneer of the Year at Sagicor Life Inc, and the Sagicor Group Pioneer of the Year at the overall Group level. David built a new general ledger infrastructure to facilitate the amalgamation of Sagicor Capital Life Inc and Sagicor Life Inc. This complex project involved migrating over 429,000 transactions into seven business units, for eighteen territories, in eight different currencies. SLI EC celebrated the achievements of Mrs Jennifer Tross-Clarke at the Company’s St Kitts office. Mrs Tross-Clarke, who joined the Sagicor Group in 2007, qualified for the Sagicor Honour Club Awards for seven years. Her accomplishments include: • Leading Advisor – St Kitts and Nevis – 2010, 2014, 2015 and 2016; • Employee of the Month Award – 8 occasions in 2015 and 9 in 2016; • Leading advisor for case count Eastern Caribbean Region - 2015 and 2016; • 100 club member Eastern Caribbean – 2015 and 2016; • Leading Advisor, Net Annualized Commissions – 2016, and • President’s Trophy Winner for the Eastern Caribbean – 2015. Janice Mullin-Sargeant – Most Outstanding Sagicor Advisor – Sagicor Life Inc - Barbados Janice Mullin Sargeant received the President’s Trophy for the most outstanding performance in Sales for the fourth consecutive year. Mrs Mullin-Sargeant also took home four other awards for outstanding personal performance, namely The Honour Club Diamond, The 100 Club, the Anthony Kennedy, and The D. W. Allan Production Awards. 54 SAGICOR FINANCIAL CORPORATION LIMITED Marlon De Leon – Most Outstanding Sagicor Advisor – Sagicor Life Inc – Trinidad and Tobago Loeri Robinson - Most Outstanding Sagicor Advisor - Sagicor Life Jamaica Marlon De Leon joined SLI TT in 2009. He has been the recipient of several production and persistency awards, including the Centurion, Leaders’ Circle and Top Annual Premium Income (API) awards in 2014. He is a former national sprinter who raced his way to the finish line, when he copped the prestigious Advisor of the Year award, having settled 156 applications with an API of TT $1.2M. He was also the leading Sagicor Advisor in three of the five Leading Producer awards for Applications, API, and Net Annualised Commissions (NAC) in 2015. Loeri Robinson qualified for the Million Dollar Round Table (MDRT) for the eighth consecutive year, with the last five years as a Court of the Table Qualifier. As the top female Sagicor Advisor since 2012, and the leading overall advisor within Sagicor for the past four years, she is the Chairman of the Company’s Production Club, and President of the Executive Club. In 2016, she retained her record for Most Net Annualised Commissions, one which she has held since 2010. Ms Robinson is currently the record holder for the Most Net API. 5. Joanna Biscette, Human Resource Manager (second from left), and Leathon Khan, 6. (l to r) Sherman Casey, Eural Baptiste, Jennifer Tross-Clarke, Marvin Herbert, Ogden 5 6 General Manager, St Lucia (back), with (l to r) Joseph Abraham, Winsbert Marthe, Browne and Stanley Browne. Jennifer Ephraim, and Minerva Charles. 2016 ANNUAL REPORT 55 of bank hours and utilisation, overtime, and absence taken over a period of time for each employee; • employee access to snapshots of their vacation balances, among other things. This platform will be upgraded for current users, and rolled out for use in Sagicor Life (Eastern Caribbean) Inc in 2017. ADP Workforce Now Sagicor Life Insurance Company will be upgrading the ADP Payroll platform to ADP Workforce Now, adding the new modules of Essential HR and Essential Benefits. The new modules came with beneficial self-service tools for management reporting and related administration, and they assist in improving the open enrollment process and access to benefits and payroll. Employees will soon have access to all of their benefits information as well as payroll information on one site. 7 Work Place Flexibility Sagicor Life Insurance Company initiated a Workplace Flexibility project in Q3 of 2016, with twenty-one employees in eight departments participating in the programme. The success of the programme will likely encourage similar ones, where feasible, in other areas of the Sagicor Group, as modern workplace arrangements are gradually embraced. Recognising changes in the working environment, HR Departments across the Group conducted reviews of several policies and practices, including the onboarding process, with a view to strengthening elements of the talent management process. EMPLOYEE VOLUNTEERISM Employee volunteerism across the Group created a unique “Sagicor World” where a diverse mix of cultures came together with a number of different approaches to address community issues. 7. (l to r) Brenton Hilaire, Cheryl Rolle, Solange Magloire and Geoffrey Graham. EMPLOYEE WELLNESS Increasing awareness of the incidents of chronic lifestyle illness, led to a number of initiatives designed to encourage employees to engage in learning, and other, activities to promote healthier lifestyles. These programmes are varied and adopt several different themes, such as lunch time learning sessions on diet and exercise; or the many organised activities and competitions that have significantly enhanced employee engagement, and encouraged the monitoring of critical indicators, and the adoption of important lifestyle changes. IMPROVING SERVICES AND TOOLS Workforce Workforce is a web based application, providing the company with the facility to track and measure time worked, and to record time off. The system is important for compliance with labour legislation and provides: • an updated interface with more desktop applications; • mobile app login; • employee photos and hired date information; • the display of key performance indicator charts showing snapshots 56 SAGICOR FINANCIAL CORPORATION LIMITED Fundraising Events Annual events across the Sagicor group of companies filled a range of interests and appetites for fun and adventure. Super bowl celebrations, corn toss tournaments, mini hoop shoot outs, Cinco de Mayo challenges, ice cream socials, Independence Day celebrations, Happy Halloween, zoo trips, Holiday parties were all highlighted in the 2016 calendar in the USA. Internal Staff Events In Jamaica, the 2016 Olympic games in Rio, dominated by the international Jamaican sports personality, Usain Bolt, clearly influenced the SGJ’s Sagicor Olympics 2016. This event culminated in an exciting celebration at the National Stadium Complex in Kingston, Jamaica. In December, staff participated in the “To Da Beat” dance competition, which saw a team from the Group Client Contact Centre emerge as the winners. “The CC Hot Steppaz” danced their way to the number one spot and received their award and prize cheque of JMD $50,000.00. The Stars week, with a Corporate Church Service, Gospel Concert, and other performances at “Performing with the Stars”, was also a major event on the SGJ Corporate Calendar. In celebration of Barbados’ 50th Anniversary of Independence, the Sagicor Sports Club in Barbados, in conjunction with the Human Resources Department, hosted the keenly contested decoration competition. Staff were invited to decorate their departments following the theme of independence. The competition resulted in a victory to Sagicor Asset Management’s department, followed by the Pensions Department, while the Finance and Group Departments tied for third place. 8 9 8. “The CC Hot Steppaz” represented by (l to r) Orette Beckford; Lori-Ann Gordon; Justin Fletcher; Jody-Ann Hayden; Rory Dinham and Peta-Gae Soltau, accepting their award and prize cheque from Mr. Karl Williams, Senior Vice President, Group Human Resources, Sagicor Group Jamaica Limited. 9. Members of the Sagicor Chorale lead the crowd into worship at the 2016 STARS Week Annual Gospel Concert at The Emancipation Park in Kingston Jamaica. 10 Sagicor Asset Management reception area decorated in Barbados Independence colours. 10 2016 ANNUAL REPORT 57 OPERATING & FINANCIAL RE VIEW We are always looking to the future, and as we continue to grow stronger and wiser, we want our customers to do the same. By always ensuring that we are doing our best, we make sure everyone else does too. OPERATING & FI NANCIAL RE VI EW We are always looking to the future, and as we continue to grow stronger and wiser, we want our customers to do the same. By always ensuring that we are doing our best, we make sure everyone else does too. OPERATING AND FINANCIA L RE V IEW OVERVIEW The Sagicor Group is a leading provider of insurance products and related services in the Caribbean region. It also provides insurance products in the United States of America (USA) and banking services in Jamaica. The main business lines are life, critical illness and health insurance, annuities and pension management, asset management, together with property and casualty insurance. The customer base is predominately individuals but certain lines are marketed to employers to provide employee benefits, and to commercial enterprises to provide property and casualty coverage. EXTERNAL ENVIRONMENT The external environment impacts the operating and financial performance of the Sagicor Group. Economic factors such as economic growth, employment levels and disposable income impact the levels of both new business and renewal of life insurance and annuity products offered by the Group. Interest rates and investment yields affect the level of savings and investment returns offered for life insurance, annuities and banking products, and ultimately the profit margins that the Group can generate from these product lines. experienced modest growth during the year. In the USA, GDP growth of 1.6% was estimated for 2016 while the economies of Europe and Japan experienced incremental growth of 1.7% and 1.2%, respectively. The USA continued to tighten monetary policy as short term interest rates were increased in December to the range 0.50% to 0.75%, while Europe and Japan prolonged their accommodative fiscal and monetary policies throughout 2016. Emerging markets generally advanced during much of 2016 but declined during the fourth quarter following Donald Trump’s presidential victory as investors were concerned that the trade policies of the new administration would negatively impact developing economies. The Chinese economy advanced 6.7% year-on-year. In light of slower than expected growth in emerging markets such as China, Brazil and the Middle East and the uncertainty associated with the future of the European Union, the International Monetary Fund estimated global growth of 3.1% for 2016. In the USA, economic indicators were positive. Consumer spending increased during the fourth quarter of 2016 while the unemployment rate continued to trend down to 4.7% in December. The US dollar strengthened against the currencies of all major trading partners during the year which led to a decline in exports, while the Federal Reserve raised the Fed funds rate by 25 basis points in December 2016. Inflation trended towards the target level of 2.0% and ended the year at 2.1%. The health and mortality of insured customers and beneficiaries impact the levels of death, disability and health benefits the Group is required to meet. Property and casualty insurance products offer policyholders financial protection against accidents, loss or damage to property, and liability to third parties. 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. International Economic Environment Global growth remained anemic for 2016 as key developed economies The Eurozone’s economy demonstrated remarkable resilience to geopolitical uncertainties in 2016 and defied earlier expectations of a slower recovery. GDP advanced by 1.7% for 2016. The unemployment level in 2016 was 9.6% which is lower than that in 2015. The European Central Bank (ECB) further decreased the already negative interest rates to an unprecedentedly low level of negative 0.4%. Regional Economic Environment Regionally, economic growth across the majority of Caribbean countries trended positively with the exception of Trinidad and Tobago where the economy contracted. However, the protracted economic challenges of burdensome fiscal deficits, increasing debt levels as well as dwindling foreign direct investment remained hindrances to the economic stability of the region. 60 SAGICOR FINANCIAL CORPORATION LIMITED The Barbados economy showed moderate improvement during 2016 with estimated GDP growth of 1.6% buoyed by expansion in key sectors such as tourism and construction as well as business and other services. Unemployment trended downward and was estimated at 10.0% for the year ended September 2016 while inflation remained subdued and was reported at negative 0.9%. However, major headwinds remained persistent and continued to threaten the country’s economic stability. International reserves remained worrisomely low and decreased to $0.7 billion which represented 10.3 weeks of import cover. The fiscal deficit for the fiscal year 2016/2017 was projected to have widened to 8.1% of GDP. The real GDP growth for Jamaica was estimated at 1.4% for the year 2016. The positive growth in the economy was primarily due to improvements in both net external demand and domestic demand. During 2016, Jamaica’s credit rating was upgraded to B3 with a stable outlook by Moody’s rating agency. Jamaica continues to make significant efforts to reduce its debt to GDP ratio, improve its current account balance and increase its foreign exchange reserve levels. The economic expansion in Jamaica did not translate to gains in the currency market as the Jamaican dollar depreciated by an annualised rate of 6.7% relative to the U.S dollar. The country’s debt burden remained high with the gross government debt, including borrowings from Central Bank reported at 108% of GDP. Additionally, the proportion of foreign currency debt was 31% of GDP and the cost of servicing that debt was 8% of earnings from goods and services. During 2016, Barbados’ sovereign rating was downgraded to B- and Caa1 by Standard and Poor’s and Moody’s rating agency, respectively. During the first quarter of 2017, Barbados’ sovereign rating remained under pressure and was further downgraded to Caa3 and CCC+ by Moody’s rating agency and Standard and Poor’s respectively. Trinidad and Tobago’s economy was estimated to have contracted by 2.9% for 2016 by the Central Statistical Office. During the year, the price of oil remained under pressure as evidenced by lower real economic activity in the Petroleum sector which contracted by 9.6%. This led to the downward revision in the budgeted average oil price to the unprecedented low level of US$35 per barrel of crude. The performance of the non- petroleum sector remained constrained and contracted by 1.8% for the year. During 2016, Standard and Poor’s lowered the sovereign credit rating for Trinidad and Tobago to A- with a negative outlook. In terms of the key domestic benchmark interest rate and currency, the Repo rate in Trinidad and Tobago remained unchanged since December 2015 and stood at 4.75% as at December 31 2016 while the Trinidadian dollar depreciated by an annualised 4.7% relative to the U.S dollar. Regulation Insurance Regulation The Private Pension Act, Act #4 of 2016 and the Private Pension Regulations, Statutory Instrument #2 of 2017 of Belize came into effect on 1st January 2017. The Act provides for the registration and supervision of private pension plans to offer better protection to members and pensioners of such plans. The Act applies to all pension plans that are established by an employer for persons employed in Belize or in respect of which an employer is making contribution for his or her employees. The Act excludes certain statutory entities, pension plans for government officials and certain public officers and social security pensioners. The following revisions to insurance legislation have also been initiated and are contemplated in the near future: • A new Insurance Act together with regulations to replace the existing legislation in Trinidad has been delayed until 2017. • A Draft Harmonised Insurance Act in the Eastern Caribbean to repeal existing legislation in the eight EC territories is pending further industry consultation. • In January 2016, the Barbados Financial Services Commission (FSC) issued a circular reminding registered insurance companies and brokers of the requirements of its Guideline No. 8 of 2016 ANNUAL REPORT 61 March 2015, concerning the necessity and minimum content of insurance broker agreements and the timely remittance by brokers of premiums received. The FSC also issued a Working Paper in January 2016 on The Purpose of Supervisory Colleges for Insurance Groups and an Introductory Paper on Risk Based Capital for Domestic Insurance Companies in June 2016. In October 2016, the Commission advised that the introduction of risk based capital requirements was not imminent and that a phased approach was being considered. • In the USA the Department of Labour (DOL) issued its final rules regarding the establishment of a “fiduciary” standard for financial institutions and their agents who participate in the sale of financial products, including any type of annuity, for the purpose of establishing an IRA (or a tax qualified retirement plan). The rules are scheduled to become applicable on April 10, 2017 but the DOL is considering a minimum 60-day delay so that it can further assess the impact of the rules and whether any changes in its requirements are necessary. GROUP RESULTS Revenues from continuing operations in 2016 reached US $1,134 million and were US $30 million higher than the prior year amount of US $1,104 million. Revenues were impacted by lower net premium income of US $10 million due to lower annuity business written in our USA segment, together with the impact of the depreciation of the Jamaica Dollar to the US dollar on translated premiums. This was off offset by higher investment income of US $31 million. Investment income benefited from significant realised gains. Fees and other revenue also improved by US $8 million during the year. by higher income taxes experienced in 2016 compared to 2015 largely in the Jamaica Segment, where taxable income was higher in 2016 when compared to 2015 due to strong business growth and significant realised gains on financial assets. Total comprehensive income from continuing operations was US $94 million in 2016 compared to US $21 million in 2015. CONSOLIDATED INCOME 1 - $ millions Revenue Benefits Expenses & taxes Net income COMPREHENSIVE INCOME Other comprehensive (loss) Total comprehensive income 1 from continuing operations 2016 1,134 (561) (466) 107 2016 (13) 94 2015 1,104 (553) (453) 98 2015 (77) 21 Other comprehensive income was a loss of US $13 million compared to a loss of US $77 million in 2015. The main contributor to the improvement in comprehensive income was an underlying improvement in net gains on financial assets of US $ 142 million. Included in comprehensive income were net gains for the year on financial assets of US $39 million resulting from mark-to-market gains on financial assets associated with our international portfolios. Insurance and other benefits closed the year at a total of US $561 million compared to a total of US $553 million in 2015 an increase of US $8 million as the company experienced higher claims paid on its health insurance line of business. The Jamaica dollar declined against the US dollar by 6.7%, while the Trinidad dollar declined against the US dollar by 4.7% resulting in retranslation losses of US $28 million. Expenses and taxes closed the year at US $466 million in 2016 compared to a total of US $453 million in 2015. Expenses and taxes were impacted In December 2012, the Board and Management decided to dispose of Sagicor Europe, which owns the Sagicor at Lloyd’s operations. In 62 SAGICOR FINANCIAL CORPORATION LIMITED accordance with International Financial Reporting Standards, the results of Sagicor Europe have been separated from the Group’s continuing operations and presented as a discontinued operation. Sagicor Europe was sold on December 23, 2013. The results of the Group’s continuing operations are further analysed under the next several sub-headings. The results of the discontinued operation are discussed and analysed in the 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 results. As some Group companies have minority shareholders, particularly in the Sagicor Jamaica operating segment, the Group’s net income is allocated accordingly between holders of Sagicor’s common shares and the minority interest shareholders. There is also an allocation to Sagicor Life Inc policyholders who hold participating policies, an arrangement which was established at the demutualisation of Barbados Mutual Life Assurance Society (now Sagicor Life Inc). For the 2016 financial year US $60 million of net income from continuing operations was allocated to the holders of common shares of Sagicor Financial Corporation Limited, which corresponded to earnings per share of US 19.5 cents. The comparative amounts for 2015 were US $56 million of net income and earnings per share of US 18.2 cents. The respective annual returns on shareholders’ equity were 12.3% for 2016 and 11.7% for 2015. Dividends declared to common shareholders in respect of 2016 totalled US $14 million and represented US 4.5 cents per share. Dividends of US 4 cents per share were declared for 2015. COMMON SHAREHOLDER RETURNS 1 2016 2015 Net income - $ millions Dividends - $ millions Earnings per share - cents Dividends per share - cents Return on equity - % 60 14 19.5 4.5 12.3 56 12 18.2 4.0 11.7 1 from continuing operations except for dividends. Revenue The sources of the Group’s revenue are insurance premiums from customers, investment income, fee income and other revenues. The following table summarises the main items of revenue. REVENUE - $ millions 2016 2015 Net insurance premiums: Life and annuity Health Property & casualty Net investment income Fees and other revenues Gain arising on acquisition 496 150 18 664 353 117 - 506 150 18 674 322 109 (1) 1,134 1,104 Premium revenue from life insurance and annuity was US $496 million and represented 75% of total premium revenue. The comparative amounts for 2015 were US $506 million and 75%. The Group markets a range of life and annuity products, most of which are long-term contracts for which a monthly premium is paid by the customer. 2016 ANNUAL REPORT 63 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. Premium revenue was lower by US $10 million when compared to the prior year due to lower annuity business written in our USA segment, together with the impact of the depreciation of the Jamaica Dollar to the US dollar on translated premiums. 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, and stood at the same level as the prior year. The Group also markets property and casualty insurance contracts in the Caribbean region. These are marketed to individuals and commercial enterprises. Premium revenue from these classes of insurance totalled US $18 million and was in line with the prior year comparative amount. Income is generated from the investments made by the Group. Net investment income closed the year at US$ 353 million compared to US$ 322 million in 2015 an improvement of US $31 million. Investment income benefited from significant realized gains. The annual yields achieved on financial investments were as follows. INTEREST YIELDS Debt securities Mortgage loans Policy loans Finance loans & finance leases Securities purchased for resale Deposits 2016 6.2% 6.1% 6.9% 2015 6.4% 6.5% 7.3% 12.6% 12.7% 9.2% 1.0% 2.4% 0.9% Income from fees and other revenues totalled US $117 million compared to US $109 million in the prior year, an improvement of US $8 million. Benefits The table below summarises the expense incurred by the Group in providing benefits. BENEFITS - $ millions 2016 2015 Net insurance benefits: Life and annuity Health Property and casualty Interest expense 376 116 8 500 61 561 373 111 10 494 59 553 Insurance benefits comprise amounts payable to policyholders and beneficiaries in accordance with the contract terms of insurance policies issued or assumed by the Group. Interest payable to investment contract- holders or financial institutions which have placed funds with the Group are treated as interest benefits. Current life insurance and annuity benefits are recognised on the notification of death, disability or critical illness of an insured person; on the maturity or surrender of a policy; on the declaration of a policy bonus or dividend; or an annuity payment date. Future life insurance and annuity benefits are recognised in the financial statements on in-force long-term insurance contracts based on reserving methodologies adopted by the Group in accordance with established Canadian accepted actuarial standards. Life and annuity benefits totalled US $376 million in 2016, of which US $331 million related to current benefits and US $45 million related to future benefits. The corresponding amounts for 2015 were a total of 64 SAGICOR FINANCIAL CORPORATION LIMITED US $373 million, of which US $346 million were for current benefits and US $27 million were in respect of future benefits. Expenses and taxes EXPENSES & TAXES - $ millions 2016 2015 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. Administrative expenses Commissions Health, property and casualty insurance benefits are recognised either or on the notification or settlement (for short notification periods) of a claim from policyholders. In addition, incurred but not reported (IBNR) benefits are recognised in accordance with established or expected trends for claims incurred. Finance costs, depreciation and amortisation Premium, asset and income taxes 255 99 60 52 466 252 105 56 40 453 Total health insurance benefits were US $116 million representing an overall claims to premium ratio of 77%. The comparative 2015 amounts were US $111 million and an overall claims to premium ratio of 74%. Expenses and taxes totalled US $466 million for 2016 up from US $453 million for 2015. Property and casualty claims amounted to US $8 million in 2016, a reduction of US $2 million from the 2015 comparative result. Expenses of administration represent the largest expense category and totalled US $255 million in 2016 compared to US $252 million in 2015 an increase of US $3 million. The interest returns the Group has provided to investment contract- holders and financial institutions which have advanced funds are summarised in the following table. There was a reduction of US $6 million for Commissions when compared to the prior year and this result is commensurate with the lower premium revenue experienced. INTEREST YIELDS Investment contracts Other funding instruments Customer deposits Securities sold for repurchase 2016 6.1% 1.9% 2.1% 4.5% 2015 5.2% 2.2% 1.9% 3.7% 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. Premium, asset and income taxes were US $52 million compared to US $40 million in the prior year and was impacted by higher income taxes experienced in 2016 compared to 2015 largely in the Jamaica Segment where taxable income was higher in 2016 when compared to 2015 due to strong business growth and significant realised gains on financial assets. This was offset by lower premium and asset taxes in in 2016 when compared to 2015. 