Sagicor Financial Company Ltd.
Annual Report 2017

Plain-text annual report

STRENGTH STABILITY TRUST 201 7 ANNUAL REPORT Sagicor Financial Corporation Limited STRENGTH STABILITY TRUST For over 177 years, Sagicor has been a symbol of strength in the Caribbean. Operating in over 23 countries, Sagicor has total assets of $6.8 billion with capital of $932 million. A publicly listed company with over 36,000 shareholders and listed on the Barbados Stock Exchange, the Trinidad & Tobago Stock Exchange and the London Stock Exchange — Sagicor is one of the most highly regulated financial institutions in the Caribbean. It is upon this foundation of stability and trust that we are creating the building blocks of a better future for our team, clients, friends and neighbours. OUR VISION To be a great company committed to improving the lives of people in the communities in which we operate. Our Values Sagicor is Timeless, Borderless, and Colourless. These values speak to the all- encompassing nature of our company, guiding our behaviour, procedures, business decisions and relationships. We are building a company for today, which, while relevant to the current time, will continue to remain relevant for all times. Therefore we will always be innovative and embrace change, never allowing ourselves to become staid or obsolete so that we can retain our edge to compete in the future. Timeless Borderless We view ourselves as members of one organisation, and will not be constrained by any self-imposed physical, intellectual or cultural limitations. We will conduct our business in a way that truly reflects this philosophy. Colourless We conduct our business and interpersonal relationships on that consciously high level which creates an environment characterised by a philosophy of equitable treatment and equal opportunity for all. CONTENTS 06 10 14 18 22 44 58 74 82 96 106 236 About Sagicor Chairman’s Statement Financial Highlights Technology & Innovation Corporate Social Responsibility Human Capital Report Operating and Financial Review Board of Directors Corporate Governance Executive Management Index to the Financial Statements • Financial Statements & Notes Shareholder Information • Advisors & Bankers • Offices 2017 ANNUAL REPORT 3 ABOUT SAGICOR Our name and reputation draw on strength, stability and financial prudence… that is our heritage. Sagicor has followed a carefully crafted business strategy, which has seen the company transform 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. Today, operating in 23 countries, including the USA and Latin America, Sagicor has total assets of US $6.8 billion, and $932 million in capital. The Sagicor Group offers a wide range of products and services including life insurance, annuities and group and individual health, and has an insured base in the region of two (2) million. Sagicor is a widely-held publicly-traded company with over 36,000 Shareholders, and is listed on the stock exchanges of Barbados, Trinidad and Tobago and London. ABOUT SAGICOR SAGICOR – WISE FINANCIAL THINKING FOR LIFE traditional studies and education for those with special needs. “Wise Financial Thinking for Life” is far more than a tagline. It is the heart and soul of Sagicor, and summates why we do, what we do and how we do it. More importantly, it is the reason our clients choose Sagicor and stay with us. Sagicor means “wise judgment” and has derived out of an inspirational framework that has supported the company for 177 years. • Our vision outlines our commitment to initiatives and developments which will enhance the long-term quality of life in the communities in which we operate. From this perspective, we have made health a priority area of our corporate support. As a regional leader in the industry, we lead by example, both within and outside of the organisation. Sagicor’s business is based on long-term relationships with its clients 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 clients throughout their lives. Through local expertise and in partnership with world-class asset managers and reinsurers, together with sound risk management practices, Sagicor is able to provide wise financial advice that meets the needs of its clients. Sagicor provides financial support and voluntary assistance, primarily in the areas of health, education, youth and community development and sports, to a number of organisations and institutions. • We consider the value of education to be immeasurable. We offer strong support across the region to learning institutions from primary to tertiary, catering to • Our footprint spans over 23 countries worldwide. As we grow and develop, our presence is mirrored in each local community. Our support for the growth and development of people and social infrastructure is unwavering. This is a legacy of which we are proud. • Nations and companies alike are built on teamwork and sportsmanship. Sagicor views these traits as character-building, and through our support of sporting events, seeks to nurture their importance across all, races, ages and genders. 