2016 ANNUAL REPORT 65 Comprehensive income Gains and losses recorded within other comprehensive income arise primarily from fair value changes of certain classes of assets and from the retranslation of foreign currency operations. Other comprehensive income was a loss of US $13 million compared to a loss of US $77 million in 2015. The main contributor to the improvement in comprehensive income was an underlying improvement in net gains on financial assets of US $142 million. Included in comprehensive income were net gains for the year on financial assets of US $39 million resulting from mark-to-market gains on financial assets associated with our international portfolios. The Jamaica dollar declined against the US dollar by 6.7%, while the Trinidad dollar declined against the US dollar by 4.7% resulting in retranslation losses of US $28 million. STATEMENT OF FINANCIAL POSITION - $ millions 2016 2015 Assets Liabilities arising from operations Borrowings Equity 6,532 5,342 395 795 6,400 5,185 476 739 6,532 6,400 Assets Invested assets and cash balances as of December 31 are summarised in the table below. INVESTMENTS & CASH - $ millions 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 $94 million for 2016 compared to US $21 million for 2015. Debt securities Mortgage loans Policy loans Finance loans and finance leases Securities purchased for re-sale Deposits Cash Investment property and other items 2016 3,441 2015 3,418 332 138 509 5 139 279 417 341 132 436 8 261 250 394 5,260 5,240 Debt securities are the largest class of invested assets, and represented 65% of total investments and cash as of December 31, 2016 (66% as of December 31, 2015). These securities are very suitable instruments to back long-term insurance liabilities because of their medium to long GROUP FINANCIAL POSITION Sagicor’s activities of issuing insurance contracts; of accepting funds from depositors; of banking and securities dealing; result in the Group receiving significant funds which are held as liabilities and are invested in a variety of assets. The Group’s sources of capital are equity contributions from shareholders, retained earnings and reserves, together with external borrowings. The table below summarises the consolidated financial position of Sagicor as of December 31, 2016 and 2015. 66 SAGICOR FINANCIAL CORPORATION LIMITED term duration, the regular interest payments received, and the relatively low credit risk. property and casualty. Debt instruments are issued primarily by Governments, state sponsored agencies and corporate entities. The Group acquires and holds these instruments usually in the country where the funding arose. The Group also invests in debt instruments of short duration as a way of earning investment returns with minimal risk, and of providing opportunities for investment contract-holders to earn safe returns. Other invested assets are spread across various asset classes such as mortgages, loans, deposits and property. Liabilities arising from operations The Group issues life insurance and annuity contracts either to individuals or to employers in respect of their employees. Insurance liabilities are summarised in the following table. INSURANCE LIABILITIES - $ millions 2016 2015 Future benefits - individual contracts 2,349 2,207 Future benefits - group contracts Current benefits and other payables 428 245 426 245 3,022 2,878 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, The Group’s liabilities which arise from issuing investment contracts, accepting deposits and funding are as follows. FINANCIAL LIABILITIES - $ millions Investment contracts Securities sold for re-purchase Customer deposits Other funding instruments and other items 2016 2015 378 321 915 353 369 520 670 383 1,967 1,942 Investment contracts may be issued to pension funds to hold pension plan assets or to individual customers as savings vehicles. Securities sold for re-purchase provide specific security to depositors who place funds with the Group for investment return. Deposits and other funding provide monies to the Group to invest in loans and related securities. Other liabilities include general provisions, accruals and payables which arise in the ordinary course of business. The discontinued operation (Sagicor at Lloyds) was sold on December 23, 2013. At the end of 2016 there were no amounts outstanding with respect to the discontinued operation. Capital The Group has issued equity and debt instruments to provide capital for its operations. The amounts recognised in the statement of financial position in respect of these instruments are summarised below. 2016 ANNUAL REPORT 67 Effective December 20, 2016, the notes were extended at an annual rate of interest of 4.85% with a maturity date of August 14, 2019. Financial covenants in respect of these notes are summarised in Note 46.3 (b). On July 18, 2016, the Company redeemed the 6.5% convertible redeemable preference shares due 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 33.2%, down from 39.2% for the prior year. This resulted from the fact that the Company redeemed all its outstanding convertible redeemable preference shares amounting to US $120 million during the year. A measure used to determine the capital adequacy of a life insurance business, which is the predominant activity within the Sagicor Group, is the Canadian Minimum Continuing Capital and Surplus Requirement (MCCSR). The consolidated MCCSR ratio for the Sagicor Group was 291% as of December 31, 2016 compared to 301%, at December 31, 2015, both of which are significantly in excess of the minimum recommended ratio of 150%. These ratios include risk factors for insurance risk (lapses, mortality, morbidity) and credit risk of all fixed income assets including those issued by Caribbean governments. EQUITY & BORROWINGS - $ millions Common shareholders’ equity Preference shareholders’ balances Minority interest shareholders’ balances 8.875% senior notes due 2022 4.85%/5% notes due 2019 Participating accounts & other Classified as: Equity Borrowings 2016 2015 536 - 258 315 75 6 502 120 232 314 45 2 1,190 1,215 795 395 1,190 739 476 1,215 304,494,131 common shares of Sagicor Financial Corporation Limited are outstanding and are tradable on the Barbados, Trinidad & Tobago and London 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 August 11, 2015, the Group issued seven year senior notes in the amount of $320 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). On March 22, 2016, the Company repaid, before maturity, the $43 million of short term debt. On March 21, 2016, the Company issued a tranche of fourteen month notes with par value of $75 million which were repayable in 2017 and carried a 5.0% annual rate of interest. 68 SAGICOR FINANCIAL CORPORATION LIMITED 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, TRINIDAD AND TOBAGO EASTERN CARIBBEAN & DUTCH ISLANDS, CENTRAL AMERICA 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 2016 ANNUAL REPORT 69 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 sold on December 23, 2013 under terms that retained some obligations for the Group. The performance of these segments in 2016 is discussed under the following sub-headings. Sagicor Life Inc Segment The Sagicor Life Inc segment consists of the life insurance entities that 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, critical illness and health insurance, annuities, pension investment and pension administration services. In 2016, this segment generated revenues of US $411 million an increase of US $31 million over the previous year. During 2015, Sagicor Life USA entered into a reinsurance agreement with Sagicor Life in 2015, this transaction resulted in the following intersegment transactions: the intersegment revenue was US $91 million in 2015. Intersegment expenses amounted to US $5 million in 2016 and US $82 million in 2015. The main revenue component was premium income which totalled US $300 million. Investment income totalled US $77 million while other items totalled US $34 million. Benefits totalled US $213 million, and were higher than the prior year by US $14 million. Current insurance benefits were US $210 million while amounts recognised for future insurance benefits totalled a reduction of US $3 million. Total expenses and taxes in 2016 closed the year at US $129 million compared to US $119 million in 2015. The increase in expenses and taxes was largely driven by higher commissions on new business written. SAGICOR LIFE INC INCOME - $ millions 2016 2015 Revenue Inter-segment reinsurance revenue Benefits Expenses and taxes Inter-segment reinsurance expense Segment income Segment income attributable to shareholders FINANCIAL POSITION - $ millions Assets Liabilities Net assets 411 - (213) (129) (5) 64 64 380 91 (199) (119) (82) 71 69 2016 1,928 2015 1,904 (1,399) (1,388) 529 516 Net segment income for the year was US $64 million compared to US $71 million for the prior year. After accounting for income allocated to policyholders, the net income attributable to shareholders for the segment totalled US $64 million in 2016, compared to US $69 million in 2015. Financial investments comprised 72% of segment assets and policy liabilities comprised 91% of segment liabilities at the end of 2016. Sagicor Jamaica Segment This segment comprises subsidiaries in Jamaica, Cayman Islands, and Costa Rica. The principal activities of the segment are the provision of life, critical illness and health insurance, annuities, pensions administration, investment management, securities dealing and commercial banking. This segment generated revenue of US $524 million in 2016, an increase of US $13 million over the 2015 total. The main revenue component was premium income which totalled US $268 million compared to 70 SAGICOR FINANCIAL CORPORATION LIMITED US $278 million in 2015 and was impacted by the depreciation of the Jamaica Dollar to the US dollar on translated premiums. Investment income totalled US $201 million compared to US $181 million in the prior year and benefited from significant realised gains. Benefits totalled US $249 million and was at the same level as in 2015. Expenses and taxes incurred totalled US $185 million in 2016, increasing by US $3 million over the prior year. SAGICOR JAMAICA Sagicor USA Segment This segment consists of the USA operations of Sagicor which market life insurance and annuity products to individuals. Segment revenue totalled US $149 million in 2016 compared to US $160 million in 2015. During 2015, Sagicor Life USA entered into a reinsurance agreement with Sagicor Life; inter-segment revenues in 2015 were US $82 million and inter-segment expenses were US $5 million in 2016 and US $82 million in 2015. Premium revenue recorded in 2016 was US $74 million compared to US $81 million in the prior year and was impacted by lower annuity premiums written in the segment in 2016. Investment income for 2016 totalled US $58 million compared to the prior year amount of US $60 million. INCOME - $ millions Revenue Benefits Expenses and taxes Segment income Segment income attributable to shareholders FINANCIAL POSITION - $ millions Assets Liabilities Net assets 2016 524 (249) (185) 90 44 2016 2,674 2015 511 (249) (182) 80 39 2015 2,513 SAGICOR USA INCOME - $ millions Revenue Inter-segment reinsurance revenue Benefits Expenses and taxes Inter-segment reinsurance expense (2,223) (2,116) Segment income 451 397 Segment income attributable to shareholders FINANCIAL POSITION - $ millions Net segment income for the year was US $90 million, compared to a total of US $80 million recorded for 2015. As the Sagicor Jamaica segment is owned 49% by the Group, the resulting net income attributable to shareholders was US $44 million in 2016. (US $39 million in 2015). Assets Liabilities Net assets 2016 149 - (86) (57) 5 11 11 2016 1,901 2015 160 (82) (88) (65) 82 7 7 2015 1,783 (1,682) (1,578) 219 205 Financial investments comprised 83% of the segment’s assets at the end of 2016. The liabilities of this segment were distributed 30% to policy liabilities and 69% to deposit and security liabilities at the end 2016. Total benefits amounted to US $86 million in 2016 compared to US $88 million in 2015. Current insurance benefits were US $82 million 2016 ANNUAL REPORT 71 while the expense for future insurance benefits in 2016 was US $4 million. to further underwriting, investment and foreign currency adjustments constrained by the limit as the experience develops. Expenses and taxes totalled US $57 million in 2016 compared to US $65 million in 2015, and was commensurate with the lower premium revenue which resulted in lower distribution costs. Net income of the segment for 2016 was US $11 million, compared to the US $7 million recorded for 2015. As of December 31, 2016, financial investments comprised 56% of the segment assets and policy liabilities comprised 85% 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 disposed of this business 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 the run-off of the 2011, 2012 and 2013 underwriting years. The three years closed at the end of 2015. • The future price adjustments were subject to a limit denominated in sterling. A provision was made up to the limit at the end of 2015 and the amount was paid in 2016. • During the financial period 2016 to 2018, the results are subject DISCONTINUED OPERATION INCOME - $ millions 2016 2015 Movement in price adjustment Net income/(loss) 1 1 (23) (23) FINANCIAL POSITION - $ millions 2016 2015 Assets Liabilities Net assets - - - - (46) (46) LOOKING FORWARD The global economy is expected to pick up pace in 2017 following the fragile economic climate in 2016. The increase in economic activity will be generally seen among emerging and developing economies. However, this outcome is heavily dependent on the outcome of the Trump administration’s new policies and their global ramifications. In the US, although the Federal Reserve has indicated their intention to raise interest rates during 2017, this outlook will be influenced by the new administration’s stimulus programs. Following estimated global growth of 3.1% for 2016, the IMF projected a moderate improvement in global growth of 3.4% for 2017. Regionally, economic conditions are expected to continue to show signs of improvement led by the moderate expansion in tourism services and construction projects. However, sustained recovery in the region hinges on the economic conditions in developed markets such as the USA and United Kingdom, which remain the region’s main source markets for tourism. Within the region, commodity exporters will benefit from somewhat higher commodity prices, particularly of oil. However, the region continues to face several risks including the high degree of policy uncertainty in the United States as well as the uncertainty surrounding Britain leaving the European Union, BREXIT. 72 SAGICOR FINANCIAL CORPORATION LIMITED In 2017 the company will continue to focus on its corporate reorganisation and process improvement projects which should prove beneficial to our cost of capital and our financial performance. We will adapt our strategies as required to deliver quality products to our customers and competitive returns to our shareholders. 2016 ANNUAL REPORT 73 BOAR D OF DIR ECTORS Each and every one of us has the potential to become a great leader. As we look ahead to the future, we will lead the way to a better tomorrow by not only aspiring towards greatness, but also taking the necessary actions to achieve it. That is how we will become better leaders, and lead others to do better as well. BOARD OF D IRECTOR S Each and every one of us has the potential to become a great leader. As we look ahead to the future, we will lead the way to a better tomorrow by not only aspiring towards greatness, but also taking the necessary actions to achieve it. That is how we will become better leaders, and lead others to do better as well. BOARD OF DIR ECTOR S STEPHEN MCNAMARA, 66, was appointed Non-Executive Chairman on January 1, 2010, having formerly served as Vice-Chairman since June 2007. He has been an independent Director since December 2002, and is a citizen of St Lucia and Ireland. He is a British-trained Attorney-at-law, and is the Senior Partner of McNamara & Company, Attorneys-at-Law of St Lucia. Mr McNamara was elected to the Board of Sagicor Life Inc in 1997. He is Chairman of the Group’s main operating subsidiary, Sagicor Life Inc, Sagicor USA, and Sagicor Finance Inc. He serves as a Director of Sagicor Group Jamaica Limited, and a number of other subsidiaries within the Group. ANDREW ALEONG, 56, has been an independent Director since June 2005, and is a citizen of Trinidad and Tobago. He holds an MBA from the Richard Ivey School of Business, University of Western Ontario, Canada. Mr Aleong is Group Managing Director of the Albrosco Group of Companies, Trinidad and Tobago, and has served the Trinidad and Tobago manufacturing industry for over 25 years. He is a former President of the Trinidad and Tobago Manufacturers’ Association. Mr Aleong also serves as a Director of a number of private companies. He was elected a Director of Sagicor Life Inc in 2005, and is also a Director of a number of other subsidiaries within the Group. PROFESSOR SIR HILARY BECKLES, K.A, 61, has been an independent Director since June 2005, and is a citizen of Barbados. Sir Hilary earned his PhD from Hull University, United Kingdom, and received an Honorary Doctorate of Letters from the same University in 2003. He is the Vice Chancellor of the University of the West Indies, and has previously served as the Head of the History Department and Dean of the Faculty of Humanities. In 1998, he was appointed Pro- Vice-Chancellor for Undergraduate Studies and, in 2002, the Principal of Cave Hill Campus. Sir Hilary has published widely on Caribbean economic history, cricket history and culture and higher education, and serves on the Editorial Boards of several academic journals. He has lectured in Africa, Asia, Europe and the Americas. He was elected a Director of Sagicor Life Inc in 2005. He is a member of the Secretary General of the UN, Advisory Board on Science and Sustainable Development, and Vice President of the Commonwealth Ministers’ Advisory Board on Sport. 76 76 SAGICOR SAGICOR FINANCIAL CORPORATION LIMITED PETER CLARKE, 62, has been an independent Director since June 2010, and is a citizen of Trinidad and Tobago. He obtained a Bachelor of Arts degree from Yale University and a Law degree from Downing College, Cambridge University. He was called to the Bar as a member of Grays Inn, London, in 1979 and to the Bar of Trinidad and Tobago in 1980. Mr Clarke is a Financial Consultant, who formerly practised as a Barrister-at-Law before embarking on a 22-year career in stockbroking. From 1984 to 2000, he was the Managing Director of Money Managers Limited, and Chief Executive of West Indies Stockbrokers Limited from 2001 until his retirement in 2005. Mr Clarke, is a Director of a number of companies in Trinidad and Tobago, including the Trinidad and Tobago Stock Exchange. He is also a member of the University of the West Indies Development and Endowment Fund, and the Finance Council of the Roman Catholic Archdiocese of Port of Spain. From 2002 to 2005, he was a Director of the Trinidad and Tobago Chamber of Industry and Commerce. Mr Clarke also serves as a Director of Sagicor Life Inc, Sagicor Group Jamaica Limited and Sagicor Life Jamaica Limited. DR JEANNINE COMMA, 66, has been an independent Director since June 2007, and is Chairman of the Human Resources Committee. She is a citizen of Trinidad and Tobago and Barbados. She holds a PhD from George Washington University, Washington, DC, USA, and is also a graduate of the University of the Virgin Islands. Dr Comma is CEO/Director of the Sagicor Cave Hill School of Business and Management Inc. of The University of the West Indies, Cave Hill Campus. Dr Comma has extensive experience in Leadership Development, Organisation Development, Strategic Planning, Transformation Management and Corporate Governance. She has made significant contributions to the development of human capital within the regional business community, as well as engaged in several consulting assignments with Caribbean Governments and public sector agencies throughout the region. She is an Executive, an Academic, a Consultant, a Leadership Development Expert and a Certified Executive Coach. She serves on the Boards of the Barbados Tourism Investment Inc., the National Initiative for Service Excellence, the Barbados Entrepreneurship Foundation as well as the Commonwealth Association of Public Administration and Management (CAPAM). Dr Comma was elected a Director of Sagicor Life Inc. in 2006. MONISH DUTT, 58, has been an independent Director since 2012 and is a citizen of India and a permanent resident of the United States of America. He holds an MBA with a concentration in Finance from the London Business School, London University, and a BA in Economics from the University of Delhi. He is a Fellow of the Institute of Chartered Accountants, London, England. Currently a Consultant on Emerging Markets, Mr Dutt is a seasoned investment professional who, for the 25 years preceding 2011, was employed with International Finance Corporation (IFC), a member of the World Bank Group. While at IFC, he held various positions, the most recent of which was Chief Credit Officer for Global Financial Institutions & Private Equity Funds. He was formerly the Head of IFC’s Private Equity Advisory Group; the Head of the Baltics, Central Europe, Turkey and Balkans Group; Principal Investment Officer for Asia; Senior Investment Officer for Central & Eastern Europe, and an Investment Officer for Africa, Latin America and Asia. Mr Dutt has extensive experience evaluating investment proposals in financial institutions and private equity funds globally, structuring investments, tracking global investment portfolios, and providing quality control guidance to private equity fund investments. Mr Dutt has also represented IFC on boards of investee companies. Mr Dutt serves as a Director of Sagicor Bank Jamaica Limited. 2016 ANNUAL REPORT 2016 ANNUAL REPORT 77 77 DR MARJORIE FYFFE-CAMPBELL, 65, has been an independent Director since June 2005, and is a citizen of Jamaica. Dr Fyffe-Campbell recently completed her Doctorate in Business Administration from the Mona School of Business and Management, University of the West Indies. She is a Management Consultant, and holds an MSc in Accounting from the University of the West Indies, is a Fellow of the Institute of Chartered Accountants of Jamaica and a member of the Hospitality, Financial and Technology Professionals. She is a former President and Chief Executive Officer of the Urban Development Corporation, Jamaica. RICHARD KELLMAN, 65, was elected as a Director in June 2009, and in November 2009 was appointed Group Chief Operating Officer. Mr. Kellman is a citizen of Guyana, holds a BSc degree in Statistics from University College, London University, and retired from fellowship of the Institute of Actuaries during 2016. He has wide regional experience in the areas of finance, pensions and insurance, and has held senior actuarial and management positions in the industry, as well as served on several regional Boards. WILLIAM LUCIE-SMITH, 65, has been an independent Director since June 2005, and is a citizen of Trinidad and Tobago. He holds an MA from Oxford University and is a Chartered Accountant. He is a retired Senior Partner of PricewaterhouseCoopers, Trinidad and Tobago, where he headed the Corporate Finance and Recoveries Divisions, specialising in all aspects of business valuations, privatisation, mergers and acquisitions and corporate taxation. Mr Lucie-Smith was elected a Director of Sagicor Life Inc in 2005, and is also a Director of Sagicor USA, and a number of other subsidiaries within the Group. Dr Fyffe-Campbell is an Adjunct Lecturer in Enterprise Risk Management Governance at the Mona School of Business and Management. She was elected a Director of Sagicor Life Jamaica in 2002, and is also a Director of other subsidiaries within the Group. 78 78 SAGICOR SAGICOR FINANCIAL CORPORATION LIMITED DODRIDGE MILLER, 59, 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, Sagicor Investments Jamaica Limited (formerly Pan Caribbean Financial Services) and a number of other subsidiaries within the Group. JOHN SHETTLE, JR, 62, has been an independent Director since June 2008, and is a citizen of the United States of America. He received his undergraduate degree from Washington & Lee University, and holds an MBA from the Sellinger School of Business at Loyola College, Maryland. Mr Shettle is an Operating Partner of Stone Point Capital, a private equity firm in the global financial services industry. He has over 35 years’ experience in senior management positions in the property/casualty, health and insurance-related services industry. More recently, he served as Senior Advisor to Lightyear Capital, a private equity firm, and President and Chief Executive Officer of the Victor O Schinnerer Company. Prior to that, he was the Chief Executive Officer of Tred Avon Capital Advisors, Inc, a firm providing advisory services to companies and private equity firms focused on the insurance sector. He has held senior management positions at Securitas Capital, Swiss Reinsurance Company and Frederick, the Maryland-based AVEMCO Corporation (NYSE). Mr Shettle is also a Director of Sagicor USA and a number of subsidiaries within the Group. RICHARD P YOUNG, 67, a citizen of Trinidad and Tobago, was appointed an independent Director of the Company in January, 2014. He is a Chartered Accountant by profession, and has had a distinguished career in accounting, auditing, insurance and banking. He has over forty years’ experience in the regional financial services sector, the last seventeen of which he spent as the Managing Director of Scotiabank Trinidad & Tobago Limited and a Senior Vice President of The Bank of Nova Scotia, before retiring in 2012. Prior to joining Scotiabank, he was the Managing Director of NEM (West Indies) Insurance Ltd. (NEMWIL). Mr Young also served as Chairman and Deputy Chairman of other Scotia Group subsidiaries, as well as Deputy Chairman of the National Housing Authority. He is a former President of the Council of the Institute of Chartered Accountants of Trinidad and Tobago; President of the Bankers Association of Trinidad and Tobago; Chairman of the Trinidad & Tobago Stock Exchange and Committee Member of the Association of Insurance Companies of Trinidad & Tobago. He is Chairman of the Trinidad and Tobago International Financial Centre. 2016 ANNUAL REPORT 2016 ANNUAL REPORT 79 79 COR PORAT E GOVERNANCE As a company, our responsibility lies in making today better than yesterday, and tomorrow even better than today. Through wise financial planning, our customers can reach their potential, and embrace anything the future holds. CORPORATE GOVER NANCE DIRECTORS’ INTERESTS Directors’ interests as at December 31, 2016, and as at the record date, March 16, 2017, are as follows: Shares as at 31-Dec-16 Shares as at 16-Mar-17 Common Shares Common Shares 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 23,993 533,358 9,579 25,000 22,300 1,000 50,850 421,576 121,547 Dodridge Miller 1,707,967 John Shettle, Jr Richard P. Young 1,000 34,266 0 0 0 0 0 0 0 0 0 0 0 0 23,993 533,358 9,579 25,000 22,300 1,000 50,850 421,576 130,338 1,707,967 1,000 34,266 0 0 0 0 0 0 0 0 0 0 0 0 Restricted Stock Grants As at 31-Dec-16* Stock options As at 31-Dec-16* Vested Unvested Vested Exercised Expired Unvested Richard Kellman 704,106 108,429 482,029 Dodridge Miller 2,301,497 1,955,898 2,922,096 0 0 0 576,647 159,817 2,632,271 * These remained unchanged at March 16, 2017 82 SAGICOR FINANCIAL CORPORATION LIMITED BOARD COMPOSITION AND STRUCTURE 1 The maximum number of Directors permitted by the Bye-Laws 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 former Group Chief Operating Officer. Biographical information on the Directors and details of their interests in the Company as at December 31, 2016 and as at the record date March 16, 2017 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. 2016 ANNUAL REPORT 83 a r a m a N c M n e h p e t S g n o e l A w e r d n A s e l k c e B y r a l i H r i S f o r P a m m o C e n i n n a e J r D e k r a l 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 h t i m S - e i c u L m a i l l i W n a m l l e K d r a h c i R 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 i R 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 84 SAGICOR FINANCIAL CORPORATION LIMITED In addition, individual Directors must also possess specific knowledge and experience commensurate with the business requirements of the Company and are also expected to have a style of operation which comprises: a. high personal standards consistent with the Company’s Code of Business Conduct and Ethics; b. commitment to business leadership; c. courage to express and defend a position; d. decisiveness and willingness to be held accountable; e. effective intervention and decision-making style; f. willingness to contribute to team synergy, and a g. mature and thoughtful perspective on business. The Company is also mindful that the Board must reflect the business, social, economic and cultural jurisdictions from which the Company draws customer patronage, and that Directors must have sufficient time available to devote to the performance of their Board duties. Finally, Directors are required to undergo an annual self-assessment. This assessment is designed to ensure that appropriate standards of independence and objectivity are maintained. All non-executive Directors have satisfied the 2016 independence self-assessment. 2 ROTATION AND RE-ELECTION OF DIRECTORS The Company’s Bye-laws provide that at least one-third, or the number nearest thereto, of the directors must retire every year, but a Director shall not be required to retire unless he/she has been in office for three years. Consequent upon the Company’s continuance in Bermuda, new Bye-Laws were adopted, which require that the directors be divided into three classes, designated as Class I, Class II and Class III. Andrew Aleong, Professor Sir Hilary Beckles, John Shettle, Jr and Richard P Young, having been designated as Class I directors, will retire at the fourteenth Annual Meeting, and all being qualified, have offered themselves for re-election. Profiles of the nominees are contained in the Management Proxy Circular accompanying the Notice of the Meeting. The Board recommends that all the nominees be re-elected. In making this recommendation, the Board has been guided by the nomination process overseen by the Corporate Governance and Ethics Committee, which requires a review of the core competency requirements of the Board as a whole; the skills and experience of the nominees; their independence as defined by our Corporate Governance Policy; and their performance, including their willingness and ability to devote the time necessary to fulfil their role as Directors. It is intended that Directors who have served on the Board for nine or more years be subject to enhanced 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 the Committee’s recommendation to the Board that they be nominated for re-election. Further consideration is being given to the form of enhanced review as part of the comprehensive update to the Corporate Governance Manual which will be completed in 2017. NEW DIRECTOR ORIENTATION 3 The Company’s Corporate Governance Manual expressly recognises the importance of an efficient and effective on-boarding process for new Directors. To this end, the Manual establishes a New Director Orientation Programme to assist in developing a high level of institutional, boardroom and interpersonal comfort in order to expedite his/her effectiveness as a director. The Company has established an online Board Portal for the distribution and housing of Board Meeting materials and other corporate information. All Directors therefore have immediate and constant access to all necessary company materials and documents. 4 ON-GOING DIRECTOR EDUCATION During the year, on-going Director education included sessions on rating agencies’ methodologies and changes in international accounting standards. The Board is committed to continuing these education sessions to ensure Director effectiveness is optimised by enhancing Director knowledge. 5 BOARD RESPONSIBILITIES 5.1 BOARD OF DIRECTORS The Board of Directors is collectively responsible for providing entrepreneurial leadership, guidance and oversight to the Company, 2016 ANNUAL REPORT 85 within a framework of prudent and effective controls. This framework enables risk to be assessed and managed, with a view to maximising shareholder wealth within the bounds of law and community standards of ethical behaviour. The Board’s six main responsibilities, which it executes through decision-making and oversight, are strategic planning; enterprise risk management; executive succession planning and performance evaluation; shareholder communications and public disclosures; internal controls and corporate governance. The respective roles of the Chairman of the Board, the Board, Committee Chairmen, Committees and Management are clearly defined. Position descriptions explaining the roles, responsibilities and desired competencies have been developed for the Chairman of the Board, the Chairmen of each Board 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 Group. Their role is to formulate and implement strategy, operational plans, policies, procedures and budgets; monitor operating and financial performance; assess and control risk; prioritise and allocate resources and monitor competitive and environmental forces in each area of operation. The roles of functional Group Executives, who form part of ExCom, are also specifically defined. 5.2 BOARD COMMITTEES The four Standing Committees of the Board - Audit; Corporate Governance and Ethics; Human Resources and Investment and Risk - play an integral role in the governance process, in that they assist the Board with the proper discharge of its functions by providing an opportunity for more in-depth discussions on areas not reserved specifically for the Board. The mandates of all the Committees comply with best practice. External Auditors. The Committee is also required to review the annual audit plan, interim and audited financial statements, and International Financial Reporting Standards having a significant impact on the financial statements. It also reviews actuarial reports and recommendations. The Committee oversees the Internal Audit function, reviewing Internal Audit’s assessment of the adequacy and effectiveness of the Group’s internal controls, compliance with legal, statutory, regulatory and other requirements, and management of risk. The Committee’s composition meets the independence and skill requirements of the Group’s Corporate Governance Policy. The Members are financially literate, and three Members, William Lucie-Smith, Monish Dutt and Marjorie Fyffe- Campbell, all Chartered Accountants, have relevant accounting expertise. The current Members are: • William Lucie-Smith (appointed a Member on August 24, 2005 and Chairman on June 28, 2006); • Marjorie Fyffe- Campbell (appointed September 11, 2008); • Dr Jeannine Comma (appointed September 11, 2008); • Monish Dutt (appointed March 18, 2014), and • Peter Clarke (appointed March 21, 2014). The role of the Corporate Governance and Ethics Committee is principally to develop and recommend to the Board policies and procedures to establish and maintain best practice standards of Corporate Governance and Corporate Ethics. It also manages the process for Director succession, Director performance, the operation of the President, the composition of Board and Committees, shareholder communications, and corporate image. The Committee’s composition meets the independence requirements of the Group’s Corporate Governance Policy. The current Members are: The mandate of the Audit Committee is to oversee the external audit process, and manage all aspects of the relationship with the • Stephen McNamara (appointed a Member on March 9, 2004 and Chairman on February 17, 2010); 86 SAGICOR FINANCIAL CORPORATION LIMITED • Professor Sir Hilary Beckles (appointed March 18, 2009); • Marjorie Fyffe-Campbell (appointed March 18, 2009); • John Shettle, Jr (appointed August 18, 2010), and • Richard P. Young (appointed March 18, 2014). The mandate of the Human Resources Committee is to advise the Board with respect to compensation policies, programmes and plans; human resources policies and practices to attain the Company’s strategic goals; executive management recruitment; succession plans; performance evaluation and compensation. The Committee’s composition meets the independence requirements of the Group’s Corporate Governance Policy. The current Members are: • Dr Jeannine Comma (appointed a Member on September 18, 2007, and Chairman on August 24, 2011); • Stephen McNamara (appointed August 18, 2010); • Andrew Aleong (appointed March 23, 2012), and • Monish Dutt (appointed March 18, 2014). The Investment and Risk Committee is charged with ensuring generally that the Group manages risk within its defined philosophy and appetite, and in compliance with policy risk parameters. Its specific mandate is to ensure that an appropriate enterprise risk management framework is implemented throughout the Group, approve risk policies and risk undertakings and exposures reserved for Board decision. It continually monitors exposures relating to certain risks. Committee Members are required to understand the enterprise’s significant inherent risks and the policies and controls used by Management to assess, manage and report these risks. The Committee regularly reviews the Group’s risk profile, and assesses Management’s plans for ensuring financial stability and capital soundness. The Committee’s composition meets the independence requirements of the Group’s Corporate Governance Policy. The current Members are: • Stephen McNamara (appointed a Member on November 26, 2003 and Chairman on February 17, 2010); • Andrew Aleong (appointed March 18, 2009); • John Shettle, Jr (appointed March 18, 2009; • Peter Clarke (appointed August 18, 2010); • Richard P. Young (appointed March 18, 2014), and • William Lucie-Smith (appointed March 21, 2014). BOARD EVALUATION 6 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 continues 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. INTERLOCKING DIRECTORSHIPS 7 The Corporate Governance Recommendations of the Barbados Stock Exchange require that the Company makes certain disclosures relating to Directors’ interlocks. In addition to their service on the Board of the Company and the Boards of various Group subsidiaries, the following Company Directors also serve together on the Board of the publicly-listed company appearing next to their names: Directors Company Richard P Young William Lucie-Smith Massy Holdings Ltd 2016 ANNUAL REPORT 87 BOARD OPERATIONS 8 During 2016, Management engaged the Board of Directors (BOD) 22 times, either in formal meetings or by requests for round-robin decisions in between meetings. In relation to the engagement of the Standing Committees of the Board, the Audit Committee (AC) met 5 times; the Corporate Governance and Ethics Committee (CGC) met 3 times; the Human Resources Committee (HRC) met 4 times; and the Investment and Risk Committee (IRC) met 3 times. Directors’ record of attendance was as follows: Stephen McNamara Andrew Aleong Prof Sir Hilary Beckles Peter Clarke Dr Jeannine Comma Monish Dutt BOD 22 of 22 20 of 22 19 of 22 21 of 22 20 of 22 22 of 22 Marjorie Fyffe-Campbell 20 of 22 Richard Kellman William Lucie-Smith Dodridge Miller John Shettle, Jr Richard P Young 21 of 22 19 of 22 21 of 22 21 of 22 21 of 22 AC 5 of 5 5 of 5 5 of 5 4 of 5 4 of 5 CGC 3 of 3 3 of 3 3 of 3 2 of 3 3 of 3 The Board manages an annual schedule of critical agenda items designed to ensure that it fulfils its recurring obligations, and that Board-reserved items are routinely considered. The principal business at Board meetings in 2016 was to: 88 SAGICOR FINANCIAL CORPORATION LIMITED HRC 4 of 4 4 of 4 4 of 4 4 of 4 IRC 2 of 3 2 of 3 3 of 3 3 of 3 3 of 3 3 of 3 Total 31 of 32 26 of 29 22 of 25 29 of 30 29 of 31 31 of 31 27 of 30 21 of 22 26 of 30 21 of 22 26 of 28 27 of 28 % 97 90 88 97 94 100 90 95 87 95 93 96 • consider and approve the Group strategic plan, capital plan and projections for the period 2017 to 2019; • consider the terms of the US$75 million fixed-rate, short-term notes issued by the Company; • consider acquisition opportunities; • receive reports on the Process Review and Optimisation initiative; • consider and approve the proposed re-domiciliation of the Company to Bermuda; • 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; • review and approve unaudited interim and audited annual consolidated financial statements; • approve interim and final dividends; • approve the redemption of the redeemable convertible preference shares; • review and approve actuarial reports of the Appointed Actuary, and • receive reports on work being carried out by Board Committees, and consider and approve their recommendations as required. • reviewing actuarial reports of the Appointed Actuary; • reviewing reports of the External Auditors on key audit issues; • reviewing the financial performance of the Group and key subsidiaries; • examining the implications of changes to International Financial Reporting Standards; • approving the 2016 Internal Audit Plan, reviewing Internal Audit reports and monitoring Management action on open Internal Audit items; • reviewing compliance with various financial covenants; • reviewing reports on pending material litigation and claims, and pending regulatory issues; • reviewing regulatory compliance and other compliance reports; • assessing the adequacy of the Committee’s mandate, and • evaluating its effectiveness in fulfilling same. CORPORATE GOVERNANCE AND ETHICS COMMITTEE REPORT: The Committee’s principal business during 2016 included: • reviewing Board and Director core competencies and identifying gaps to inform the nomination process; • overseeing Director nominations, Board Committee, subsidiary and outside Board appointments; • overseeing the management of independence requirements and 9 COMMITTEE OPERATIONS conflicts of interest; AUDIT COMMITTEE REPORT: The 2016 activities of the Audit Committee included: • reviewing and approving the external audit plan and timetable; • evaluating the performance of the External Auditors for Group entities and approving their audit fees; • overseeing the Director self and peer performance evaluation process; • monitoring Director attendance; • reviewing Corporate Governance structure of subsidiaries; • reviewing Insider Trading Policy; • conducting its annual review of the adequacy of the Code of • reviewing the External Auditors’ 2015 Management Letter and Business Conduct and Ethics; Report on the 2015 audit; • generally monitoring the operation of Corporate Governance • approving the 2016 Audit Engagement Letter; • reviewing and recommending for approval by the Board interim and annual audited financial statements; • making dividend recommendations to the Board; policies and practices and • assessing the adequacy of the Committee’s mandate, and evaluating its effectiveness in fulfilling same. 2016 ANNUAL REPORT 89 HUMAN RESOURCES COMMITTEE REPORT: During 2016, the Human Resources Committee: • reviewed executive performance, compensation and terms of engagement; and rewarded for team as well as individual performances. 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. In addition, compensation includes a non-cash component (long-term incentive) which is performance based and takes into consideration an externally calculated cost of equity. For the financial year under review, compensation paid in cash to the top 5 members of the Executive Management team of the Company, amounted in aggregate to US$5,465,000. The table immediately below shows a breakdown of the non-cash component of the compensation of the top 5 members of the Executive Management team. • monitored succession planning and leadership and development plans at the executive level; • considered succession planning needs across the Group for senior employees below the executive level; • granted awards to qualified participants under the annual cash incentive, long-term incentive plan (LTI) and employee share ownership plan (ESOP) based on performance against established benchmarks; • reviewed aspects of the rules of the Company’s annual long-term incentive plans; • reviewed ESOP financial statements, and • assessed the adequacy of the Committee’s mandate and evaluated its effectiveness in fulfilling same. INVESTMENT AND RISK COMMITTEE REPORT: In 2016, the Investment and Risk Committee’s work included monitoring key risks to which the Group is exposed. These included: • reviewing in detail interest rate, credit, liquidity and foreign exchange risk dashboards for the Company as a whole, and for its major subsidiaries; • monitoring of risk exposures and reviewing mitigation strategies designed to manage risk, and generally overseeing the enterprise risk management process, and • reviewing investment performance. 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 90 SAGICOR FINANCIAL CORPORATION LIMITED Restricted Stock Grants Stock options For the financial year ended 31-Dec-16 For the financial year ended 31-Dec-16 Top 5 Members of the Group Executive Management Team Vested 929,422 Vested 1,150,158 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. In 2016, the Company accepted an invitation to participate in a directors’ compensation survey being initiated by another entity but this exercise was aborted. In 2017, the Company will be reviewing its level of compensation for Directors. 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 $590,000. Directors receive no additional benefits, but are reimbursed reasonable and customary out-of-pocket expenses associated with their attendance at meetings, and the performance of their role as Directors. Executives who are Directors are not paid fees. 2016 ANNUAL REPORT 91 FEES PAID TO EXTERNAL AUDITORS 11 PricewaterhouseCoopers is the Group’s external auditor. Following is a statement of the fees paid to the external auditors for audit and non-audit services during 2015 and 2016: Services Fees Paid US$ ‘000 Audit Non-Audit Statutory Returns Other Total 2015 3,420 254 912 1,956 *6,542 2016 2,950 273 944 454 4,621 * This amount included fees of US$1,476,000 incurred by Sagicor Finance (2015) Ltd for the US$320 million Corporate Bond raised in 2015. 12 ENTERPRISE RISK MANAGEMENT The Group’s enterprise risk management framework comprises articulation of risk philosophy and appetite; risk structures and processes; risk policies and a regime of monitoring risk exposures, both at the enterprise and subsidiary levels. The Group’s activities of issuing insurance contracts, accepting funds from depositors, and investing insurance premium and deposit receipts in a variety of financial and other assets expose the Group to various financial, operational and business risks. Financial risks include insurance credit, liquidity, and market risks. Operational risks include fraud; damage to physical assets; improper business practices; improper employment practices; business interruption and system failures, and execution and process errors. Business risks include legal and regulatory, strategic and reputational risks. Exposure and sensitivity to financial risks are disclosed in Notes 41 to 43 to the 2016 audited financial statements contained in this Annual Report. INTERNAL AUDIT 13 The role of Group Internal Audit is to provide independent, objective assurance and consulting services, designed to add value and improve the organisation’s operations by utilising an appropriate risk-based audit methodology across the Group. It helps the organisation to accomplish its objectives by bringing a systematic, disciplined approach to the evaluation and improvement of risk management, control and governance processes. The scope of work of Internal Audit is to determine whether the organisation’s network of risk management controls, and governance processes, as designed and represented by Management, is adequate and functioning in a manner to ensure, among other things, that risks are appropriately identified and managed and that employees’ actions are in compliance with policies, standards, procedures, applicable laws and regulations. The work of Internal Audit also seeks to give assurance that resources are acquired economically, used efficiently, and adequately protected, and that quality and continuous improvement are fostered in the organisation’s control process. The work also ensures that significant legislative or regulatory issues impacting the organisation are recognised and addressed appropriately. 14 COMPLIANCE Sagicor continues to strengthen and streamline its compliance function, in response to the increasing complexity of regulatory and other risks, with the Audit Committee continuing to exercise oversight of all aspects of compliance. The Group Compliance Committee also contributes to compliance management. Its role includes ensuring that compliance is governed by appropriate policies and is implemented and administered in accordance with such policies, ensuring that risk management practices are developed, implemented and administered for identifying, assessing, managing, reporting and monitoring compliance risk. The role also lends value-added support for the administration of, and compliance with, Sagicor’s Code of Business Conduct and Ethics. The Committee’s membership includes the Group Chief Compliance Officer as Chair, and the Chief Compliance Officer of each major operating subsidiary, the Group Chief Risk Officer, and Group General Counsel. 92 SAGICOR FINANCIAL CORPORATION LIMITED 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. INVESTOR RELATIONS AND COMMUNICATIONS 16 During 2016, the Company continued to execute its investor relations communications programme 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 March 31, 2017 2016 ANNUAL REPORT 93 EXECUTIVE M ANAGEMENT We will always be there for our customers and guide them with sage advice today, so they may fulfill their goals tomorrow. Together, we have the power to make each day better than the last. EXECUTIVE MA NAGEMENT Dodridge D Miller FCCA, MBA, LLM, LLD (Hon) Group President and Chief Executive Officer • • • • • • Appointed Group President and Chief Executive Officer in 2002, and has been a Director since December 2002. Fellow of the Association of Chartered Certified Accountants (FCCA), and obtained his MBA from the University of Wales and Manchester Business School. 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. 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 Executive Vice President – Finance and Investments, Deputy Chief Executive Officer and Chief Operating Officer. 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 other subsidiaries within the Group. Richard M Kellman BSc Group Chief Operating Officer, with responsibility for Sagicor Life Inc, Southern Caribbean • • • • Elected a Director in June 2009, and was appointed Group Chief Operating Officer in 2009. Holds a BSc in Statistics from University College, London University, and retired from fellowship of the Institute of Actuaries during 2016. More than 30 years’ experience in the pensions, insurance and financial services industries. Held senior actuarial and management positions, and served on several regional Boards. Dr. M Patricia Downes-Grant CBE, MA, MBA, DBA, LLD (Hon) Executive Director, Corporate • • • • • • Appointed President and Chief Executive Officer of Sagicor Life Inc in 2006, having served as Group Chief Operating Officer since 2002. Joined Sagicor in 1991, and held several senior positions, including those of Vice President, Investments and Treasurer and Executive Vice President (Finance and Investments) before being appointed Chief Executive Officer. Holds an MBA in Finance, an MA in Economics, a Doctorate in Business Administration (Finance) and an Honorary Doctor of Laws degree from the University of the West Indies. Prior to joining Sagicor, Dr. Downes-Grant was a Senior Manager with PricewaterhouseCoopers. More than 20 years of experience in insurance, banking and asset management. Former Chairman of the Barbados Stock Exchange and Barbados Central Securities Depository, and a Director of several companies within the Sagicor Group and private companies. 96 SAGICOR FINANCIAL CORPORATION LIMITED Anthony O Chandler CPA, CGA, MBA Group Chief Financial Controller • • • • • • • Appointed Group Chief Financial Controller in 2013. Member of the Certified General Accountants Association of Canada, and holds an MBA from the University of Manchester. Prior to this, he served as Executive Vice President and Chief Financial Officer of Sagicor Life Inc from 2011. Joined Sagicor in 1995 as Financial Accountant, and was transferred to the Group subsidiary, Island Life Insurance Company Ltd in 2000. Has over 20 years of experience in the insurance industry. 