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”. 6 SAGICOR FINANCIAL CORPORATION LIMITED 2001 Acquisition of Life of Jamaica in Jamaica and Allnation in the US 2007 OUR HISTORY 1840 Establishment of the Barbados Mutual Life Assurance Society 2000 The acquisition of 23% interest in Life of Barbados 1849 St Vincent branch opened 1858 Branches in Trinidad and Tobago & Grenada opened 1861 St Kitts branch opened 1863 Antigua & Montserrat branches opened 1866 Demerara (Guyana) branch opened 2002 1868 Dominica branch opened 1896 Jamaica branch opened 1987 1993 1994 1996 1997 1998 1999 Mutual Finance Company Ltd established • Acquisition of Travellers Portfolio and the rebranding of Aruba, Bahamas, Belize, Cayman Islands, Curacao, St Maarten and Haiti to Capital Life Establishment of the Mutual Bank of the Caribbean, the first indigenous bank to Barbados Mutual Financial Services and Caribbean Caricard Services established Capital International Management Services established Establishment of Mutual Asset Management Inc and Mutual Funds Inc Acquisition of the Panama branch of Atlantic Southern Insurance Company 2006 Acquisition of Island Life in Jamaica and Nationwide Insurance Company in Trinidad and Tobago. • The acquisition of shares in Life of Jamaica • First AM Best Rating ‘A’ Excellent received by BMLAS and maintained by Sagicor Life Inc Acquisition of majority shares in Life of Barbados. • Resolution for the demutualisation of Barbados Mutual Life Assurance Society was passed. • Conversion from Barbados Mutual Life Assurance Society to Sagicor Life Inc. • The establishment of the holding Company, Sagicor Financial Corporation (SFC). 45,000 policyholders awarded shares as a result of demutualisation. • The Initial Public Offering of Sagicor Shares, increasing shareholders to 49,000 2003 SFC Lists on the Barbados Stock Exchange • Sale of the Mutual Bank 2004 SFC Lists on Trinidad and Tobago Stock Exchange 2005 Acquisition of majority interest in Pan Caribbean Financial Services. • Acquisition of Laurel Life and its wholly-owned subsidiary, American Founders Life Insurance Company in the US • Life of Jamaica acquires Cayman General Insurance • Acquisition of 20% of FamGuard • Acquisition of First Life Insurance portfolio Successful US$150 million Bond Offering on the US market • Sagicor Life Inc assigned a Standard and Poor’s (S&P) financial strength rating of “BBB+” • American Founders Life Insurance Company rebrands as Sagicor Life Insurance Company Limited SFC Lists on the London Stock Exchange • Establishment of Sagicor Europe Ltd • Acquisition of Gerling at Lloyd’s Group in the UK • Gerling at Lloyd’s rebranded as Sagicor at Lloyd’s • Acquisition of Byrne and Stacey Underwriting in the UK Rebranding of Life of Jamaica to Sagicor Life Jamaica Limited • SFC Lists on the Jamaica Stock Exchange • Rebranding of Byrne and Stacey Underwriting to Sagicor Underwriting • Acquisition of controlling interest in Barbados Farms Limited Sagicor Life Jamaica agrees to participate in the Government of Jamaica National Debt Exchange Programme • Sagicor Life acquires the traditional life insurance policies of British American Insurance Company Limited in the Eastern Caribbean SFC sells Sagicor Europe and its subsidiaries to AmTrust Financial Services • Sagicor Group Jamaica enters into a Sale and Purchase Agreement to acquire RBC Jamaica 2008 2012 2013 2014 • Central Bank of Jamaica approves Sagicor Group Jamaica’s acquisition of RBC Jamaica • Rebranding of RBC Jamaica to Sagicor Bank 2015 • Sagicor Celebrates its 175th Anniversary • Successful US $320 million Bond Offering on the international market 2016 SFC redomiciles in Bermuda and the company name is changed to Sagicor Financial Corporation Limited 2017 ANNUAL REPORT 7 CHAIRMAN’S STATEMENT Our guiding principle has always been to act wisely. Wise financial thinking for life is what we do. CHAIRMAN’S STATEMENT US $932.3 million, compared to US $795.4 million in the prior year, an increase of US $136.9 million. Net income attributable to shareholders was US $72.2 million, compared to US $61.7 million in the prior year, an increase of US $10.5 million. Earnings per common share was US 23.7¢, and represented an annualised return on common shareholders’ equity of 13.3% compared to 12.6% for