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 of Sagicor Life Inc. Althea C Hazzard LLM (Cantab), FCIS, MICA Executive Vice President, General Counsel and Corporate Secretary • • • • Appointed Executive Vice President, General Counsel and Corporate Secretary of Sagicor Financial Corporation in 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. 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 Sagicor Cave Hill School of Business and Management. Professional member of the International Compliance Association and a Fellow of the Institute of Chartered Secretaries and Administrators in Canada. Ravi C Rambarran BSc, MSc, FIA Executive Vice President Corporate Strategy & Investor Relations • • • • • • • In January 2017 he assumed responsibility for group strategy, mergers and acquisitions, investor relations with rating agencies. Appointed President and Chief Executive Officer of Sagicor International in 2007. Joined the Group in 1997. 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. More than 20 years of experience, both regionally and internationally, in the pension, insurance and asset management industries. Director of Sagicor USA and Sagicor General. Member of the Executive of the Caribbean Actuarial Association and represents the Caribbean on the International Actuarial Association Insurance Committee. 2016 ANNUAL REPORT 97 Ronald B. Blitstein BA, MBA Group Chief Information Officer • • • • • • Joined Sagicor Financial Corporation in 2013. Holds a BA in Political Science, MBA in Finance from Syracuse University. IT professional, with knowledge in all areas of information technology and its application to driving improved business outcomes. Previously served as Director, Business Technology and Strategies Practice for a global advisory firm, supporting Fortune 500 clients, national governments and United Nations agencies. Held key executive leadership positions at Revlon, Pitney Bowes, BOC Group, and Xerox Corporation. Served as a Six Sigma Champion for firms pursuing enterprise operational excellence. J. Andrew Gallagher FSA, FCIA, CERA Chief Risk Officer • • • • • Appointed Chief Risk Officer for the Group in 2007. Joined Sagicor in 1997 as Resident Actuary. Holds a Bachelor of Mathematics degree from the University of Waterloo. Fellow of Canadian Institute of Actuaries, Fellow of the Society of Actuaries and a Chartered Enterprises Risk Analyst. More than 20 years in the insurance industry. Donald S Austin BSc, MBA, FCCA President & CEO, Sagicor Life (Eastern Caribbean) lnc • • • • Appointed Chief Executive Officer, Sagicor Life (Eastern Caribbean) Inc. in 2015. Board Member of Sagicor Funds Incorporated and Sagicor Asset Management Inc. Former Chairman of the Board of Directors of LIME Grenada and LIME Dominica and Current Board Member of LIME Barbados. Holds a Bachelor of Science (Honours) 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. Richard O Byles BSc, MSc President and Chief Executive Officer, Sagicor Group Jamaica Limited • • • • • • Appointed President and CEO of Sagicor Life Jamaica Limited in 2004. In February 2016 he reached retirement age and is now employed on a short term contract until the new Chief Executive Officer assumes the position on May 1, 2017. Holds a BSc in Economics from the University of the West Indies and an MSc in National Development from the University of Bradford, England. Chairman of the Board of Sagicor Bank Jamaica Limited, Sagicor Property Services Limited, Sagicor Reinsurance Limited (Cayman), Sagicor Insurance Managers (Cayman), Red Stripe Limited and Pan-Jamaican Investment Trust Ltd. Former Co-chair of the Economic Programme Oversight Committee (EPOC), a private/public sector committee established to oversee the Implementation of the IMF Programme in Jamaica. More than 30 years of experience in insurance, banking and asset management. 98 SAGICOR FINANCIAL CORPORATION LIMITED Bart F Catmull BSc, CPA President and Chief Operating Officer, Sagicor USA Inc • • • • • Appointed President and Chief Operating Officer of Sagicor USA in 2013. Certified Public Accountant (CPA), and obtained his Bachelor of Science degree in Accounting from Brigham Young University. 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 in the company. Joined the Group in 2005, with the predecessor Company since 1999. J. Edward Clarke FCCA, CIA Executive Vice President and General Manager, Barbados • • • • • • Appointed Chief Operating Officer, Sagicor Life Inc and General Manager, Barbados in 2010. Prior to 2010, he held the position of Group Internal Auditor. Fellow of the Association of Chartered Certified Accountants and is a Certified Internal Auditor. More than 30 years’ experience in auditing and finance in Barbados, Nigeria and the USA. Prior to joining Sagicor, Chief Financial Officer of a major conglomerate in Barbados. Director of Sagicor General Insurance Inc, Sagicor Funds Inc, Barbados Farms Limited, Globe Finance, the Insurance Association of the Caribbean and a Vice President of the Barbados Chamber of Commerce and Industry. Keston D Howell BSc, (Hon), MBA Executive Vice President and General Manager, Dutch Caribbean & Central America • • • • • Joined Sagicor in July 2006 as Executive Vice-President - Merchant Banking, responsible for the establishment of Sagicor Merchant Bank and overall Banking Strategy of the Group. In 2008, assumed the position of Executive Vice President - Sagicor Asset Management Limited. Holds an MBA from the University of London. More than 18 years in the insurance and banking industry. Assumed executive responsibility for Dutch Caribbean and Central America operations and Sagicor Life Aruba N.V. and has executive oversight of Sagicor Life’s Mortgage Department and Mortgage Recovery Unit. Robert J L Trestrail BA Executive Vice President and General Manager, Trinidad & Tobago • • • • • Appointed Executive Vice President and General Manager Trinidad and Tobago in 2007. Joined the Group in 2001 as an Assistant Vice President – Administration. Holds a BA – Economics from the University of Toronto. More than 20 years in the insurance and banking industry. Promoted to Vice President – Administration in 2004, and became Executive Vice President and General Manager Designate in 2006. 2016 ANNUAL REPORT 99 IN DEX OF FINANCIAL STATEMENTS As we look ahead to the future of our company, we will continue to operate with honesty and transparency. Our word is our bond and we will never break it. So when people look to Sagicor for service and advice, they will always know that we will be there to lead them on the path to success. IN DEX OF FINA NCIAL STATEMENTS As we look ahead to the future of our company, we will continue to operate with honesty and transparency. Our word is our bond and we will never break it. So when people look to Sagicor for service and advice, they will always know that we will be there to lead them on the path to success. IN DEX TO THE FINANCIAL STATE ME NTS AND N OTES Page Page Independent Auditor’s Report 104 10 Reinsurance Assets Appointed Actuary’s Report 109 11 Income Tax Assets Consolidated Financial Statements: 12 Miscellaneous Assets and Receivables Statement of Financial Position 110 13 Actuarial Liabilities Statement of Income Statement of Comprehensive Income Statement of Changes in Equity Statement of Cash Flows 1 Incorporation and Principal Activities 2 Accounting Policies 111 112 113 114 115 115 14 Other Insurance Liabilities 15 Investment Contract Liabilities 16 Notes and Loans Payable 17 Deposit and Security Liabilities 18 Provisions 19 Income Tax Liabilities 3 Critical Accounting Estimates and Judgements 137 20 Accounts Payable and Accrued Liabilities 4 Segments 139 21 Common and Preference Shares 5 Investment Property 149 22 Reserves 6 Associates and Joint Ventures 150 23 Participating Accounts 7 Property, Plant and Equipment 154 24 Premium Revenue 8 Intangible Assets 155 25 Net Investment Income 9 Financial Investments 158 26 Fees and Other Revenue 160 160 160 161 164 165 165 166 166 166 166 167 169 170 170 171 172 102 SAGICOR FINANCIAL CORPORATION LIMITED 27 Policy Benefits & Change in Actuarial Liabilities 28 Interest Expense 29 Employee Costs 30 Equity Compensation Benefits Page 172 172 173 173 44 Fiduciary Risk 45 Statutory Restrictions on Assets 46 Capital Management 47 Related Party Transactions 31 Employee Retirement Benefits 176 48 Events after December 31, 2016 Page 221 221 222 225 225 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 40 Fair Value of Property 41 Financial Risk 42 Insurance Risk - Property & Casualty Contracts 43 Insurance Risk - Life, Annuity & Health Contracts 180 181 185 186 187 188 188 190 191 192 214 216 2016 ANNUAL REPORT 103 AUDITOR’S REPORT 104 SAGICOR FINANCIAL CORPORATION LIMITED 2016 ANNUAL REPORT 105 106 SAGICOR FINANCIAL CORPORATION LIMITED 2016 ANNUAL REPORT 107 108 SAGICOR FINANCIAL CORPORATION LIMITED AC TUARY’S REPORT 2016 ANNUAL REPORT 109 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As of December 31, 2016 Sagicor Financial Corporation Limited Amounts expressed in US $000 Note 2016 2015 Note 2016 2015 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 80,662 167,723 87,293 83,487 79,172 170,249 84,530 88,183 LIABILITIES Actuarial liabilities Other insurance liabilities Investment contract liabilities Total policy liabilities 4,813,748 4,826,621 Notes and loans payable 777,344 59,575 183,018 279,070 665,819 66,342 168,480 250,489 Deposit and security liabilities Provisions Income tax liabilities Accounts payable and accrued liabilities 6,531,920 6,399,885 Liabilities of discontinued operation These financial statements have been approved for issue by the Board of Directors on March 31, 2017. ……………………………………………… Director ……………………………………………… Director Total liabilities EQUITY Share capital Share premium 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 21 22 23 2,776,362 2,632,387 207,122 377,576 3,361,060 395,213 1,623,325 101,292 50,641 204,975 - 205,891 368,596 3,206,874 475,517 1,607,611 88,206 34,765 201,722 46,026 5,736,506 5,660,721 3,029 297,050 (64,795) 300,865 536,149 1,291 257,974 795,414 299,320 - (59,688) 266,414 506,046 1,383 231,735 739,164 Total liabilities and equity 6,531,920 6,399,885 110 SAGICOR FINANCIAL CORPORATION LIMITED 2 CONSOLIDATED STATEMENT OF INCOME Year ended December 31, 2016 Sagicor Financial Corporation Limited Amounts expressed in US $000 Note 2016 2015 Note 2016 2015 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 3 24 24 25 26 37 27 27 28 32 Net income from continuing operations Net income/(loss) from discontinued operation 38 NET INCOME FOR THE YEAR 107,897 1,412 109,309 833,918 (169,962) 663,956 353,352 116,839 - 969,522 (295,597) 673,925 322,229 109,090 (1,025) Net income/(loss) is attributable to: Common shareholders: From continuing operations 1,134,147 1,104,219 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: From continuing operations From discontinued operation 34 693,173 (194,262) 498,911 61,448 560,359 255,326 98,570 10,679 38,333 21,283 424,191 149,597 (41,700) 107,897 692,937 (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 98,443 (21,648) 76,795 56,327 (21,648) 34,679 1,285 40,831 76,795 18.2 cents (7.2) cents 11.0 cents 17.3 cents (6.6) cents 10.7 cents 60,259 1,412 61,671 110 47,528 109,309 19.5 cents 0.5 cents 20.0 cents 18.7 cents 0.4 cents 19.1 cents 2016 ANNUAL REPORT 111 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended December 31, 2016 Sagicor Financial Corporation Limited Amounts expressed in US $000 OTHER COMPREHENSIVE INCOME Note 2016 2015 TOTAL COMPREHENSIVE INCOME 2016 2015 Items net of tax that may be reclassified subsequently to income: 35 Available for sale assets: Gains / (losses) on revaluation Losses / (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 Losses on defined benefit plans Other items Net income Other comprehensive loss TOTAL COMPREHENSIVE INCOME / (LOSS) FOR THE YEAR Total comprehensive income / (loss) is attributable to: Common shareholders: From continuing operations From discontinued operation Participating policyholders Non-controlling interests 109,309 (12,571) 96,738 45,811 1,412 47,223 132 49,383 96,738 76,795 (77,392) (597) 14,461 (21,648) (7,187) 1,249 5,341 (597) 39,183 2,675 (17,090) (28,481) (3,713) 5,145 (13,875) (128) (8,858) (103,101) (1,175) 48,346 (15,686) (71,616) (345) (5,431) - (5,776) OTHER COMPREHENSIVE LOSS FROM CONTINUING OPERATIONS (12,571) (77,392) 112 SAGICOR FINANCIAL CORPORATION LIMITED 4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended December 31, 2016 Sagicor Financial Corporation Limited Amounts expressed in US $000 Share Capital (note 21) Share Premium (note 21) Reserves (note 22) Retained Earnings Total Shareholders’ Equity Participating Accounts (note 23) Non-controlling Interests Total Equity 2016 Balance, beginning of year Total comprehensive income from continuing operations Total comprehensive income from discontinued operation 299,320 - - - - - Redomiciliation adjustment net of treasury shares (296,296) 296,296 Transactions with holders of equity instruments: Movements in treasury shares Changes in reserve for equity compensation benefits Dividends declared (note 21.3) Transfers and other movements Balance, end of year 2015 Balance, beginning of year 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 (59,688) 266,414 (4,319) - - - 2,132 50,130 1,412 - - - - (18,880) (2,920) 1,789 5 - - - 754 - - - 3,029 297,050 (64,795) 300,865 295,989 - - 556 2,775 - - - 299,320 - - - - - - - - - (8,765) 244,474 (38,419) - - - (1,650) 52,880 (21,648) - - - - (19,842) (10,854) (59,688) 10,550 266,414 506,046 45,811 1,412 - 759 2,132 (18,880) (1,131) 536,149 531,698 14,461 (21,648) 556 2,775 (1,650) (19,842) (304) 506,046 1,383 132 231,735 49,383 - - - - - (224) 1,291 364 1,249 - - - - - (230) 1,383 - - - (50) (17,684) (5,410) 257,974 241,480 5,341 - - - (313) (14,835) 62 231,735 739,164 95,326 1,412 - 759 2,082 (36,564) (6,765) 795,414 773,542 21,051 (21,648) 556 2,775 (1,963) (34,677) (472) 739,164 5 2016 ANNUAL REPORT 113 CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, 2016 Sagicor Financial Corporation Limited Amounts expressed in US $000 OPERATING ACTIVITIES Income before taxes 149,597 123,562 Movement in treasury shares (98) (896) FINANCING ACTIVITIES Note 2016 2015 Note 2016 2015 Adjustments for non-cash items, interest and dividends 36.1 (188,098) (200,783) Interest and dividends received Interest paid Income taxes paid 299,968 (93,620) (24,948) 299,482 (76,276) (27,444) Net increase in investments and operating assets Net increase in operating liabilities Net cash flows - operating activities 36.1 36.1 (100,362) (269,081) 83,793 126,330 58,514 (92,026) INVESTING ACTIVITIES Property, plant and equipment, net 36.2 (17,996) Associates and joint ventures Intangible assets Net cash flows - investing activities (188) (4,272) (22,456) (16,586) (28,986) (15,198) (60,770) Redemption of SFCL preference shares Shares issued to non-controlling interest Other notes and loans payable, net 36.3 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 (119,991) (6,634) 34,008 1,788 (13,381) (5,256) (17,824) (127,388) - - 156,458 480 (11,842) (7,800) (14,600) 121,800 Effects of exchange rate changes (4,645) (3,900) NET CHANGE IN CASH AND CASH EQUIVALENTS - CONTINUING OPERATIONS Net change in cash and cash equivalents - discontinued operation Cash and cash equivalents, beginning of year CASH AND CASH EQUIVALENTS, END OF YEAR 36.4 (28,159) (34,896) (44,614) (21,419) 384,879 312,106 441,194 384,879 114 SAGICOR FINANCIAL CORPORATION LIMITED 6 1 INCORPORATION AND PRINCIPAL ACTIVITIES 2 ACCOUNTING POLICIES On July 20, 2016, Sagicor Financial Corporation continued as an exempted company under the laws of Bermuda under the name Sagicor Financial Corporation Limited and registered as an external company under the Companies Act of Barbados on July 20, 2016. Bermuda law does not contemplate companies with no par value shares, as a consequence on continuance the excess of the par value of $0.01 has been credited to share premium (note 21). The Company was originally 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, the Company allotted common shares to the eligible policyholders of The Society and became the holding company of Sagicor Life Inc. Sagicor and its subsidiaries ‘the Group’ operate across the Caribbean 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. 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 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 These consolidated financial statements are prepared in accordance with and comply with International Financial Reporting Standards (IFRS). 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. These consolidated financial statements for the year ended December 31, 2016 have been approved by the Board of Directors on March 31, 2017. Neither the entity’s owners nor others have the power to amend the financial statements after issue. All amounts in these financial statements are shown in thousands of United States dollars, unless otherwise stated. 7 2016 ANNUAL REPORT 115 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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, 2016, 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. 116 SAGICOR FINANCIAL CORPORATION LIMITED 8 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. As of December 31, 2016, the future price adjustments relating to the discontinued operation are disclosed in the statement of financial position at their estimated undiscounted value. 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. (c) Sale of subsidiaries (e) Pension and investment funds 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. 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. 9 2016 ANNUAL REPORT 117 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 2016 closing 2016 average 2015 closing 2015 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 127.9824 124.7554 119.9758 116.7122 Trinidad & Tobago dollar 6.7458 Pound sterling 0.81280 6.6190 0.73444 6.4196 0.67480 6.3412 0.65276 Reportable operating segments have been defined on the basis of performance and resource allocation decisions of the Group’s Chief Executive Officer. 118 SAGICOR FINANCIAL CORPORATION LIMITED 10 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 11 2016 ANNUAL REPORT 119 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 120 SAGICOR FINANCIAL CORPORATION LIMITED 12 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 13 2016 ANNUAL REPORT 121 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. (f) Finance leases 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. 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. 122 SAGICOR FINANCIAL CORPORATION LIMITED 14 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. • • • 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. o o o 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). 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. (b) Recognition and measurement 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. (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. 15 2016 ANNUAL REPORT 123 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 individual contract basis and recognised when the reinsurance premium is recorded. 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. 124 SAGICOR FINANCIAL CORPORATION LIMITED 16 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 17 2016 ANNUAL REPORT 125 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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, it is accrued monthly. 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. 126 SAGICOR FINANCIAL CORPORATION LIMITED 18 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 19 2016 ANNUAL REPORT 127 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 128 SAGICOR FINANCIAL CORPORATION LIMITED 20 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 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. 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. (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. 21 2016 ANNUAL REPORT 129 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 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 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. 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. 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 0.25% 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. Taxes are accrued monthly. (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. 130 SAGICOR FINANCIAL CORPORATION LIMITED 22 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $0002.18 Taxes (continued) 2.19 Common and preference shares Income tax rates Barbados Jamaica Trinidad and Tobago United States of America Life insurance and non-registered annuities 5% of gross investment income 25% of profit before tax 15% (deductions granted only in respect of expenses pertaining to long- term business investment income) 35% of net income Registered annuities Other lines of business Nil Nil Nil Nil 25% of net income 25% - 33.33 % of profit before tax 25% of net income 35% of net income (i) Current income taxes Current tax is the expected tax payable on the taxable income for the year, using the tax rates in effect for the year. Adjustments to tax payable from prior years are also included in current tax. (ii) Deferred income taxes Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income taxes are computed at tax rates that are 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. (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 were redeemed on July 18, 2016. 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. 23 2016 ANNUAL REPORT 131 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 132 SAGICOR FINANCIAL CORPORATION LIMITED 24 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 25 2016 ANNUAL REPORT 133 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 2.25 Future accounting developments and reporting changes IFRS (Effective Date) Subject / Comments In September 2016, the IASB issued Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4) to address concerns by preparers on implementing IFRS 9 before the new insurance standard, IFRS 17, is released. The amended IFRS 4 will provide all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before IFRS 17 is issued (known as the overlay approach), and also give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS 9 until 2021 (known as the deferral approach). Entities deferring application of IFRS 9 will continue to apply the IAS 39. The Group is yet to assess IFRS 9’s full impact. 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 9 – Financial Instruments (January 1, 2018) (continued) IFRS (Effective Date) Subject / Comments IFRS 9 – Financial Instruments (January 1, 2018) 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. 134 SAGICOR FINANCIAL CORPORATION LIMITED 26 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $0002.25 Future accounting developments and reporting changes IFRS (Effective Date) Subject / Comments IFRS (Effective Date) Subject / Comments IFRS 15 – Revenue from contracts with customers (January 1, 2017) 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 from an entity’s contracts with customers. Revenue 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. Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12 (January 1, 2017) IFRS 16 – Leases (Annual periods beginning on or after 1 January 2019 with earlier application permitted IFRS 15, if ‘Revenue from Contracts with Customers’, is also applied.) in replaces the current guidance This standard IAS 17 and 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. Amendments made to IAS 12 in January 2016 clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base. Specifically, the amendments confirm that: • A temporary difference exists whenever the carrying amount of an asset is less than its tax base at the end of the reporting period. • An entity can assume that it will recover an amount higher than the • • carrying amount of an asset to estimate its future taxable profit. Where the tax law restricts the source of taxable profits against which particular types of deferred tax assets can be recovered, the recoverability of the deferred tax assets can only be assessed in combination with other deferred tax assets of the same type. Tax deductions resulting from the reversal of deferred tax assets are excluded from the estimated future taxable profit that is used to evaluate the recoverability of those assets. The Group is assessing the impact of the amendment to IAS 12. 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. 27 2016 ANNUAL REPORT 135 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 2.25 Future accounting developments and reporting changes IFRS (Effective Date) Subject / Comments Initiative Disclosure Amendments to IAS 7 (January 1, 2017) – joint venture between Sale or contribution of assets an investor and its associate or – Amendments to IFRS 10 and IAS 28 (In December 2016 the IASB decided to defer the application date of this amendment until such time as the IASB has finalised its research project on the equity method.) Going forward, entities will be required to explain changes in their liabilities arising from financing activities. This includes changes arising from cash flows (e.g. drawdowns and repayments of borrowings) and non-cash changes such as acquisitions, disposals, accretion of interest and unrealised exchange differences. Changes in financial assets must be included in this disclosure if the cash flows were, or will be, included in cash flows from financing activities. This could be the case, for example, for assets that hedge liabilities arising from financing liabilities. Entities may include changes in other items as part of this disclosure, for example by providing a ‘net debt’ reconciliation. However, in this case the changes in the other items must be disclosed separately from the changes in liabilities arising from financing activities. The information may be disclosed in tabular format as a reconciliation from opening and closing balances, but a specific format is not mandated. The Group is assessing the impact of the amendment to IAS 7. The IASB has made limited scope amendments to IFRS 10 Consolidated 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 investment in the associate or joint venture. The amendments apply prospectively. The Group is yet to assess the impact of the amendment. 136 SAGICOR FINANCIAL CORPORATION LIMITED 28 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 value of the cash generating business units to which the goodwill has been allocated. Determination of the 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 the value in use methodology for testing goodwill impairment. For the Sagicor Jamaica operating segment, the Group uses the fair value less cost to sell methodology, and for Sagicor General Insurance Inc the value in use methodology. 29 (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 Fair value of securities not quoted in an active market The fair value of securities not quoted in an active market may be determined using reputable pricing sources (such as pricing agencies), indicative prices from bond/debt market makers or other valuation techniques. Broker quotes as obtained from the pricing sources may be indicative and not executable or binding. The Group exercises judgement on the quality of pricing sources used. Where no market data is available, the Group may value positions using its own models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. The inputs into these models are primarily discounted cash flows. The models used to determine fair values are periodically reviewed by experienced personnel. The models used for debt securities are based on net present value of estimated future cash flows, adjusted as appropriate for liquidity, and credit and market risk factors. 2016 ANNUAL REPORT 137 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 3.5 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. 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. 3.6 Carrying value of the assets and liabilities of the discontinued operation As of December 31, 2016, 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, December 31, 2018. 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. The buyer may also charge a reasonable risk premium at the end of the run-off period. 138 SAGICOR FINANCIAL CORPORATION LIMITED 30 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. Sagicor Life Aruba NV Capital Life Insurance Company Bahamas Limited Sagicor Life Segment Companies Principal Activities Sagicor Life Inc 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% Life insurance The Bahamas 100% 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 The group of subsidiaries comprises entities conducting life, health, annuity insurance business, pension administration services and asset management. During 2015, the segments were (i) Barbados, Eastern Caribbean, Dutch Caribbean, Bahamas and Central America and (ii) Trinidad and Tobago. During the year, the Group combined the two segments and brought them under common executive management control to allow for greater focus and accountability in the execution of our strategies. Sagicor Panamá, SA Life and health insurance Panamá 100% Nationwide Insurance Company Limited Associates RGM Limited Life insurance Trinidad & Tobago 100% Property ownership and management Trinidad & Tobago 33% FamGuard Corporation Limited Investment holding company The Bahamas 20% Principal operating company: Family Guardian Insurance Company Limited Life and health insurance and annuities The Bahamas 20% Primo Holding Limited Property investment Barbados 38% 31 2016 ANNUAL REPORT 139 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. All Jamaican subsidiaries are now wholly owned by Sagicor Group Jamaica Limited. The companies comprising this segment are as follows. 4 SEGMENTS (continued) Sagicor Jamaica Segment Companies (continued) Principal Activities Country of Incorporation Effective Shareholders’ Interest Sagicor Property Services Limited Property management Jamaica 49.11% Sagicor Investments Jamaica Limited Investment banking Jamaica 49.11% Sagicor Bank Jamaica Limited Commercial banking Jamaica Sagicor Costa Rica SCR, S.A. Life insurance Costa Rica 49.11% 24.56% Sagicor Jamaica Segment Companies Sagicor Group Jamaica Limited Principal Activities Country of Incorporation Effective Shareholders’ Interest LOJ Holdings Limited Group holding company Jamaica 49.11% Sagicor St Lucia Limited Insurance holding company Financial services holding company Jamaica 100% St. Lucia 49.11% Sagicor Life Jamaica Limited Life and health insurance and annuities Jamaica 49.11% Sagicor Life of the Cayman Islands Limited Sagicor Pooled Investment Funds Limited Life insurance The Cayman Islands Pension fund management Jamaica Employee Benefits Administrator Limited Pension administration services Sagicor Re Insurance Limited Property and casualty insurance Jamaica The Cayman Islands Sagicor Insurance Brokers Limited Insurance brokerage Jamaica Sagicor International Administrators Limited Group insurance administration Sagicor Insurance Managers Limited Captive insurance management services Jamaica The Cayman Islands 49.11% 49.11% 49.11% 49.11% 49.11% 49.11% 49.11% 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%(1) (1) In September 2015, Sagicor Group acquired the Sagicor Real Estate X Fund. This acquisition took the Sagicor Group’s holding to 29.3%. 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. 140 SAGICOR FINANCIAL CORPORATION LIMITED 32 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $0004 SEGMENTS (continued) (c) Sagicor Life USA 4 SEGMENTS (continued) (d) Head office function and other operating companies (continued) 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 Sagicor Life Insurance Company Sagicor USA Inc Life insurance and annuities USA - Texas 100% Insurance holding company USA - Delaware 100% (d) Head office function and other operating companies These comprise the following: Other Group Companies Principal Activities Country of Incorporation Effective Shareholders’ Interest Sagicor Financial Corporation Limited (1) Sagicor General Insurance Inc Sagicor Finance Inc Sagicor Asset Management (T&T) Limited Sagicor Asset Management Inc Group parent company Bermuda 100% Property and casualty insurance Loan and lease financing, and deposit taking Barbados St. Lucia 53% 70% Investment management Trinidad & Tobago 100% Investment management Barbados 100% Other Group Companies Principal Activities Country of Incorporation Effective Shareholders’ Interest Investment management Barbados 100% Sagicor Asset Management (Eastern Caribbean) Limited Barbados Farms Limited Sagicor Funds Incorporated Globe Finance Inc 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(2) Group financing vehicle Barbados 77% Barbados 100% Barbados Barbados The Cayman Islands The Cayman Islands 51% 73% 100% 100% (1) (2) On July 20, 2016, Sagicor Financial Corporation continued as an exempted company under the laws of Bermuda under the name Sagicor Financial Corporation Limited. In 2015, Sagicor Finance (2015) Limited was incorporated in the Cayman Islands with its primary function being the issuance of debt. 33 2016 ANNUAL REPORT 141 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 4.1 Statement of income by segment 2016 Net premium revenue Interest income Other investment income Fees and other revenues Inter-segment revenues Net policy benefits Net change in actuarial liabilities Interest expense Administrative expenses Commissions and premium and asset taxes Finance costs Depreciation and amortisation Inter-segment expenses Segment income / (loss) before taxes Income taxes 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 299,565 77,394 3,114 19,107 11,946 411,126 196,116 3,152 13,393 68,990 44,152 - 6,505 5,720(1) 338,028 73,098 (8,177) 64,921 64,811 268,482 157,758 42,753 54,968 - 523,961 168,757 38,350 41,455 112,156 39,979 - 8,017 1,419 410,133 113,828 (23,678) 90,150 44,275 74,383 47,958 10,450 16,095 - 148,886 79,625 3,750 2,853 32,752 15,584 63 1,551 (3,575) (1) 132,603 16,283 (5,797) 10,486 10,486 21,526 9,758 2,883 26,654 60,129 120,950 9,161 - 3,747 40,040 9,534 (136) 5,210 11,581 79,137 41,813 (3,544) 38,269 (1,790) - - 1,284 15 (72,075) (70,776) - - - 1,388 - 38,406 - (15,145) 24,649 (95,425) (504) (95,929) (57,523) 663,956 292,868 60,484 116,839 - 1,134,147 453,659 45,252 61,448 255,326 109,249 38,333 21,283 - 984,550 149,597 (41,700) 107,897 60,259 50,414 45,840 12,802 (3,378) (59,867) 45,811 (1) During 2015, Sagicor Life USA entered into a reinsurance agreement with Sagicor Life; included in the inter-segment expenses is $4,819 relating to this transaction. 142 SAGICOR FINANCIAL CORPORATION LIMITED 34 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $0004.1 Statement of income by segment (continued) 2015 Net premium revenue Interest income Other investment income Fees and other revenues 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 80,963 51,236 8,831 20,124 - (1,025) - - (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. 35 2016 ANNUAL REPORT 143 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 $47,528 (2015 - $40,831), Sagicor Jamaica contributed $45,876 (2015 - $40,767). 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. 144 SAGICOR FINANCIAL CORPORATION LIMITED 36 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 2015 Investment gains / (losses) Impairment of financial investments Foreign exchange gains Losses on acquisitions/ divestitures Decrease / (increase) in actuarial liabilities from changes in assumptions 999 (328) 8,725 - 42,669 (4,652) 3,566 - 15,586 (4,488) - - 21,682 3,805 (18,176) 2,882 (153) 273 - - 62,136 (9,621) 12,564 - (1,226) (1,782) 1,624 - 28,342 (8,368) 1,182 (1,025) 7,311 36,114 (403) 31,078 45,388 (7,078) 3,002 72,390 34,730 19,728 5,309 (17) - - 55,700 60,992 Total 32,418 (10,338) 2,814 (1,025) 91,411 (7) (171) 8 - - (170) 115,280 37 2016 ANNUAL REPORT 145 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 2016 Unrealised investment (losses) / gains Changes in actuarial liabilities Retranslation of foreign currency operations Losses on defined benefit plans 2015 Unrealised investment losses Changes in actuarial liabilities Retranslation of foreign currency operations Losses on defined benefit plans Variations in other comprehensive income by segment Sagicor Life Sagicor Jamaica Sagicor Life USA Head Office and other Adjustments Total (2,474) 961 (7,490) (4,924) (5,252) 9,729 (982) (1,053) 32,226 (5,647) (21,058) (7,369) (61,165) 3,702 (14,708) (3,787) 11,034 (12,404) - - (36,500) 34,915 - - (137) - 10 (1,582) (184) - 23 (591) (1,466) - 57 - - - (19) - 39,183 (17,090) (28,481) (13,875) (103,101) 48,346 (15,686) (5,431) 146 SAGICOR FINANCIAL CORPORATION LIMITED 38 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $0004.4 Statement of financial position by segment 2016 Financial investments Other external assets Inter-segment assets Total assets Policy liabilities Other external liabilities Inter-segment liabilities Total liabilities Net assets 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 Sagicor Life Sagicor Jamaica Sagicor Life USA Head office and other Adjustments Total 1,403,870 324,570 199,858 1,928,298 1,272,500 86,871 39,434 1,398,805 529,493 1,402,811 331,311 169,945 1,904,067 1,271,737 87,439 - 28,475 1,387,651 2,212,153 450,104 11,555 2,673,812 675,019 1,544,651 3,715 2,223,385 1,068,244 829,889 2,759 1,900,892 1,434,678 203,929 43,838 1,682,445 129,481 189,807 54,006 373,294 55,061 539,995 181,191 776,247 450,427 218,447 (402,953) 2,087,139 415,738 10,350 2,513,227 646,942 1,467,043 - 1,696 2,115,681 1,061,649 712,944 8,323 1,782,916 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 - (76,198) (268,178) (344,376) (76,198) - (268,178) (344,376) - - (82,225) (242,123) (324,348) (82,225) - - (242,123) (324,348) 4,813,748 1,718,172 - 6,531,920 3,361,060 2,375,446 - 5,736,506 795,414 4,826,621 1,573,264 - 6,399,885 3,206,874 2,407,821 46,026 - 5,660,721 516,416 397,546 205,068 (379,866) - 739,164 39 2016 ANNUAL REPORT 147 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 $257,974 (2015 - $231,735), Sagicor Jamaica contributed $219,361 (2015 - $194,690). 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 2016 4,534 8,922 5,782 5,565 24,803 2015 9,139 45,968 2,806 4,557 62,470 Barbados Jamaica Trinidad & Tobago Other Caribbean USA External revenue Non-current assets 2016 2015 2016 2015 170,271 495,476 166,066 152,161 150,173 162,545 478,798 153,790 150,860 158,226 193,522 120,178 66,115 30,025 9,325 195,457 117,964 69,132 34,485 5,096 1,134,147 1,104,219 419,165 422,134 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 2016 2015 635,288 636,061 276,893 273,382 36,621 157,573 27,772 32,653 150,152 11,971 1,134,147 1,104,219 148 SAGICOR FINANCIAL CORPORATION LIMITED 40 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 from real estate developed for resale (note 12) Transfer (to) / from property, plant and equipment (note 7) Disposals Change in fair values Effects of exchange rate changes Balance, end of year 2016 2015 79,172 88,766 7 555 846 (825) 1,847 (940) 111 - (3,410) (5,255) (816) (224) 80,662 79,172 Investment property includes $10,603 (2015 - $11,446) 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% 25% -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. 41 2016 ANNUAL REPORT 149 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 FamGuard Corporation Limited(1) Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Ltd.(2) Trinidad & Tobago Bahamas Barbados Costa Rica St. Lucia 2016 33% 20% 38% 50% 29% 2015 33% 20% 38% 50% 29% Nature of relationship Measurement Method Carrying Amount 2016 2015 Associate Associate Associate Equity Method Equity Method Equity Method Joint Venture Equity Method Associate Equity Method 22,346 13,700 355 3,107 47,785 87,293 23,199 14,059 362 6,326 40,584 84,530 (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 $5.82 per share was $11,000 (2015 – $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 $0.10 (J$12.25) per share was $66,508 (2015 - $58,346). 150 SAGICOR FINANCIAL CORPORATION LIMITED 42 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $0006.2 Summarised Financial Information RGM Limited FamGuard Corporation Limited Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Ltd. 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 ASSETS Financial investments Cash resources Other investments and assets Total assets - - 6,688 126,117 132,805 11,829 132,735 144,564 LIABILITIES Policy liabilities Other liabilities Total liabilities - 65,771 65,771 - 74,972 74,972 269,154 15,685 61,288 346,127 220,829 13,073 233,902 251,312 10,092 63,622 325,026 206,002 10,966 216,968 Net Assets 67,034 69,592 112,225 108,058 - - 1,050 1,050 - 204 204 846 - - 1,050 1,050 - 186 186 864 9,765 3,561 4,950 7,840 3,607 1,867 18,276 13,314 3,761 8,299 12,060 1,829 144 1,973 122,129 9,478 214,553 346,160 - 190,669 190,669 93,939 19,972 168,306 282,217 - 151,799 151,799 6,216 11,341 155,491 130,418 43 2016 ANNUAL REPORT 151 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 6.2 Summarised Financial Information (continued) RGM Limited FamGuard Corporation Limited Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Ltd. 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Reconciliation to carrying amounts: Investment, beginning of year 23,199 Additions Amounts assumed on acquisition Transfers Dividends received Share of income/(loss) before taxes Share of amortisation or impairment of intangible assets which were identified on acquisition Share of income taxes Share of other comprehensive income/(loss) Effects of exchange rate changes Investment, end of year - - - (470) 1,158 - (402) - (1,139) 22,346 21,080 423 - - - 1,677 - 248 - (229) 23,199 14,059 12,856 362 368 - - - (580) 240 (72) - 53 - - - - (480) 959 (72) - 796 - - - - - - - - - (7) (6) - - - - - - - - 13,700 14,059 355 362 6,326 188 - (2,886) - 66 - - (264) (323) 3,107 6,460 152 - - - (284) - - - (2) 6,326 40,584 - - - (738) 3,968 - - 6,762 (2,791) 47,785 - 28,453 12,288 - - 807 - - 171 (1,135) 40,584 152 SAGICOR FINANCIAL CORPORATION LIMITED 44 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $0006.2 Summarised Financial Information (continued) RGM Limited FamGuard Corporation Limited Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Ltd. 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Summarised statement of comprehensive income REVENUE Net premium revenue Net investment and other income Total revenue BENEFITS AND EXPENSES Benefits Expenses Total benefits and expenses INCOME BEFORE TAXES Income taxes NET INCOME FOR THE PERIOD - - 23,522 23,522 - 19,916 19,916 3,606 (1,195) 2,411 25,619 25,619 - 20,526 20,526 5,093 747 5,840 Other comprehensive income - - Total comprehensive income 2,411 5,840 90,753 28,593 90,253 26,444 119,346 116,697 78,106 36,762 75,671 34,205 114,868 109,876 4,478 - 4,478 634 5,112 6,821 - 6,821 882 7,703 - - - - 18 18 (18) - (18) - (18) - - - - 16 16 (16) - (16) - (16) 5,785 668 6,453 3,393 2,626 6,019 434 (301) 133 (670) (537) 5,893 384 6,277 5,346 1,463 6,809 (532) (35) (567) - (567) - - 82,865 82,865 - 67,411 67,411 15,454 (1,916) 13,538 23,070 36,608 56,654 56,654 - 44,100 44,100 12,554 (1,438) 11,116 709 11,825 Dividends associates and joint ventures received from 470 - 580 480 - - - - 738 - 45 2016 ANNUAL REPORT 153 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 7 PROPERTY, PLANT AND EQUIPMENT 2016 Owner-occupied property Lands Land & buildings Office furnishings, equipment & vehicles Operating lease vehicles & equipment Total Net book value, beginning of year Additions at cost Transfer (to) / from 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 38,031 - (846) - - - - - - - 80,694 2,680 - - - - (753) (1,583) (1,105) (2,078) Net book value, end of year 37,185 77,855 39,310 13,787 - (2,885) 613 - (508) - (8,370) (768) 41,179 12,214 3,869 170,249 20,336 - - - - (1,612) - (2,967) - (846) (2,885) 613 - (2,873) (1,583) (12,442) (2,846) 11,504 167,723 38,031 Represented by: Cost or valuation Accumulated depreciation 37,185 - 37,185 81,004 (3,149) 77,855 120,299 (79,120) 18,755 257,243 (7,251) (89,520) 41,179 11,504 167,723 38,031 - 38,031 Owner-occupied lands are largely utilised for farming operations. Owner-occupied land and buildings consist largely of commercial office buildings. Owner-occupied properties Land 38,220 - - - - (22) (167) - - - 2015 Office furnishings, equipment & vehicles Operating lease vehicles & equipment Total 39,910 14,275 - (6,348) 139 - (827) - (7,296) (543) 39,310 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) 12,214 170,249 112,382 (73,072) 19,705 254,434 (7,491) (84,185) 39,310 12,214 170,249 Land & buildings 77,901 967 3,410 - 6 - (109) 815 (1,079) (1,217) 80,694 84,316 (3,622) 80,694 154 SAGICOR FINANCIAL CORPORATION LIMITED 46 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $0008 INTANGIBLE ASSETS 8.1 Analysis of intangible assets and changes for the year Goodwill 2016 Customer & broker relationships Software Total Goodwill 2015 Customer & broker relationships Software Total Net book value, beginning of year 45,272 16,441 46,643 19,129 - - - - (1,361) 43,911 26,470 4,272 2,885 - - (1,719) (7,050) - (985) 13,737 - (738) 25,839 Additions at cost Transfer from property, plant and equipment (note 7) Amortisation/impairment charges Divestitures and disposals Effects of exchange rate changes Net book value, end of year Represented by: Cost or valuation Accumulated depreciation and impairments - (21,842) (37,627) 43,911 13,737 25,839 43,911 35,579 63,466 88,183 4,272 2,885 (8,769) - (3,084) 83,487 142,956 (59,469) 83,487 - - (585) - (786) 45,272 47,085 (1,813) 45,272 10,284 15,198 6,348 - - (1,837) (4,680) - (851) 16,441 (289) (391) 26,470 38,316 57,513 (21,875) (31,043) 16,441 26,470 76,056 15,198 6,348 (7,102) (289) (2,028) 88,183 142,914 (54,731) 88,183 47 2016 ANNUAL REPORT 155 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 8.2 Impairment of intangible assets 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. For those CGU’s which the fair value less costs to sell methodology is used, 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 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. As disclosed in note 2.7 (a) goodwill is allocated to the Group’s reportable operating segments. During the year, as disclosed in note 4, the Group combined the Barbados, Eastern Caribbean, Dutch Caribbean, the Bahamas and Central America segment with its Trinidad and Tobago operating segment. Goodwill is allocated to this combined segment and has been tested for impairment at this level. 8.2 Impairment of intangible assets (continued) (i) Years ended December 31, 2016 & 2015 An actuarial appraisal value technique was adopted to test goodwill impairment. The principal assumptions included the following: • • • • • Discount rates of 7 - 11% (2015, 7 - 11%) for individual life and annuity inforce business, New individual life and annuity business was included for the five year period 2017 to 2021, Annual growth rate for new individual life and annuity business was 0% - 21.8% for 2017 and 5% – 19.7 % from 2018 to 2021 (2015 – 14% - 49% and 0% to 24.2% from 2017 to 2020), Discount rates of 11 - 15% (2015, 11 - 15%) for new individual life and annuity business, Required Minimum Continuing Capital and Surplus Ratio (MCCSR) of 175% (2015 – 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. The Group obtains independent professional advice in order to select the relevant discount factors, residual growth rates and earnings multiples. Sagicor Life Inc Segment MCCSR target ratio The carrying values of goodwill and the impairment test factors used are considered in the following sections. Discount rate Inforce New business 150% 175% Low Mid High 200% (a) Sagicor Life operating segment Carrying value of goodwill 26,576 27,061 2016 2015 Low Mid High 7% 9% 11% 11% 13% 15% 286,253 135,970 26,330 281,890 126,454 13,704 277,068 116,026 4,179 156 SAGICOR FINANCIAL CORPORATION LIMITED 48 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 8.2 Impairment of intangible assets (continued) 8.2 Impairment of intangible assets (continued) (b) Sagicor Jamaica operating segment (c) Sagicor General Insurance Inc Carrying value of goodwill 13,051 13,927 Carrying value of goodwill 2016 2015 2016 4,284 2015 4,284 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 8.2 (2015– 7.4) which was derived from a pre-tax factor of 6.6 (2015 – 5.9) using an iterative method. 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 pre-tax discount factor was 12.8% (2015 –13.1%) which was derived from an after tax factor of 12.5% (2015 – 12.5%) using an iterative method. The residual growth rate was 4.4% (2015 – 4.4%). Sensitivity Sensitivity The possible impairment of goodwill is sensitive to changes in earnings multiples and after tax earnings. This is illustrated in the following table. 2016 test Scenario 1 Scenario 2 Scenario 3 After tax earnings multiples Reduction in forecast earnings 8.2 n/a Excess of recoverable amount (of 49.11% interest) 126,681 Impairment (of 49.11% interest) Nil 5.4 10% 10 Nil 4.9 10% n/a (18,555) The possible impairment of goodwill is sensitive to changes in earnings multiples and after tax earnings. This is illustrated in the following table. 2016 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 12.5 3.7 16% n/a Excess of recoverable amount (of 53.0% interest) 39,170 29,336 Impairment (of 53.0% interest) Nil Nil 15.0 3.7 16% 20% 22,025 Nil 49 2016 ANNUAL REPORT 157 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 9.1 Analysis of financial investments (continued) 2016 2015 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 2016 2015 316,700 11,176 310,412 - Assets held for trading Debt securities comprise: Government and government-guaranteed debt securities 1,765,558 1,767,389 Collateralised mortgage obligations Corporate debt securities Other securities 214,320 213,747 1,352,387 1,314,223 109,089 122,360 3,441,354 3,417,719 Debt securities include $1,836 (2015 - $8,085) that contain options to convert to common shares of the issuer. Corporate debt securities include $28,788 (2015 - $10,270) in bonds issued by an associated company. Equity securities include $1,136 (2015 - $963) in mutual funds managed by the Group. 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 20,665 21,688 20,530 21,940 2,271,020 2,271,020 2,311,591 2,311,591 96,684 96,684 88,380 88,380 2,367,704 2,367,704 2,399,971 2,399,971 164,005 164,005 136,727 123,524 123,524 126,577 28,980 40,347 - 28,980 40,347 - 15,479 47,052 56 136,727 126,577 15,479 47,052 56 356,856 356,856 325,891 325,891 985,664 1,042,108 948,871 291,419 291,154 293,871 137,940 148,141 132,486 983,063 294,041 141,950 419,214 8,064 Finance loans and finance leases 508,975 491,131 436,161 Securities purchased for re-sale 5,227 5,227 8,064 Deposits 139,298 139,298 260,776 260,776 2,068,523 2,117,059 2,080,229 2,107,108 Total financial investments 4,813,748 4,863,307 4,826,621 4,854,910 158 SAGICOR FINANCIAL CORPORATION LIMITED 50 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $0009.2 Pledged assets 9.4 Reclassification of financial investments Debt and equity securities include $380,145 (2015 - $234,211) 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 $5,982 (2015 - $7,589), and mortgages and mortgage backed securities having a total market value of $139,630 (2015 - $174,478). 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, 2016, these pledged assets totalled $595,314 (2015 - $526,824). Of these assets pledged as security, $79,681 (2015 – $51,549) 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. 2016 2015 133,862 102,641 123,524 122,367 40,271 47,052 297,657 272,060 Debt securities Equity securities Mortgage loans 51 • • 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. 2016 2015 Carrying value Fair value Carrying value Fair value Government debt securities maturing after September 2018 27,591 35,879 44,338 51,818 Other debt securities 1,624 2,217 2,076 2,730 29,215 38,096 46,414 54,548 Cumulative net fair value gain, beginning of year Net fair value gains Disposals Effect of exchange rate changes Cumulative net fair value gain, end of year 2016 2015 4,263 1,887 (971) (89) 5,090 1,994 1,355 947 (33) 4,263 2016 ANNUAL REPORT 159 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 9.4 Reclassification of financial investments (continued) 12 MISCELLANEOUS ASSETS AND RECEIVABLES 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 gain/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 713,252 601,597 35,994 21,775 6,323 37,816 21,356 5,050 777,344 665,819 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 2016 2015 36,279 23,296 59,575 41,023 25,319 66,342 Income and withholding taxes recoverable are expected to be recovered within one year of the financial statements date. Net defined benefit assets (note 31) Real estate developed or held for resale (ii) Prepaid and deferred expenses (ii) Premiums receivable Legal claim (iii) 2016 2015 Other assets and accounts receivable (i) 2016 2015 1,333 10,162 21,047 46,530 52,720 51,226 1,066 11,084 19,967 42,398 42,902 51,063 183,018 168,480 (i) Other assets and accounts receivables include $9,880 (2015 - $5,478) due from managed funds. (ii) Real estate developed for resale includes $7,878 (2015 - $8,234) 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) $52,720 (2015 – $42,902) 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 2016, interest was accrued on this liability and resulted in an increase in the amount outstanding to $52.7 million. 160 SAGICOR FINANCIAL CORPORATION LIMITED 52 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $00013 ACTUARIAL LIABILITIES 13.1 Analysis of actuarial liabilities 13.2 Movement in actuarial liabilities Gross liability Reinsurers’ share 2016 2015 2016 2015 Gross liability Reinsurers’ share 2016 2015 2016 2015 Balance, beginning of year 2,632,387 2,562,221 601,597 470,271 Contracts issued to individuals: Changes in actuarial liabilities: Life insurance - participating policies 238,604 239,861 51 57 Life insurance and annuity - non-participating policies Health insurance Unit linked funds 1,889,653 1,767,313 694,882 582,224 13,926 5,361 438 420 177,454 166,234 - - - - Reinsurance contracts held 28,894 27,982 Recorded in income (note 27) 156,983 157,887 111,731 131,328 Recorded in other comprehensive income 23,769 (67,146) Other movements 1 (679) Effect of exchange rate changes (36,778) (19,896) - (62) (14) - - (2) Balance, end of year 2,776,362 2,632,387 713,252 601,597 2,348,531 2,206,751 695,371 582,701 Analysis of changes in actuarial liabilities Contracts issued to groups: Life insurance Annuities Health insurance 30,404 31,548 118 267 362,980 358,604 17,660 18,460 34,447 35,484 103 169 427,831 425,636 17,881 18,896 Total actuarial liabilities 2,776,362 2,632,387 713,252 601,597 The following notes are in respect of the foregoing table: • • • Life insurance includes coverage for disability and critical illness. Actuarial liabilities include $83,238 (2015 - $81,615) 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 206,505 210,929 105,642 131,327 (7,311) (91,411) (12,915) (3,431) - - (5,527) (25,346) 6,089 - - 1 180,752 90,741 111,731 131,328 53 2016 ANNUAL REPORT 161 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. Any recent changes in actuarial standards and practice are also incorporated in the current valuation. 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. (b) Assumptions for mortality and morbidity 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. 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. Ultimate rate of return 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. Barbados Jamaica Trinidad & Tobago Other Caribbean USA 2016 6.75% 5.0% 5.0% 2015 6.5% 5.0% – 5.5% 4.75% 4.5% - 6.75% 4.5% - 6.5% 0.85% - 3.65% 0.85% - 4.75% (c) Assumptions for lapse (e) Assumptions for operating expenses and taxes 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. 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. 54 162 SAGICOR FINANCIAL CORPORATION LIMITED Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 2015 Mortality and morbidity Lapse Investment yields and asset default Operating expenses and taxes Other 89,986 63,855 69,109 11,136 10,486 82,363 59,595 68,830 11,101 9,997 244,572 231,886 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. 55 2016 ANNUAL REPORT 163 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 2015 65,719 107,219 34,184 207,122 66,271 105,910 33,710 205,891 14.2 Policy benefits payable (continued) Gross liability Reinsurers’ share 2016 2015 2016 2015 Movement for the year: Balance, beginning of year 105,910 95,276 Policy benefits incurred 541,502 532,532 37,816 93,314 31,998 67,528 Policy benefits paid (538,459) (520,933) (94,898) (61,571) Effect of exchange rate changes (1,734) (965) (238) (139) Balance, end of year 107,219 105,910 35,994 37,816 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 2016 2015 2016 2015 14.3 Provision for unearned premiums 79,445 4,284 23,490 72,120 3,379 30,411 107,219 105,910 22,084 1,686 12,224 35,994 19,091 1,363 17,362 37,816 Analysis of the provision: Property and casualty insurance Health insurance Gross liability Reinsurers’ share 2016 2015 2016 2015 33,777 407 34,184 32,399 1,311 33,710 21,775 21,356 - - 21,775 21,356 The provision for unearned premiums is expected to mature within a year of the financial statements’ date. 164 SAGICOR FINANCIAL CORPORATION LIMITED 56 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 2015 2016 2015 33,710 75,004 33,602 72,779 21,356 48,939 20,152 48,757 (74,434) (72,683) (48,463) (47,552) Effect of exchange rate changes (96) 12 (57) (1) Balance, end of year 34,184 33,710 21,775 21,356 15 INVESTMENT CONTRACT LIABILITIES At amortised cost: Deposit administration liabilities Other investment contracts At fair value through income: Unit linked deposit administration liabilities 2016 2015 Carrying value Fair value Carrying value Fair value 128,345 118,563 246,908 128,345 121,051 249,396 127,882 115,537 243,419 127,780 118,860 246,640 130,668 130,668 125,177 125,177 377,576 380,064 368,596 371,817 2016 2015 Carrying value Fair value Carrying value Fair value 8.875% senior notes due 2022 315,383 364,095 313,780 350,336 6.5% convertible redeemable preference shares due 2016 4.85% / 5.0% notes due 2019 Finance lease payable - - 115,488 130,932 74,825 5,005 75,491 5,005 44,551 1,698 44,551 1,698 395,213 444,591 475,517 527,517 (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 March 22, 2016, the Company repaid, before maturity, the $43,386 eighteen month 4.6% notes. On March 21, 2016, the Company issued fourteen month notes with a par value of $75 million which were repayable in 2017 and carried a 5.0% annual rate of interest. Effective December 20, 2016, the notes were extended at an annual rate of interest of 4.85% with a maturity date of August 14, 2019. Financial covenants in respect of these notes are summarised in Note 46.3 (b). (c) On July 18, 2016 the Company redeemed the 6.5% convertible redeemable preference shares due 2016. 57 2016 ANNUAL REPORT 165 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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: 2016 2015 Carrying value Fair value Carrying value Fair value 349,514 915,155 320,574 1,939 346,216 915,419 320,574 1,939 379,612 669,518 519,608 2,158 381,499 772,011 519,508 2,158 1,587,182 1,584,148 1,570,896 1,675,176 Net defined benefit liabilities (note 31) Other provisions 19 INCOME TAX LIABILITIES Deferred income tax liabilities (note 33) Structured products 34,779 34,779 35,112 35,112 Income taxes payable 2016 2015 101,235 57 101,292 87,950 256 88,206 2016 2015 36,238 14,403 29,785 4,980 Derivative financial instruments (note 41.6) 1,364 1,364 1,603 1,603 36,143 36,143 36,715 36,715 1,623,325 1,620,291 1,607,611 1,711,891 34,765 Income taxes payable are expected to be settled within a year of the financial statements’ date. 50,641 20 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Other funding instruments consist of loans from banks and other financial institutions and include balances of $134,321 (2015 - $167,913) 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. 166 SAGICOR FINANCIAL CORPORATION LIMITED Amounts due to policyholders Amounts due to reinsurers Legal claim (i) Other accounts payable and accrued liabilities 2016 2015 20,525 17,179 52,720 114,551 204,975 15,702 23,792 42,902 119,326 201,722 (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 2016, interest was accrued on this liability and resulted in an increase in the amount outstanding to $52.7 million. 58 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $00021 COMMON AND PREFERENCE SHARES 21.2 Convertible redeemable preference shares The Company is authorised to issue: • • 304,494,131 common shares, 120,000,000 convertible redeemable preference shares. In each case the shares have a par value of US$0.01. 21.1 Common shares 2016 2015 Number in 000’s Share capital Share premium Total Number in 000’s Share capital On July 18, 2016, the Company redeemed the 120,000,000 convertible redeemable preference shares which were originally issued on July 18, 2011 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; The preference shares were 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 were 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). Issued and fully paid: Balance, beginning of year Redomiciliation adjustment(1) Allotments arising from LTI Balance, end of year Treasury shares: Shares held for LTI and ESOP, end of year (note 30.1) 304,494 302,156 - 302,156 303,917 301,600 21.3 Dividends - - (299,111) 299,111 - - - - - - 577 556 304,494 3,045 299,111 302,156 304,494 302,156 (1,646) (16) (2,061) (2,077) (2,126) (2,836) 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. Dividends declared and paid: Preference shares Common shares 2016 2015 Per share Total Per share Total 4.38 ¢ 4.5 ¢ 5,256 6.50 ¢ 13,624 4.0 ¢ 18,880 7,800 12,042 19,842 Total 302,848 3,029 297,050 300,079 302,368 299,320 The common shares are listed on the Barbados, Trinidad & Tobago and London stock exchanges. (1)The redomiciliation adjustment includes $2,815 in share premium relating to treasury shares. 59 2016 ANNUAL REPORT 167 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 2015 Per share Total Per share - 2.5 ¢ - 7,612 7,612 3.25 ¢ 2.0 ¢ Total 3,900 6,090 9,990 21.4 Restrictions on common share dividends The Company’s Constitutive documents 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. 168 SAGICOR FINANCIAL CORPORATION LIMITED 60 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 22 RESERVES 2016 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 Balance, end of year 2015 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 <<<<<< Fair value reserves >>>>>> Owner occupied property Available for sale assets Actuarial liabilities Currency translation reserves Preference share reserves Other reserves Total reserves 25,047 2,137 (33,305) 8,773 27,194 (15,509) (96,339) (18,141) - - - - - - - - 1 - - - 27,184 (6,111) (6,735) (114,480) 4,219 31,917 (59,688) - - - (4,219) - - (4,319) 5,280 (3,148) 1,298 35,347 5,280 (3,148) (2,920) (64,795) 43,850 (38,556) (87,946) 10,481 38,157 (8,765) 25,249 (202) - - - (77,153) 47,329 (8,393) - - (2) - - - - - - - - - (6,262) 4,219 - (38,419) 3,171 (4,821) (4,590) 31,917 3,171 (4,821) (10,854) (59,688) Balance, end of year 25,047 (33,305) 8,773 (96,339) Other reserves comprise reserves for equity compensation benefits of $16,552 (2015 - $14,420) and statutory reserves of $18,795 (2015 - $17,497). 61 2016 ANNUAL REPORT 169 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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: Gross premium Ceded to reinsurers 2016 2015 2016 2015 Life insurance Annuity Health insurance 388,287 383,655 225,204 364,726 153,666 155,414 Property and casualty insurance 66,761 65,727 30,876 86,490 4,077 48,519 30,808 212,130 5,107 47,552 833,918 969,522 169,962 295,597 Closed participating account Open participating account 2016 2015 2016 2015 (607) (677) 3 (950) 343 1,990 809 1,314 906 - (227) (230) Movement for the year: Balance, beginning of year Total comprehensive income / (loss) Return of transfer to support profit distribution, to shareholders Balance, end of year (1,281) (607) 2,572 1,990 Financial statement amounts: Assets Liabilities Revenues Benefits Expenses Income taxes 82,306 83,587 7,557 7,669 428 187 84,909 85,516 7,825 6,811 584 122 196,999 200,009 194,427 198,019 22,261 18,917 1,630 877 25,453 22,034 2,037 405 The Group has the ability to reduce future policy bonuses and dividends in order to eliminate a deficit in a participating account. 170 SAGICOR FINANCIAL CORPORATION LIMITED 62 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $00025 NET INVESTMENT INCOME 25 NET INVESTMENT INCOME (continued) 2016 2015 Further details of interest income and investment gains are set out in the following table. Investment income: Interest income Dividend income Rental income from investment property Net investment gains Share of operating income of associates and joint venture Other investment income Investment expenses: Allowances for impairment losses Direct operating expenses of investment property Other direct investment expenses 292,868 293,432 3,088 3,816 62,136 5,425 (57) 3,244 4,165 32,418 3,153 125 367,276 336,537 9,621 2,107 2,196 13,924 10,338 1,947 2,023 14,308 Net investment income 353,352 322,229 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. 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 2016 2015 205,068 211,596 19,908 9,053 56,166 584 1,902 187 19,963 9,407 50,402 464 1,681 (81) 292,868 293,432 37,341 15,982 1,847 6,966 62,136 14,937 22,366 (842) (4,043) 32,418 63 2016 ANNUAL REPORT 171 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 26 FEES AND OTHER REVENUE 28 INTEREST EXPENSE 2016 2015 2016 2015 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 25,470 1,739 29,375 28,288 12,564 19,403 23,328 1,813 32,845 25,937 2,814 22,353 116,839 109,090 Insurance contracts Investment contracts Other funding instruments Customer deposits Securities sold for re-purchase Other items 2,866 16,833 6,981 16,204 18,519 45 61,448 2,828 14,279 8,098 11,755 21,695 152 58,807 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 2016 2015 2016 2015 Life insurance benefits Annuity benefits Health insurance claims 199,946 206,977 199,037 191,897 119,499 114,315 Property and casualty claims 17,708 21,861 Total policy benefits 536,190 535,050 16,966 51,566 3,995 10,004 82,531 12,591 39,849 2,826 12,207 67,473 Change in actuarial liabilities (note 13.2) 156,983 157,887 111,731 131,328 Total policy benefits and change in actuarial liabilities 693,173 692,937 194,262 198,801 172 SAGICOR FINANCIAL CORPORATION LIMITED 64 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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: Administrative staff salaries, directors’ fees and short-term benefits Social security and defined contribution retirement costs Equity-settled compensation benefits (note 30.1 to 30.2) Defined benefit expense (note 31 (b)) 2016 2015 107,329 109,339 9,125 5,365 11,528 133,347 8,859 4,646 10,772 133,616 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. 2016 2015 Number of grants ‘000 Weighted average price Number of grants ‘000 Weighted Average price 3,527 3,552 US$0.93 US$0.94 3,749 2,703 US$1.02 US$0.84 (1,854) US$0.94 (2,695) US$0.96 (588) 4,637 US$1.05 US$0.92 (230) 3,527 US$1.04 US$0.93 Balance, beginning of year Grants issued Grants vested Grants lapsed/forfeited Balance, end of year 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: 2016 2015 Number in 000’s $000 Number in 000’s $000 Balance, beginning of year Shares acquired Shares distributed Balance, end of year 1 - - 1 3 - - 3 2 1,376 (1,377) 1 2 2,469 (2,468) 3 During 2016 a cash settlement was made in lieu of share issue. 65 2016 ANNUAL REPORT 173 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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: 2016 2015 Number of options ‘000 Weighted average exercise price Number of options ‘000 Weighted average exercise price 16,397 4,927 (1,524) 19,800 10,197 US$1.48 US$0.86 US$1.82 US$1.30 US$1.61 16,206 3,029 (2,838) 16,397 US$1.63 US$1.05 US$1.85 US$1.48 9,903 US$1.73 US $0.86 – 2.50 US$0.16 – 0.69 19.3% – 35.8% 7.0 years 2.6% - 4.7% 4.8% - 6.8% 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% Balance, beginning of year Options granted Options lapsed/forfeited Balance, end of year Exercisable at the end of the year Share price at grant date Fair value of options at grant date Expected volatility Expected life Expected dividend yield Risk-free interest rate 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: 2016 2015 Number in 000’s $000 Number in 000’s $000 Balance, beginning of year Shares acquired Shares distributed Balance, end of year 2,125 100 (580) 1,645 2,833 98 (857) 2,074 3,143 414 (1,432) 2,125 5,609 378 (3,154) 2,833 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. 174 SAGICOR FINANCIAL CORPORATION LIMITED 66 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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: 2016 2015 Fair value of options outstanding J$31,770,000 J$53,646,000 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 26.0% 27.0% Remaining contractual term Risk-free interest rate 0.25 - 7 years 0.08 - 7 years 9.19% 9.58% 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 $1,298 (2015 – $312). In January 2007, the Group introduced a new Long Term Incentive (LTI) plan which replaced the previous Stock Option plan. Under the LTI plan, executives are entitled but not obliged to purchase the Group stock at a pre-specified price at some future date. The options are granted each year on the date of the Board of Directors Human Resources Committee meeting following the performance year at which the stock option awards are approved. Stock options vest in 4 equal installments beginning the first December 31 following the grant date and for the next three December 31 dates thereafter (25% per year). Options are not exercisable after the expiration of 7 years from the date of grant. The number of stock options in each stock option award is calculated based on the LTI opportunity via stock options (percentage of applicable salary) divided by the Black-Scholes value of a stock option of Sagicor Group Jamaica Limited stock on 31 March of the measurement year. The exercise price of the options is the closing bid price on 31 March of the measurement year. In December 2013, the Sagicor Group of companies in Jamaica was reorganized to establish a new holding company which directly or indirectly carries the Group’s holdings in member companies. As a consequence Sagicor Life Jamaica (SLJ) was delisted from the Jamaica Stock Exchange (JSE) and Sagicor Group Jamaica Limited (SGJ) was listed. Further, to harmonize compensation plans across the Group and considering the pending delisting of the subsidiary, Sagicor Investments Jamaica Limited (SIJL), all outstanding options in SIJL as at December 2013 were converted to corresponding SGJ options with equivalent monetary value. From the 2013 measurement year, all executives of the Group participate in the SGJ LTI plan. Details of the share options outstanding are set out in the following table. J$ represents Jamaica dollars. 2016 2015 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 53,644 12,463 (18,924) (2,238) 44,945 26,509 J$8.63 J$10.52 J$8.56 J$9.09 J$8.83 J$9.47 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 67 2016 ANNUAL REPORT 175 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 31 EMPLOYEE RETIREMENT BENEFITS 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. 31 EMPLOYEE RETIREMENT BENEFITS (continued) (a) Amounts recognised in the statement of financial position 2016 2015 Present value of funded pension obligations 239,330 215,680 Fair value of retirement plan assets (214,502) (192,612) 24,828 23,068 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 45,975 29,099 99,902 44,382 56,853 101,235 (1,333) 99,902 37,763 26,053 86,884 37,611 50,339 87,950 (1,066) 86,884 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. 176 SAGICOR FINANCIAL CORPORATION LIMITED 68 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $00031 EMPLOYEE RETIREMENT BENEFITS (continued) (b) Movements in balances 2016 2015 Medical and life benefits Retirement obligations Retirement plan assets Total Medical and life benefits Retirement obligations Retirement plan assets Total Net liability / (asset), beginning of year 26,053 253,443 (192,612) 86,884 23,254 221,786 (168,169) 76,871 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 1,429 2,107 - 3,536 (2,593) 4,401 - 6,278 17,333 (253) 23,358 (6,896) 26,332 - Net losses recognised in other comprehensive income 1,808 19,436 Contributions made by the Group Contributions made by employees and retirees Benefits paid Other items Effect of exchange rate movements Other movements - - (547) - (1,751) (2,298) - 7,248 (12,805) 3,968 (9,343) (10,932) - (15,366) - 7,707 4,074 (253) (15,366) 11,528 314 (7,537) 2,442 (4,781) (9,175) 23,196 2,442 16,463 (12,219) (12,219) (5,373) 11,054 (3,658) 8,453 (1,743) 1,875 (2,298) 310 (2,641) (14,973) 1,218 2,140 - 3,358 6,172 (5,010) - 1,162 - - (517) - (1,204) (1,721) 6,032 16,178 - 22,210 14,341 (1,546) - 12,795 - 6,987 (12,353) 8,339 (6,321) (3,348) - (14,888) 92 7,250 3,430 92 (14,796) 10,772 (1,466) (7,799) 2,997 (6,268) (8,164) (5,191) 11,459 (7,274) 5,791 (3,379) 19,047 (14,355) 2,997 7,689 (8,164) 1,796 (1,411) 1,065 (1,734) (8,448) Net liability / (asset), end of year 29,099 285,305 (214,502) 99,902 26,053 253,443 (192,612) 86,884 69 2016 ANNUAL REPORT 177 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 31 EMPLOYEE RETIREMENT BENEFITS (continued) 31 EMPLOYEE RETIREMENT BENEFITS (continued) (c) Retirement plan assets (d) Significant actuarial assumptions 2016 2015 The significant actuarial assumptions for the principal geographic areas as of December 31, 2016 were as follows: Equity unit linked pension funds under Group management: Sagicor Equity Fund (Barbados) Sagicor Bonds Fund (Barbados) Sagicor Pooled Investment Funds (Jamaica): Equity Funds Mortgage & Real Estate Fund Fixed Income Fund Foreign Currency Funds Money Market Fund Other Funds Other assets Total plan assets (32,103) (23,189) (35,820) (26,486) (15,526) (18,185) (2,258) (17,307) (29,020) (18,605) (23,044) (19,887) (15,272) (16,657) (16,423) (14,373) (170,874) (153,281) (43,628) (39,331) (214,502) (192,612) The equity unit linked pension funds are funds domiciled in Barbados and Jamaica. Annual reports of these funds are available to the public. Pension plans Barbados & Eastern Caribbean Jamaica Trinidad Discount rate - local currency benefits 7.75% Discount rate - US$ indexed benefits Expected return on plan assets Future promotional salary increases n/a 7.75% 3.00% Future inflationary salary increases 1.50% – 2.00% 2.00% 3.50% 9.00% 5.00% 9.00% 6.50% 6.00% 3.00% n/a 5.00% n/a 5.00% 2.00% 2.00% 0.00% 4.00% 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 5% - 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 178 SAGICOR FINANCIAL CORPORATION LIMITED 70 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 8.00% The sensitivity of the medical and life benefits obligations to individual changes in actuarial assumptions is summarised below: Jamaica (e) Sensitivity of actuarial assumptions Base medical and life obligation 29,099 The sensitivity of the pension retirement benefit obligations to individual changes in actuarial assumptions is summarised below: Barbados & Eastern Caribbean Jamaica Trinidad Base pension obligation 81,789 156,672 13,637 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 10,307 (7,293) (1,519) 1,842 1,779 10,467 (8,208) (3,279) 3,791 1,342 Decrease average life expectancy by 1 year (1,744) (1,364) 1,667 (1,198) (351) 409 358 (333) Change in absolute assumption 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 Increase / (decrease) in medical and life obligations 7,201 (5,359) (166) 194 953 (950) (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. For the 2017 financial year, the total Group contributions to its defined benefits pension plans are estimated at $12,727. 71 2016 ANNUAL REPORT 179 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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: 2016 2015 Income before income tax expense 149,597 123,562 2016 2015 Income tax expense: Current tax Current tax on profits for the year Adjustments to current tax of prior periods Total current tax expense Deferred tax Decrease/(increase) in deferred tax assets (Decrease)/increase in deferred tax liabilities Total deferred tax expense Share of tax of associated companies 34,872 232 35,104 498 5,696 6,194 402 41,700 24,506 (257) 24,249 (1,740) 2,858 1,118 (248) 25,119 Taxation at the applicable rates on income subject to tax 46,090 29,228 Adjustments to current tax for items not subject to / allowed for tax (23,996) (15,207) Other current tax adjustments Adjustments for current tax of prior periods Movement in unrecognised deferred tax asset Deferred tax relating to the origination of temporary differences Deferred tax relating to changes in tax rates or new taxes Deferred tax that arises from the write down / (reversal of a write down) of a tax asset Tax on distribution of profits from policyholder funds Other taxes (221) 232 13,926 (18) (35) 296 670 4,756 41,700 175 (257) 8,682 223 387 (383) 1,046 1,225 25,119 In addition to the above, the income tax on items in other comprehensive income is set out in note 35. 180 SAGICOR FINANCIAL CORPORATION LIMITED 72 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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: 2016 2017 2018 2019 2020 2021 2022 2023 2024 After 2024 73 2016 13,581 6,918 14,993 787 36,279 3,230 265,699 66,428 - 19,635 24,888 28,153 25,540 19,399 37,007 29,577 33,586 47,914 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 - 265,699 237,548 2016 ANNUAL REPORT 181 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 33 DEFERRED INCOME TAXES (continued) Deferred income tax assets movements: 2016 Defined benefit liabilities Unrealised losses on financial investments Unused tax losses Other items Total Balance, beginning of year as previously reported 11,031 12,406 21,870 (4,284) 41,023 (Charged)/credited to: Profit or Loss Other comprehensive income Effects of exchange rate changes Balance, end of year 2015 689 2,608 (747) 13,581 297 (5,141) (644) 6,918 (5,756) 4,272 - (1,121) 14,993 687 112 787 Balance, beginning of year as previously reported 7,367 1,093 26,376 (6,526) (Charged)/credited to: Profit or Loss Other comprehensive income Effects of exchange rate changes Balance, end of year 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) (498) (1,846) (2,400) 36,279 28,310 1,740 12,537 (1,564) 41,023 182 SAGICOR FINANCIAL CORPORATION LIMITED 74 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 Unrealised gains on financial investments Off-settable tax assets in respect of unused tax losses and other items Total (note 19) 2016 2015 1,640 62,738 343 1,000 6,398 1,806 58,377 133 944 (1,023) (36,280) (30,851) 399 36,238 399 29,785 Deferred income tax liabilities to be settled within one year 7,285 5,728 75 2016 ANNUAL REPORT 183 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 33 DEFERRED INCOME TAXES (continued) 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 2016 Balance, beginning of year as previously reported 1,806 58,377 Charged/(credited) to: Profit or Loss Other comprehensive income Effects of exchange rate changes Balance, end of year 2015 (167) - 1 11,034 (6,679) 6 1,640 62,738 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 31 - - (487) 18,800 - 1,806 58,377 133 133 189 21 - 343 84 56 (7) - 944 (1,023) (30,851) 399 29,785 75 (8) (11) 1,000 (6) 7,428 (1) 6,398 (5,429) - - - - - 5,696 762 (5) (36,280) 399 36,238 963 22,486 (34,214) 399 31,557 (20) - 1 944 (85) (23,425) 1 (1,023) 3,363 - - (30,851) - - - 2,858 (4,632) 2 399 29,785 184 SAGICOR FINANCIAL CORPORATION LIMITED 76 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 earnings attributable to common shareholders and the basic earnings per common share. Net income attributable to common shareholders Finance costs attributable to preference share subscription Amortisation of issue expenses allocated to preference share reserve Preference share dividends declared Earnings attributable to common shareholders 2016 2015 61,671 4,368 34,679 6,483 (149) (221) (5,256) 60,634 (7,800) 33,141 Weighted average number of shares in issue in thousands 303,572 301,924 Basic earnings per common share 20.0¢ 11.0¢ 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. Earnings attributable to common shareholders Preference share dividends declared Amortisation of issue expenses allocated to preference share reserve Finance costs attributable to preference share subscription Preference share liability finance cost 2016 2015 60,634 5,256 149 (4,368) 4,104 65,775 33,141 - - - - 33,141 Weighted average number of shares in issue in thousands 303,572 301,924 LTI restricted share grants ESOP shares Convertible redeemable preference shares Adjusted weighted average number of shares in issue 4,706 2,103 33,209 343,590 3,877 2,996 - 308,797 Fully diluted earnings / (loss) per common share 19.1¢ 10.7¢ Attributable to: Continuing operations Discontinued operation 19.5¢ 0.5¢ 18.2¢ (7.2)¢ Attributable to: Continuing operations Discontinued operation 18.7¢ 0.4¢ 17.3¢ (6.6)¢ The computation of diluted earnings per common share recognises the dilutive impact of LTI share grants and share options (note 30.1), ESOP share 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 adj usted by the dilutive impacts of the aforementioned share grants, options and preference shares. 77 2016 ANNUAL REPORT 185 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 35 OTHER COMPREHENSIVE INCOME (OCI) Schedule to OCI from continuing operations 2016 After tax OCI is attributable to 2015 After tax OCI is attributable to OCI tax release 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 (11,058) (Gains) / losses transferred to income Net change in actuarial liabilities Retranslation of foreign currency operations (1,491) 6,679 - 24,082 3,112 (15,509) (18,141) (5,870) (6,456) (1,292) 16,393 - 1,293 21 22 (437) (2,874) (10,361) 2,721 (72,866) 867 (31,102) (103,101) 39,183 2,675 (17,090) (28,481) 31,306 3,553 (18,800) - (3,713) 16,059 (38,217) (4,287) 47,329 (8,393) - (867) (36) (36) 3,112 1,884 (7,257) (33,363) Items that will not be reclassified subsequently to income: Gains / (losses) arising on revaluation of owner-occupied property (939) 2,137 Defined benefit gains / (losses) 2,588 (10,001) Other items - 1,649 (128) (7,992) - - - - 3,008 (3,874) - (866) 5,145 (1,159) (13,875) (128) (8,858) 2,258 - 1,099 (202) (3,447) - (3,649) - - - - (143) (1,984) - (2,127) (1,175) 48,346 (15,686) (71,616) (345) (5,431) - (5,776) Total OCI movements (4,221) (14,448) 22 1,855 (12,571) 17,158 (41,866) (36) (35,490) (77,392) Allocated to equity reserves Allocated to retained earnings (4,319) (10,129) (14,448) (38,419) (3,447) (41,866) 186 SAGICOR FINANCIAL CORPORATION LIMITED 78 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 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 79 2016 2015 (295,956) (296,676) (62,136) (32,418) - 45,252 99,781 21,283 59 3,619 1,025 26,559 96,041 18,687 (1,093) (12,908) (188,098) (200,783) 818 30,495 1,037 (1,989) (6,115) 5,118 (151,201) (15,875) (51,613) 934 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 (99,130) (43,147) Deposits 1,913 10,236 5,647 8,189 (37,627) (27,133) (100,362) (269,081) Securities sold for re-purchase Other liabilities and payables 2016 2015 (7) 825 818 (111) 5,229 5,118 (1,931,861) (1,351,966) 1,962,356 1,200,765 30,495 (151,201) (118,139) 119,176 1,037 6,486 20,012 (29,788) 286,658 (200,610) 1,035 83,793 (55,395) 39,520 (15,875) 7,020 12,190 8,881 137,800 (137,084) 29,707 58,514 2016 ANNUAL REPORT 187 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 2015 37 SUBSIDIARY ACQUISITION AND OWNERSHIP CHANGES (20,336) 2,340 (17,996) (18,175) 1,589 (16,586) 2016 2015 78,050 (44,042) 34,008 310,545 (154,087) 156,458 2016 279,070 110,652 (1,939) (75,677) 312,106 2015 250,489 183,068 (2,158) (46,520) 384,879 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 2015. The adjustments made during 2015 amounted to $1.0 million, and was recognised in 2015 as they were not material to the Group. 38 DISCONTINUED OPERATION 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. The terms of the sale required the Company to take certain actions and provide certain commitments which included future price adjustments to the consideration up to December 31, 2018, 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. 188 SAGICOR FINANCIAL CORPORATION LIMITED 80 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $00038 Discontinued operation (continued) 38 Discontinued operation (continued) As of December 31, 2016, the price adjustments have been estimated as outlined below: The net gain / (loss) recognised in the statement of income and the statement of comprehensive income is as follows. Statement of income Currency translation gain Other expenses Movement in price adjustment Net gain / (loss) and total comprehensive gain / (loss) 2016 1,827 (884) 469 1,412 2015 1,552 (187) (23,013) (21,648) March 31, 2016 March 31, 2019 2016 - - - 2015 46,525 (499) 46,026 After accounting for its status as a discontinued operation and for the details of the sale the net loss recognised in the statement of income is set out below. The statement of comprehensive income is as follows: Movement in Price Adjustments Balance payable, beginning of year Payment made Experience gain Net currency movements (Receivable) / payable, end of year 2016 46,026 (44,614) 415 (1,827) - 2015 45,796 (21,231) 23,013 (1,552) 46,026 The price adjustments are subject to a limit based on the terms of the agreement. During the financial period 2016 to 2018, the results are subject to further underwriting, investment and foreign currency adjustments constrained by the limit as the experience develops. 81 2016 ANNUAL REPORT 189 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000  39 CONTINGENT LIABILITIES 39 Contingent Liabilities (continued) (ii) Suit has been filed by an independent contractor against one of the Group’s subsidiaries for breach of contract arising from alleged contractual agreement. The Claimant alleges that the company failed to pursue initiatives contemplated by the contract with a third party and that by not doing so, it caused the Claimant company significant losses which they have estimated at over US$300,000,000. No provision was made in these financial statements for this claim as the claim has been stayed to accommodate arbitration as required under the Agreement between the parties coupled with the probability of success against the Group is considered low. (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. 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: 2016 2015 Customer guarantees and letters of credit (1) 22,513 27,154 (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 The Group and the company are subject to various claims, disputes and legal proceedings, as part of the normal course of business. Provision is made for such matters when, in the opinion of management and its professional advisors, it is probable that a payment will be made by the Group, and the amount can be reasonably estimated. In respect of claims asserted against the Group which, according to the principles outlined above, have not been provided for, management is of the opinion that such claims are either without merit, can be successfully defended, cannot be reasonably estimated or will result in exposure to the Group which is immaterial to both the financial position and results of operations. Significant matters as follows: (i) Suit has been filed by a customer against one of the Group’s, subsidiaries for breach of contract, and breach of trust in the amount of US$8,928,500, being loss allegedly suffered as a result of what the claimants say is the unlawful withholding of insurance proceeds by the subsidiary. No provision was made in these financial statements for this claim as the probability of success against the Group is considered low prior to the matter being heard. 190 SAGICOR FINANCIAL CORPORATION LIMITED 82 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $00040 FAIR VALUE OF PROPERTY 40 Fair value of property (continued) 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, 2016 follows: are as Investment property Owner-occupied lands Owner-occupied land and buildings Level 1 Level 2 Level 3 Total - - - - - - - - 80,662 37,185 77,855 80,662 37,185 77,855 195,702 195,702 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 79,172 38,031 80,694 197,897 Additions Transfers in / (out) Fair value changes recorded in net investment income Fair value changes recorded in other comprehensive income Depreciation Disposals and divestitures Effect of exchange rate changes 7 1,401 1,847 - - (825) (940) - 2,680 2,687 555 1,847 - - (1,583) (1,583) (1,105) (753) (2,078) (1,105) (1,578) (3,018) (846) - - - - - Balance, end of year 80,662 37,185 77,855 195,702 83 2016 ANNUAL REPORT 191 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 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. 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. Category Investment grade Non- investment grade Watch t l f u a e d - n o N Default Sagicor Risk Rating Classification S&P Moody’s Fitch AM Best 1 2 3 4 5 6 7 8 9 10 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 C Substandard Doubtful Loss D C C C DDD DD D c d 192 SAGICOR FINANCIAL CORPORATION LIMITED 84 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 $000 3,864,949 978,681 755,569 179,456 % 65.5 16.6 12.8 3.0 2015 $000 3,937,104 909,570 644,463 151,842 Total financial statement exposures 5,778,655 97.9 5,642,979 Loan commitments Customer guarantees and letters of credit Other 82,088 22,513 15,262 Total off financial statement exposures 119,863 1.4 0.4 0.3 2.1 69,936 27,154 19,380 116,470 % 68.4 15.8 11.2 2.6 98.0 1.2 0.5 0.3 2.0 Total 5,898,518 100.0% 5,759,449 100.0% 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. The Group’s largest exposures to individual counterparty credit risks as of December 31, 2016 and 2015 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 5 2 5 2 3 1 1 4 3 2016 804,051 226,094 303,973 29,457 80,965 106,341 63,664 28,704 585,561 Sagicor Risk Rating 5 2 5 2 5 1 1 3 3 2015 901,896 200,307 307,185 185,743 81,412 101,356 67,523 29,780 543,329 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) (1)The reinsurance asset held in the name of Guggenheim Partners are secured by assets held in trust totalling $596,785 (2015 - $573,774). 85 2016 ANNUAL REPORT 193 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 2015 Exposure $000 Exposure % Exposure $000 Exposure % 337,503 657,285 1,018,985 250,267 1,497,421 58,447 15 707 9% 17% 26% 6% 39% 2% 0% 0% 99% 1% 317,670 794,812 1,026,099 193,025 1,518,308 23,472 18 2,683 3,876,087 61,017 8% 20% 26% 5% 39% 1% 0% 0% 99% 1% TOTAL RATED EXPOSURES 3,820,630 UN-RATED EXPOSURES 44,319 Lending portfolios Risk Rating Classification 1 2 3 4 5 6 7 8 9 10 Minimal risk Low risk Moderate risk Acceptable risk Average risk Higher risk Special mention Substandard Doubtful Loss 2016 2015 Exposure $000 Exposure $000 Exposure $000 Exposure % 434,061 142,469 220,827 76,993 35,200 25,338 15,330 8,703 7,532 12,154 43% 15% 22% 8% 4% 3% 2% 1% 1% 1% 455,471 77,350 184,911 30,282 26,653 8,852 23,345 8,953 4,693 9,699 830,209 79,361 50% 9% 20% 3% 3% 1% 3% 1% 1% 1% 92% 8% TOTAL 3,864,949 100% 3,937,104 100% TOTAL RATED EXPOSURES 978,607 100% UN-RATED EXPOSURES 74 0% 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 978,681 100% 909,570 100% 194 SAGICOR FINANCIAL CORPORATION LIMITED 86 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 75% to 95% of collateral value. For finance loans and finance leases, the collateral often comprises a vehicle or other form of security and the approved loan / lease limit is 50% to 100% of the collateral value. Unsecured finance loans and finance leases are only granted when the initial amount is less than $5,103. 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. Exposure to the lending portfolios by geographic area is as follows. Mortgage loans less than 90 to 180 days past due and finance loans and finance leases less than 90 days past due are not assessed for impairment unless other information is available to indicate the contrary. The assessment for impairment includes a review of the collateral. If the past due period is less than the trigger for impairment review, the collateral is not normally reviewed and re-assessed. Accumulated allowances for impairment reflect the Group’s assessment of total individually impaired assets at the date of the financial statements. The following tables set out the carrying values of debt securities, mortgage loans, finance loans and finance leases, analysed by past due or impairment status. Debt securities Mortgage loans Finance loans & leases 2016 2015 2016 Barbados Jamaica Trinidad & Tobago Other Caribbean USA 195,597 463,675 145,409 113,301 60,699 978,681 203,250 389,521 150,387 108,598 57,814 909,570 (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. Neither past due nor impaired 3,429,408 270,089 429,066 Past due up to 3 months, but not impaired 9,568 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 9,568 25,312 3,580 10,206 3,051 42,149 72,947 679 - - 73,626 Impaired assets (net of impairment) 2,378 19,528 6,283 Total carrying value 3,441,354 331,766 508,975 Accumulated allowances on impaired assets Accrued interest on impaired assets 4,944 19 7,624 468 10,795 - 87 2016 ANNUAL REPORT 195 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 41.1 Credit risk (continued) 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 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. 196 SAGICOR FINANCIAL CORPORATION LIMITED 88 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 2016 Actuarial liabilities Other insurance liabilities Total 2015 Actuarial liabilities Other insurance liabilities Total Maturing within 1 year 224,827 104,860 329,687 206,721 103,394 310,115 Expected discounted cash flows Maturing 1 to 5 years 678,161 15,297 693,458 631,453 15,500 646,953 Maturing after 5 years 1,873,374 52,781 1,926,155 1,794,213 53,287 1,847,500 Total 2,776,362 172,938 2,949,300 2,632,387 172,181 2,804,568 89 2016 ANNUAL REPORT 197 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 Capital commitments Customer guarantees and letters of credit Total off financial statements commitments 2016 - Contractual un-discounted cash flows 2015 - 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 354,549 34,158 335,928 905,685 19,391 325,495 355 1,939 151,436 2,128,936 82,088 4,839 7,500 15,476 109,903 18,819 197,760 15,752 43,952 15,388 717 1,010 - 53,436 346,834 - 9,528 - 2,454 11,982 10,702 348,400 12,033 138 - - - - 384,070 580,318 363,713 949,775 34,779 326,212 1,365 1,939 310,094 194,461 361,328 591,403 23,799 524,578 1,052 2,158 2,447 207,319 158,072 373,720 2,849,490 2,166,945 - 977 - 4,583 5,560 82,088 15,344 7,500 22,513 69,936 2,679 13,174 23,733 127,445 109,522 54,054 143,079 15,626 78,632 12,268 28 551 - 51,631 355,869 - 9,483 - 3,003 12,486 9,834 348,400 12,305 701 - - - - 373,982 685,940 389,259 670,736 36,067 524,606 1,603 2,158 747 210,450 371,987 2,894,801 - 2,226 - 418 2,644 69,936 14,388 13,174 27,154 124,652 Total 2,238,839 358,816 379,280 2,976,935 2,276,467 368,355 374,631 3,019,453 198 SAGICOR FINANCIAL CORPORATION LIMITED 90 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 – Contractual or expected discounted cash flows 2015 – 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 471,274 622,930 2,347,690 3,441,894 389,557 872,098 2,156,064 3,417,719 15,883 5,010 133,440 5,227 137,860 27,970 96,222 36,963 46,530 41,484 263,191 39,082 21,085 152,738 - 159 1,010 285,264 5,149 - 55,447 - 276,801 111,845 222,797 - 1,279 - 331,766 205 - 7,015 15,879 331,766 137,940 508,975 5,227 139,298 28,980 713,252 42,317 46,530 103,946 279,070 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 93,965 250,489 1,281,054 1,182,864 3,315,277 5,779,195 1,205,543 1,287,260 3,150,176 5,642,979 91 2016 ANNUAL REPORT 199 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 41.3 Interest rate risk 41.3 Interest rate risk (continued) The Group manages its interest rate risk by a number of measures, including where feasible the selection of assets which best match the maturity of liabilities, the offering of investment contracts which match the maturity profile of assets, the re-pricing of interest rates on loans receivable, policy contracts and financial liabilities in response to market changes. In certain Caribbean markets, where availability of suitable investments is often a challenge, the Group holds many of its fixed rate debt securities to maturity and therefore mitigates the transient interest rate changes in these markets. The Group is exposed to interest rate risks. Cash flow interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate because of changes in market interest rates. The occurrence of an adverse change in interest rates on invested assets may result in financial loss to the Group in fulfilling the contractual returns on insurance and financial liabilities. The return on investments may be variable, fixed for a term or fixed to maturity. On reinvestment of a matured investment, the returns available on the new investment may be significantly different from the returns formerly achieved. This is known as reinvestment risk. Guaranteed minimum returns exist within cash values of long term traditional insurance contracts, long term universal life insurance contracts, annuity options, deposit administration liabilities and policy funds on deposit. Where the returns credited exceed the guaranteed minima, the insurer usually has the option to adjust the return from period to period. For other financial liabilities, returns are usually contractual and may only be adjusted on contract renewal or contract re-pricing. The Group is therefore exposed to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase or decrease as a result of such changes. Interest rate changes may also result in losses if asset and liability cash flows are not closely matched with respect to timing and amount. The Group is exposed to risk under embedded derivatives contained in a host insurance contract. These risks include exposures to investment returns which may produce losses to the insurer arising from the following contract features: • • • 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. 200 SAGICOR FINANCIAL CORPORATION LIMITED 92 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 31,706 352,503 1,964 342,292 703,049 19,318 318,685 - 1,939 5,217 4,705 15,984 77,756 1,565 86,798 15,289 697 - - 52,721 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 2016 Exposure after 5 years Not exposed to interest 52,781 9,089 83,746 - 316,895 (1,402) 5,184 138 473 125,170 172 1,192 1,364 - - - - - - Total 172,938 377,576 395,213 349,514 915,155 34,779 320,574 1,364 1,939 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 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 2,158 147,037 204,975 157,837 201,722 Total 1,776,673 255,515 384,087 357,752 2,774,027 1,887,149 199,584 385,480 353,414 2,825,627 93 2016 ANNUAL REPORT 201 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. Exposure within 1 year Exposure 1 to 5 years 2016 Exposure after 5 years Not exposed to interest Total Exposure within 1 year Exposure 1 to 5 years 2015 Exposure after 5 years Not exposed to interest Total 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 647,158 557,849 2,186,167 50,180 3,441,354 585,718 785,142 1,996,826 50,033 3,417,719 - 19,295 4,110 463,487 5,178 137,123 - 1,043 2,302 3,632 221,380 - 50,617 20,752 24,520 - 159 - - - 53,044 - - 220,208 220,208 258,480 108,507 20,391 - 1,279 - 205 - - - 3,374 4,571 577 49 737 28,980 41,069 44,228 47,270 57,690 331,766 137,940 508,975 5,227 139,298 28,980 42,317 46,530 103,946 279,070 - 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 93,965 250,489 1,504,708 706,941 2,575,029 498,933 5,285,611 1,425,631 923,224 2,387,131 520,353 5,256,339 202 SAGICOR FINANCIAL CORPORATION LIMITED 94 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 2015 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. 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 6.2% 6.1% 6.9% 12.6% 9.2% 1.0% 6.1% 9.4% 1.9% 2.1% 4.5% 6.4% 6.5% 7.3% 12.7% 2.4% 0.9% 5.2% 8.3% 2.2% 1.9% 3.7% 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 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 2016 Effect on net income Effect on TCI Change in interest rate JMD USD 2015 Effect on net income Effect on TCI - 1% - 0.5% 1,057 13,141 - 1% - 0.5% 4,145 10,219 +2.5% + 2% (3,690) (46,516) +2.5% + 2% (6,838) (35,879) 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. 95 2016 ANNUAL REPORT 203 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 41.4 Foreign exchange risk (continued) 2016 US$ 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 452,914 817,968 384,175 148,864 2,619,819 169,800 4,593,540 5,758 20,613 15,064 494,349 207,993 702,342 386,276 65,787 33,733 - 86,251 31,160 42,710 645,917 13,848 659,765 42,577 336 86,232 43,379 947,915 337,791 1,285,706 302,777 20,504 66,482 - 483,291 48,198 89,992 1,011,244 12,794 1,024,038 261,668 10,432 10,271 28,492 433,370 82,129 515,499 329,544 27,874 140,242 - 1,413 12,487 16,484 528,044 19,315 547,359 (31,860) 1,820 13,226 15,430 179,340 28,264 207,604 61,905 10,105 52,451 - 14,414 844 2,831 142,550 3,492 146,042 61,562 736,067 13,939 135,180 3,505,005 99,446 3,604,451 1,605,596 37,273 76,301 395,213 1,021,431 1,784 50,073 3,187,671 33,751 3,221,422 383,029 1,156 6,059 41,525 218,540 (2,222) 216,318 90,264 11,395 8,367 - 16,525 6,819 2,885 136,255 1,625 137,880 78,438 755,569 150,340 279,070 5,778,519 753,401 6,531,920 2,776,362 172,938 377,576 395,213 1,623,325 101,292 204,975 5,651,681 84,825 5,736,506 795,414 (1) Monetary balances only (2) Non-monetary balances, income tax balances and retirement plan assets 204 SAGICOR FINANCIAL CORPORATION LIMITED 96 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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) 212,537 73,955 10,936 7,407 - 20,706 5,565 11,639 130,208 1,110 131,318 81,219 644,463 136,363 250,489 5,642,979 756,906 6,399,885 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 97 2016 ANNUAL REPORT 205 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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, 2016 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). Amounts denominated in JMD USD Total amounts Effect of a 10% depreciation Financial position: Assets Liabilities Net position Represented by: 1,359,388 1,159,171 2,518,559 1,040,655 1,032,241 2,072,896 318,733 126,930 445,663 • 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: 423,398 (216,843) (141,023) (23,722) 41,810 79,354 (21,539) (14,606) 502,752 (238,382) (155,629) (24) (23,746) 43,185 84,995 Currency risk relating to the future cash flows of monetary balances Currency risk of reported results of foreign operations (135,939) (104,066) (31,873) (31,873) (29,319) 21,684 14,102 2,372 8,839 13,021 (4,182) 8,839 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. 206 SAGICOR FINANCIAL CORPORATION LIMITED 98 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 include 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 be used in determining the fair value of Level 3 instruments. 99 2016 ANNUAL REPORT 207 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 41.5 Fair value of financial instruments (continued) (a) Financial instruments carried at fair value 2016 2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 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 604,786 35,350 640,136 35,720 3,992 - - - 39,712 679,848 1,663,306 51,732 1,715,038 32,436 119,532 1,364 - - 153,332 1,868,370 2,928 9,602 12,530 95,849 - 27,616 40,347 - 163,812 176,342 2,271,020 96,684 2,367,704 164,005 123,524 28,980 40,347 - 356,856 2,724,560 Total assets by percentage 25% 69% 6% 100% Investment contracts: Unit linked deposit administration liabilities Deposit and security liabilities: Structured products Derivative financial instruments Total liabilities Total liabilities by percentage - - - - - 0% - - 1,364 1,364 1,364 1% 130,668 130,668 34,779 - 34,779 165,447 99% 34,779 1,364 36,143 166,811 100% 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% 208 SAGICOR FINANCIAL CORPORATION LIMITED 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% 100 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $00041.5 Fair value of financial instruments (continued) Transfers from Level 1 to Level 2 in 2016 - $59,752 (2015 - $4,805). Transfers from Level 2 to Level 1 in 2016 – Nil (2015 - Nil). 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. 2016 Available for sale securities Investments at fair value through income Derivative instruments Total assets 2015 Total assets 2016 2015 Policy liabilities Structured products Total liabilities Total liabilities 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 38,939 1,638 - - - 493 - (308) 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 - (974) 12,530 - - 137,121 23,419 13,876 19,205 189,936 155,926 125,177 35,112 160,289 136,877 44,262 76 - - 95,084 1,873 - - - - - - - - 16,458 19,206 35,664 (5,687) (17,064) (22,751) 76 - - 266 - - - (6,637) 136,196 - - - - - 7,376 8,135 (743) - - - (308) - (54) - - (7,611) (3,512) (5,468) 27,616 176,342 189,936 130,668 1,054 9,013 10,067 (3,930) - - - - - 188 - - 35,194 (8,471) - (682) - - - (2,629) - 188 - - (252) (7,691) 165,447 160,289 - - 188 (682) - 188 - - - - - - - (252) (2,223) 34,779 - - Disposals (27,258) (18,049) (12,841) (58,148) (58,638) 101 2016 ANNUAL REPORT 209 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 41.5 Fair value of financial instruments (continued) (b) Financial instruments carried at amortised cost 41.5 Fair value of financial instruments (continued) 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, 2016 is set out in the following tables. Level 1 Level 2 Level 3 Total 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 - - - - - - - - 21,688 - 21,688 Notes and loans payable: Notes and lease payables 387,182 654,926 1,042,108 - - - - 291,154 148,141 491,131 5,227 291,154 148,141 491,131 5,227 387,182 1,590,579 1,977,761 Deposit and security liabilities Other funding instruments Customer deposits Securities sold for repurchase - 408,870 1,590,579 1,999,449 - - - - - - - - - - 9,574 - 9,574 118,771 121,051 239,822 128,345 121,051 249,396 364,095 364,095 80,496 80,496 444,591 444,591 - 1,463 - 346,216 913,956 320,574 346,216 915,419 320,574 1,463 1,580,746 1,582,209 375,132 1,901,064 2,276,196 210 SAGICOR FINANCIAL CORPORATION LIMITED 102 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $00041.5 Fair value of financial instruments (continued) 41.6 Derivative financial instruments and hedging activities (continued) (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, 2016 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 19,275 49,679 27,730 96,684 20% change on TCIBT 3,855 9,936 5,546 19,337 41.6 Derivative financial instruments and hedging activities The Group's derivative activities give rise to open positions in portfolios of derivatives. These positions are managed to ensure that they remain within acceptable risk levels, with matching deals being utilised to achieve this where necessary. When entering into derivative transactions, the Group employs its credit risk management procedures to assess and approve potential credit exposures. Derivatives 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. 2016 Derivatives held for trading: Equity indexed options 2015 Derivatives held for trading: Equity indexed options Contract / notional amount Fair value Assets Liabilities 673,264 673,264 28,980 28,980 643,667 643,667 15,479 15,479 1,364 1,364 1,603 1,603 103 2016 ANNUAL REPORT 211 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 41.6 Derivative financial instruments and hedging activities (continued) (i) 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. 212 SAGICOR FINANCIAL CORPORATION LIMITED 104 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 2016 ASSETS Financial investments Securities purchases under resale agreement Derivative financial instruments LIABILITIES Security liabilities Derivative financial instruments 2015 ASSETS Financial investments Securities purchases under resale agreement Derivative financial instruments LIABILITIES Security liabilities Derivative financial instruments 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 4,779,541 5,227 28,980 4,813,748 1,621,961 1,364 1,623,325 4,803,078 8,064 15,479 4,826,621 1,606,008 1,603 1,607,611 - - - - - - - - - - - - - - 4,779,541 5,227 28,980 4,813,748 1,621,961 1,364 1,623,325 4,803,078 8,064 15,479 4,826,621 1,606,008 1,603 1,607,611 (821,168) - (1,364) (822,532) (415,910) (1,364) (417,274) (629,825) - (1,603) (631,428) (614,643) (1,603) (616,246) (260,443) - - (260,443) (220,100) - (220,100) (302,098) - - (302,098) (255,860) - (255,860) 3,697,930 5,227 27,616 3,730,773 985,951 - 985,951 3,871,155 8,064 13,876 3,893,095 735,505 - 735,505 105 2016 ANNUAL REPORT 213 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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; 214 SAGICOR FINANCIAL CORPORATION LIMITED • • 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. 106 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $00042.2 Claims risk (continued) 42.3 Reinsurance risk (continued) Total insurance coverage 2016 2015 Property Motor Accident and liability Total Gross Net Gross Net Gross Net Gross Net 7,673,403 1,083,282 385,978 192,989 2,275,771 1,086,198 10,335,152 2,362,469 6,726,203 1,004,774 346,729 173,364 2,162,735 1,034,289 9,235,667 2,212,427 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 2016 is presented below and results in estimated gross and net losses. 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. A Barbados and St. Lucia windstorm having a 200 year return period. Gross loss Net loss 318,357 5,000 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. 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. Type of risk Retention by insurers - currency amounts in thousands Property • maximum retention of $4,500 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. 107 2016 ANNUAL REPORT 215 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 42.3 Reinsurance risk (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 253,696 559,762 - 5,241 - - - - 31% 68% 0% 1% 0% 0% 0% 0% TOTAL 818,699 100% 43 INSURANCE RISK – LIFE, ANNUITY & HEALTH CONTRACTS Insurers are exposed to insurance risks such as product design and pricing, mortality and morbidity, lapse, expense, reinsurance, and actuarial liability estimation in respect of life, annuity and health contracts. Disclosure of these risks is set out in the following sections. 43.1 Contracts without investment returns These contracts are principally term life, critical illness and health insurance. Individual term life and critical illness products are generally long-term contracts while group term life and health insurance products are generally one year renewable. The principal insurance risks associated with these contracts are product design and pricing and mortality and morbidity. 43.1 Contracts without investment returns (continued) (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. For contracts providing death benefits, higher mortality rates would result in an increase in death claims. The Group annually reviews its mortality experience and compares it to industry mortality tables. This review may result in future adjustments to the pricing or re-pricing of these contracts. Critical illness claims arise from the diagnosis of a specific illness incurred by the policy beneficiary. The Group annually reviews its critical illness claims experience and compares it to industry statistics. This review may result in future adjustments to the pricing or re-pricing of these contracts. The concentration risks of term life and critical illness contracts are included in the related disclosure on other long-term contracts in note 43.2(b). 216 SAGICOR FINANCIAL CORPORATION LIMITED 108 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 2016 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 22,349 77,718 27,485 26,057 57 871 2,004 606 536 60 21,478 75,714 26,879 25,521 (3) 153,666 4,077 149,589 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. 2016 2015 Liability 5% increase in liability Liability 5% increase in liability 48,373 4,284 52,657 2,419 214 2,633 40,845 3,379 44,224 2,042 169 2,211 Actuarial liability Claims payable 109 (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. 2016 ANNUAL REPORT 217 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 2015 Barbados Jamaica Gross Net Gross Net 3,855,798 1,338,221 3,717,465 1,319,187 3,546,641 1,286,564 3,404,278 1,272,561 7,107,905 4,901,489 6,788,633 4,722,254 6,961,507 4,869,094 6,633,173 4,693,456 Trinidad & Tobago Gross 3,322,781 2,379,773 3,299,470 2,591,709 Net 2,741,682 2,262,405 2,699,592 2,460,183 Other Caribbean Gross 7,702,307 1,824,971 7,425,375 1,993,205 USA Total Net Gross Net Gross Net 6,616,723 1,647,151 6,315,588 1,718,537 5,935,908 2,018,213 43,463 41,422 5,416,515 1,944,902 45,491 43,300 27,924,699 10,487,917 26,647,458 10,671,846 21,884,766 10,106,636 20,997,533 10,188,037 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 2016 2015 Barbados Jamaica Gross Net Gross Net Trinidad & Tobago Gross Net Other Caribbean Gross USA Total Net Gross Net Gross Net 110,544 110,544 575 575 115,254 115,254 26,827 26,827 1,150,170 390,478 1,403,370 643,678 43,674 43,674 293,596 293,596 - - 27 27 25,684 8,024 362,981 345,321 114,475 114,475 509 509 113,108 113,108 24,171 24,171 946,891 375,338 1,199,154 627,601 46,288 46,288 285,843 285,843 - - - - 26,447 7,988 358,578 340,119 218 SAGICOR FINANCIAL CORPORATION LIMITED 110 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 $175 Health insurance contracts with groups Retention per individual to a maximum of $175 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 $500 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)). 111 2016 ANNUAL REPORT 219 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 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. Sensitivity Scenario Sagicor Life Inc segment Sagicor Jamaica 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. Sagicor USA segment Sagicor Life segment Sagicor Jamaica segment Sagicor Life USA segment For 2016, lapse rates were increased or reduced by 30%, and the more adverse result was selected. For 2015, 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. 2016 2015 2016 2015 2016 2015 Base net actuarial liability 936,049 939,819 327,183 326,652 580,784 562,236 Scenario increase in liability increase in liability increase in liability Worsening rate of lapse 135,728 127,997 47,635 40,153 9,330 9,123 High interest rate (84,334) (76,882) (98,734) (101,205) (34,545) (33,619) Low interest rate 156,127 151,291 124,400 136,247 39,771 38,922 Worsening mortality/ morbidity 35,808 34,191 37,209 33,891 12,842 12,737 Higher expenses 20,715 19,174 14,939 15,972 4,418 3,846 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. 220 SAGICOR FINANCIAL CORPORATION LIMITED 112 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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. 2016 2015 Pension and insurance fund assets 1,726,467 1,576,696 Mutual fund, unit trust and other investment fund assets 890,235 796,775 2,616,702 2,373,471 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 $1,436,232 (2015 - $1,313,013) 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. 113 2016 ANNUAL REPORT 221 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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 2016 2015 536,149 257,974 395,213 506,046 231,735 475,517 Total financial statement capital resources 1,189,336 1,213,298 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 291% (2015 – 301%). The 2015 MCCSR which was disclosed as 221% in 2015 has been reviewed and restated to 301% this year. 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. The Company is in compliance with all capital requirements. 222 SAGICOR FINANCIAL CORPORATION LIMITED 114 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 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, 2016 and 2015, this ratio was 156.5% and 201.5% respectively. (ii) Sagicor Life Insurance Company (USA) A risk-based capital (RBC) formula and model have been 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, 2016 and 2015 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 2016 and 2015, all applicable externally imposed capital requirements were complied with. Sagicor Investments Jamaica Sagicor Bank Jamaica 2016 13% 10% 2015 2016 2015 14% 10% 14% 10% 14% 10% Actual capital base to risk weighted assets Required capital base to risk weighted assets 115 2016 ANNUAL REPORT 223 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 46.3 Financial covenants (a) 8.875% Senior Notes 46.3 Financial covenants (continued) (b) 4.85% notes due 2019 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 Group. 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 Group 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 Group. This covenant allows investors to put their bonds back to the Group at a certain value when a specified event has changed ownership/control of the Group. This covenant restricts the Group’s ability to secure future debt with the Group’s assets. The notes are redeemable at the Group’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, 2016, and 2015, 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 convertible redeemable preference shares were redeemed on July 18, 2016. The Company is in compliance with all covenants. 224 SAGICOR FINANCIAL CORPORATION LIMITED 116 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 47 RELATED PARTY TRANSACTIONS 48 EVENTS AFTER DECEMBER 31, 2016 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 On March 3rd, 2017 Standards & Poor’s downgraded the Government of Barbados’ long-term foreign and local currency sovereign rating by one notch from ‘B-’ to ‘CCC+’ and assigned a negative outlook. On March 9th, 2017 Moody’s Investors Service also downgraded the Government of Barbados’ credit rating one notch from ‘Caa1’ to ‘Caa3’ and maintained a stable outlook. 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: Subsequent to the year end, the Board of Directors of Sagicor Bank Jamaica Limited (SBJ) approved the issuance of: Compensation 2016 2015 Salaries, directors’ fees and other short-term benefits Equity-settled compensation benefits Pension and other retirement benefits 20,548 4,047 1,235 25,830 20,176 3,377 1,717 25,270 Balance, beginning of year Advances Repayments Effects of exchange rate changes Balance, end of year Mortgage loans Other loans Total loans 5,492 282 (837) - 4,937 836 592 (400) (36) 992 6,328 874 (1,237) (36) 5,929 Interest rates prevailing during the year 3.75% - 7.00% 5.95% - 8.00% (i) Up to 1,500,000,000 Class A Cumulative Redeemable Preference Shares without par value with a tenor of eighteen (18) months @ 7.75% interest per annum to be issued at a share price of J$1.00 per share; and (ii) Up to 1,500,000,000 Class B Cumulative Redeemable Preference Shares without par value with a tenor of three (3) years @ 8.25% interest per annum to be issued at a share price of J$1.00 per share by way of private placement in an Exempt Distribution made under the Guidelines for Exempt Distribution. The Preference Shares will be offered to accredited investors and to investors whose investment is J$10,000,000 or more and thereafter an application shall be made to the Jamaica Stock Exchange to list the Preference Shares on the exchange using the listing method of introduction. 117 2016 ANNUAL REPORT 225 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2016 Amounts expressed in US $000 SHAR EHOLDER INFORMATI ON Let your imagination guide you wherever you want to go. There are no limits to where your life can take you. Together, we can turn the future we envision into a reality, and accomplish any goals we set out to achieve. SH AREHOLDER INFORMATI O N DIVIDENDS An interim dividend of US 2.5 cents per common share, approved for the half-year ended June 30, 2016, was paid on November 15, 2016 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 18, 2016. A final common dividend of US 2.5 cents per common share, payable on May 15, 2017, was approved for the financial year ended December 31, 2016 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 13, 2017. The total dividend on common shares for the 2016 financial year amounted to US 5.0 cents per share. The convertible redeemable preference shares were redeemed on July 18, 2016. A final dividend of US 1.13 cents per convertible redeemable preference was paid on July 18, 2016 to the holders of convertible redeemable preference shares, whose names were registered on the books of the Company at the close of business on July 8, 2016. SHARES The following Shareholders own more than 4% of the capital of the Company as at December 31, 2016: Common Shares Number of Shares Percentage National Insurance Board International Finance Corporation 18,950,000 12,269,938 6.22 4.03 The total number of issued shares as at December 31, 2016 and as at December 31, 2015 is set out below Common Shares As at 31-Dec-16 As at 31-Dec-15 304,494,131 304,494,131 228 SAGICOR FINANCIAL CORPORATION LIMITED LONG TERM INCENTIVE PLAN (LTI) The Tables below show grants of restricted stock and stock options as at December 31, 2016 under the LTI for Executives. Restricted Stock As of December 31, 2016 Award Year Value attributable to Stock Grant Awards Made and in Effect Vested Not Vested Vested in 2016 2006 – 2008 2009 2010 2011 2012 2013 2014 2015 2016 US$ US$ US$ US$ US$ US$ US$ US$ US$ 1.98, 2.01, 2.50 1.58, 2.50 1.60 1.48 1.53 1.15 1.075 1.05 0.86 1,302,161 1,033,058 760,026 625,787 1,024,879 1,507,918 2,601,230 2,802,877 3,552,266 1,302,161 1,033,058 760,026 625,787 1,024,879 1,507,918 1,618,824 1,521,637 720,969 0 0 0 0 0 0 982,406 1,281,240 2,831,297 15,210,202 10,115,259 5,094,943 0 0 0 0 0 147,654 330,169 526,749 720,969 1,725,541 Allocated for settlement of tax 2016 (543,017) Total converted to shares 2016 1,182,524 2016 ANNUAL REPORT 229 Award Year Exercise Price of Stock Option Awards Made and in Effect Vested Exercised Not Exercised Not Vested Vested in 2016 Stock Options As of December 31, 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 120,443 120,443 1,124,022 1,124,022 120,443 72,839 US$ 1.98 US$ 2.01 US$ 2.50 US$ 2.50 US$ 1.60 US$ 1.48 US$ 1.53 US$ 1.15 818,009 973,711 1,295,616 1,784,430 1,138,545 1,742,489 US$ 1.075 2,891,066 US$ 1.05 3,180,486 US$ 0.86 4,927,360 818,009 973,711 1,295,616 1,784,430 1,138,545 1,306,853 1,445,523 795,108 0 0 0 0 0 0 0 0 0 0 468,852 1,051,183 818,009 973,711 1,295,616 1,784,430 1,138,545 1,306,853 1,445,523 795,108 0 0 0 0 0 0 0 435,636 1,445,523 2,385,378 0 4,927,360 0 0 0 0 0 0 284,647 435,617 722,771 795,108 0 19,996,177 10,802,260 193,282 11,077,830 9,193,917 2,238,143 230 SAGICOR FINANCIAL CORPORATION LIMITED ANALYSIS OF COMMON SHAREHOLDING Common Shareholders by Size of Holding Number of Common Shareholders by Size of Holding as at December 31, 2016 (with 2015 Comparison) Size of Holding Number of Shareholders Percentage of Shareholders Total Shares Held Percentage of Shares Held 1 - 1,000 1,001 - 2,500 2,501 - 5,000 5,001 - 10,000 10,001 - 25,000 25,001 - 100,000 100,001 - 1,000,000 1,000,001 & above 2016 2015 2016 2015 2016 2015 2016 2015 6,476 14,962 6,932 3,922 2,829 644 222 31 6,338 15,012 6,986 3,961 2,878 666 226 26 17.98 41.53 19.25 10.89 7.85 1.79 0.62 0.09 17.56 41.59 3,816,930 3,783,419 24,843,507 24,933,801 19.36 24,040,879 24,239,516 10.97 27,991,237 28,276,741 7.97 1.85 0.63 0.07 40,753,105 41,452,604 29,974,552 31,271,160 62,695,447 66,788,027 90,378,474 83,748,863 1.25 8.16 7.90 9.19 13.38 9.84 20.59 29.69 1.24 8.19 7.96 9.29 13.61 10.27 21.93 27.51 Total 36,018 36,093 100.00 100.00 304,494,131 304,494,131 100.00 100.00 2016 ANNUAL REPORT 231 Common Shareholders by Country of Residence Number of Common Shareholders by Country of Residence and by Type as at December 31, 2016 Country Directors, Management, Staff, Advisors Companies Individuals Total Shareholders Trinidad and Tobago Barbados Eastern Caribbean Other Caribbean Other Total 96 583 104 35 60 878 % 0.27 1.62 0.26 0.10 0.17 2.42 Shareholders 585 248 35 36 5 909 % 1.62 0.69 0.10 0.10 0.01 2.52 Shareholders % Shareholders % 14,725 11,113 6,963 169 1,261 34,231 40.88 30.85 19.33 0.47 3.50 95.03 15,406 11,944 7,102 240 1,326 42.77 33.16 19.72 0.67 3.68 36,018 100.00 Common Shares held by Country of Residence Number of Common Shares Held by Country of Residence and by Type as at December 31, 2016 Country Directors, Management, Staff, Advisors Companies Individuals Total Shares Trinidad and Tobago 2,130,253 Barbados Eastern Caribbean Other Caribbean Other Total 6,662,838 216,500 1,401,703 3,808,800 14,220,094 % 0.70 2.19 0.07 0.46 1.25 4.67 Shares 70,471,865 38,855,889 1,787,965 3,681,588 12,805,249 % 23.14 12.76 0.59 1.21 4.21 Shares 81,087,021 55,355,194 19,617,970 1,312,876 5,298,420 % 26.63 18.18 6.44 0.43 1.74 Shares 153,689,139 100,873,921 21,622,435 6,396,167 21,912,469 % 50.47 33.13 7.10 2.10 7.20 127,602,556 41.91 162,671,481 53.42 304,494,131 100.00 232 SAGICOR FINANCIAL CORPORATION LIMITED ADVI SORS AND BANKER S 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 Conyers Dill & Pearman Limited, Bermuda 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 2016 ANNUAL REPORT 233 OF FICES Sagicor Registered Office Sagicor Life Inc. SAGICOR FINANCIAL CORPORATION LIMITED Sagicor Financial Centre Clarendon House 2 Church Street Hamilton HM11 Bermuda Tel: (441) 295-1422 Fax: (441) 292-4720 Sagicor Corporate Head Office 1st Avenue Belleville, St Michael Tel: (246) 467-7500 Fax: (246) 436-8829 Antigua Sagicor Financial Centre #9 Sir Sydney Walling Highway SAGICOR FINANCIAL CORPORATION LIMITED St John’s Cecil F de Caires Building Wildey, St Michael, Barbados Tel: (246) 467-7500 Fax: (246) 436-8829 Email: info@sagicor.com Website: www.sagicor.com Subsidiaries SAGICOR LIFE INC Cecil F de Caires Building Wildey, St Michael, Barbados Tel: (246) 467-7500 Fax: (246) 436-8829 Email: contactus@sagicor.com Website: www.sagicorlife.com Tel: (268) 480-5550 Fax: (268) 480-5520 Email: info_antigua@sagicor.com Belize Coney Drive Belize City, Belize 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 Sagicor Life Inc Branch Offices Email: info_curacao@sagicor.com Barbados Sagicor Life Inc. Sagicor Financial Centre Collymore Rock St Michael Tel: (246) 467-7500 Fax: (246) 436-8829 Grenada TransNemwil Complex The Villa St George’s Tel: (473) 440-1223 Fax: (473) 440-4169 Email: info_grenada@sagicor.com 234 234 234 SAGICOR FINANCIAL CORPORATION LIMITED SAGICOR SSAAGGIICCOORR FINANCIAL CORPORATION LIMITED St Lucia Sagicor Financial Centre Choc Estate, Castries Tel: (758) 452-3169 Fax: (758) 450-3787 Email: info_stlucia@sagicor.com Trinidad and Tobago Sagicor Financial Centre 16 Queen’s Park West, Port of Spain Tel: (868) 628-1636/7/8 Fax: (868) 628-1639 Email: comments@sagicor.com Sagicor Life Inc Agencies Anguilla Manico Headquarters Cosley Drive, The Valley Tel: (264) 497-3712 Fax: (264) 497-3710 Curaçao Guillen Insurance Consultants P O Box 4929 Kaya E, Salas No 34 Tel: (599) 9 461-2081 Fax: (599) 9 461-1675 Email: chris-guillen@betlinks.an Dominica WillCher Services Inc 44 Hillsborough Street Corner Hillsborough & Independence Streets Roseau Tel: (767) 440-2562 Fax: (767) 440-2563 Coney Drive Business Plaza Malliouhana Anico Insurance Co Ltd St Vincent Sagicor Life Inc. St Lucia Sagicor Life Inc C/o Incorporated Agencies Limited Sagicor Financial Centre Frenches Kingstown Tel: (784) 456-1159 Fax: (784) 456-2232 SAGICOR LIFE (EASTERN CARIBBEAN) INC. Sagicor Financial Centre Choc Estate Castries, St Lucia Tel: (758) 456-1700 Tel: (758) 450-3787 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 INC. P. O. Box 150 Sagicor General Insurance Agencies Beckwith Place, Lower Broad Street HHV Whitchurch & Company Limited Old Street Haiti Cabinet d’Assurance Fritz de Catalogne Angles Rues de Peuple et des Miracles Port-au-Prince Tel: (509) 3701 1737 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, Walter Nisbeth Road #99B Phillipsburg Tel: (721) 542-2070 Fax: (721) 542-3079 Email: capital@sintmaarten.net St Kitts Sagicor Life Inc Bridgetown, Barbados Tel: (246) 431-2886 Fax: (246) 228-8266 Email: sgi-info@sagicorgeneral.com 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 Antigua Sagicor Life Inc Sagicor Financial Centre #9 Sir Sydney Walling Highway St John’s Tel: (268) 480-5555 Fax: (268) 480-5550 Email: info_dominica@sagicor.com P O 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 2016 ANNUAL REPORT 2016 ANNUAL REPORT 2016 ANNUAL REPORT 2016 ANNUAL REPORT 235 235 235 SAGICOR FUNDS INCORPORATED BARBADOS FARMS LIMITED GLOBE FINANCE INC Cecil F de Caires Building, Wildey, St Michael Barbados Tel: (246) 467-7500 Fax: (246) 436-8829 Email: info@sagicor.com Bulkeley St George Barbados Tel: (246) 427-5299 Fax: (246) 437-8873 SAGICOR ASSET MANAGEMENT INC SAGICOR PANAMA SA Shirley House Hastings Main Road Christ Church Tel: (246) 426-4755 Fax: (246) 426-4772 Website: www.globefinanceinc.com Cecil F de Caires Building Wildey, St Michael Barbados Tel: (246) 467-7500 Fax: (246) 426-1153 Email: info@sagicor.com SAGICOR FINANCE INC Sagicor Financial Centre Choc Estate Castries St Lucia Tel: (758) 452-4272 Fax: (758) 452-4279 Trinidad Tel: (868) 628-1636/7/8 Fax: (868) 628-1639 SAGICOR ASSET MANAGEMENT (TRINIDAD AND Email: info@familyguardian.com TOBAGO) LIMITED Sagicor Financial Centre SAGICOR LIFE ARUBA NV 16 Queen’s Park West, Port of Spain Fergusonstraat #106 NATIONWIDE INSURANCE COMPANY LIMITED Email: calico@setarnet.aw Sagicor Financial Centre 16 Queen’s Park West Port of Spain, Trinidad Tel: (868) 628-1636 Fax: (868) 628-1639 Email: comments@sagicor.com 236 236 236 SAGICOR SAGICOR FINANCIAL CORPORATION LIMITED SAGICOR FINANCIAL CORPORATION LIMITED SAGICOR Lyder Insurance Consultants Seroe Blanco 56A Tel: (297) 582-6133 Ave Samuel Lewis y Calle Santa Rita LOJ HOLDINGS LIMITED Edificio Plaza Obarrio 3er Piso Oficina 201 Panama City, Panama Tel: (507) 223-1511 28-48 Barbados Avenue Kingston 5, Jamaica Tel: (876) 929-8920(-9) Fax: (876) 960-1927 CAPITAL LIFE INSURANCE COMPANY BAHAMAS SAGICOR GROUP JAMAICA LIMITED LIMITED C/o Family Guardian Insurance Company Limited No 1 Shirley Street & Village Road P O Box SS-6232 Nassau, NP Bahamas Tel: (242) 393-4000 Fax: (242) 393-1100 AHMO Plaza Building, Suites 1 and 2 Website: www.sagicorjamaica.com Oranjestad, Aruba Tel: (297) 582-3967 Fax: (297) 582-6004 28-48 Barbados Avenue Kingston 5, Jamaica Tel: (876) 929-8920(-9) Fax: (876) 960-1927 Website: www.sagicorjamaica.com SAGICOR LIFE JAMAICA LIMITED 28-48 Barbados Avenue Kingston 5, Jamaica Tel: (876) 929-8920(-9) Fax: (876) 960-1927 SAGICOR LIFE OF THE CAYMAN ISLANDS LTD Global House, 198 North Church Street George Town, Grand Cayman Cayman Islands Tel: (345) 949-8211 Fax: (345) 949-8262 Email: global@candw.ky SAGICOR INSURANCE MANAGERS LIMITED SAGICOR INVESTMENTS JAMAICA LIMITED SAGICOR FINANCE (2015) LIMITED 1st Floor Harbour Place 103 South Church Street George Town Grand Cayman Tel: (345)-949-7028 Fax: (345)-949-7457 SAGICOR PROPERTY SERVICES LIMITED 78a Hagley Park Road Kingston 10 Jamaica Tel: (876) 929-9182 Fax: (876) 929-9187 SAGICOR RE INSURANCE LTD Global House, 198 North Church Street George Town, Grand Cayman Cayman Islands Tel: (345) 949-8211 Fax: (345) 949-8262 Email: global@candw.ky Sagicor Bank Building 60 Knutsford Boulevard Kingston 5, Jamaica Tel: (876) 929-5583 Fax: (876) 926-4385 Email: options@sagicor.com Website: www.sagicorjamaica.com Maples Corporate Services Limited Ugland House South Church Street George Town, Grand Cayman Cayman Islands Associated Companies FAMGUARD CORPORATION LIMITED SAGICOR BANK JAMAICA LIMITED No.1 Shirley Street & Village Road Sagicor Bank Building 60 Knutsford Boulevard Kingston 5, Jamaica Tel: (876) 929-5583 Fax: (876) 926-4385 Website: www.sagicorjamaica.com SAGICOR USA, INC 4010 W. Boy Scout Blvd, Suite 800 Tampa, Florida 33607, USA Tel: (813)-287-1602 Fax: (813)-287-7420 P O Box SS-6232 Nassau, NP Bahamas Tel: (242) 396 4000 Fax: (242) 393 1100 Website: www.famguardbahamas.com RGM LTD Albion Plaza Energy Centre 22-24 Victoria Avenue Port of Spain Trinidad Tel: (868) 625-6505 Fax: (868) 624-7607 SAGICOR INSURANCE BROKERS LIMITED SAGICOR LIFE INSURANCE COMPANY 28-48 Barbados Avenue Fax: (507) 264-1949 Email: capital1@sinfo.net Website: www.sagicorjamaica.com 4010 W. Boy Scout Blvd, Suite 800 Tampa, Florida 33607, USA Tel: (813) 287-1602 Fax: (813) 287-7420 4343 N. Scottsdale Road, Suite 300 EMPLOYEE BENEFITS ADMINISTRATORS LIMITED Scottsdale, Arizona, 85251, USA 28-48 Barbados Avenue Kingston 5, Jamaica Tel: 1-800-531-5067 Fax: (480) 425-5150 Tel: (876) 929-8920(-9) Fax: (876) 960-1927 Website: www.sagicorlifeusa.com Website: www.sagicorjamaica.com 2016 ANNUAL REPORT 2016 ANNUAL REPORT 2016 ANNUAL REPORT 2016 ANNUAL REPORT 237 237 237 

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