the prior year. Total revenue increased to US $1,220.9 million, compared to the prior year amount of US $1,134.1 million, an increase of US $86.8 million or 7.7%. Net premium revenue reached US $745.6 million, compared to US $664.0 million, an improvement of US $81.6 million or 12.3%. Premium income increased in all segments and benefited from the issuance of a single premium annuity relating to our Jamaica segment. contracts amounting to US $19.8 million, reflecting commissions net of gains due to reinsurers on supporting assets in our USA segment. Exchange gains/(losses) also showed a loss of US $4.2 million, compared to gains of US $12.6 million in the prior year, a reduction of US $16.8 million. Foreign exchange movements were affected by a strengthening of the Jamaica dollar when compared to the United States dollar in 2017, resulting in foreign exchange declines in financial assets denominated in United States dollars in our Jamaica segment. Overall, the company experienced a gain on translation of the Jamaica segment, which is reported in other comprehensive income. In addition, the prior year included exchange gains relating to declines in the Trinidad dollar, when compared to the United States dollar, there was no significant foreign exchange movement, relative to this currency in 2017. Net investment income was US $379.2 million, compared to US $353.4 million in the prior year, an improvement of US $25.8 million and benefited from higher investment gains in our international investment portfolios. Fees and other revenue closed the year at US $93.7 million, compared to the prior year amount of US $116.8 million, a decline of US $23.1 million. There was a reduction in commissions income on insurance and reinsurance Total benefits closed at US $660.8 million, up from the prior year amount of US $560.4 million. The growth in benefits is consistent with that of the growth in premium revenue and partially represents increased provisions for future benefits. Included in benefits were net costs of US $8.5 million relating to claims exposure from hurricane activity during the year, along with an increase of US $14.2 million relating to the impact of the Tax Cuts and Jobs Act rate reduction in the United States, which came into effect in 2017. Dr Stephen D R McNamara, CBE, LLD (Hon) Chairman The Sagicor Group experienced a good performance for the 2017 financial year, with improvement in the key areas of revenue, net income and equity. This performance was in the context of contrasting economic conditions, both regionally and internationally, where Sagicor operates. Regionally, the Caribbean experienced modest economic growth, but continued to engage in fiscal consolidation through various measures of tax increases and public expenditure cuts to reduce high levels of public debt. Internationally, the USA experienced growth, increases in interest rates and a significant, but favourable change in its tax regime for business. Group Net Income was US $115.3 million, compared to US $109.3 million in the prior year, an increase of US $6.0 million. Group Equity was 10 SAGICOR FINANCIAL CORPORATION LIMITED Expenses (including agents’ and brokers’ commissions) closed the year at US $436.4 million, compared to the prior year amount of US $424.2 million, an increase of US $12.2 million. The Jamaica Segment incurred some non-recurring costs, together with higher administration costs relating to the expansion of cards and payments business. Income taxes were US $18.6 million, compared to US $41.7 million in the prior year, a reduction of US $23.1 million. This was principally related to our USA Segment. During 2017 the Tax Cuts and Jobs Act was signed into law in the United States, which reduced the effective corporation tax rate. This contributed to a decrease of US $19.9 million in income taxes and an increase in the provision for future benefits of US $14.2 million in the segment. Group comprehensive income was US $179.3 million, compared to US $96.7 million for the prior year, an increase of US $ 82.6 million. The principal sources of the increase were an improvement in net gains on financial assets of US $18.7 million, resulting from marked- to-market gains on financial assets in our international portfolios, a positive movement of US $38.2 million on retranslation of foreign currency operations, resulting from a gain in the Jamaica dollar when compared to the United States dollar and a positive change in gains/ (losses) on defined benefit plans for employees of US $ 37.8 million. The discontinued operation represents our UK business, which was sold on December 23, 2013. The terms of the sale required Sagicor to retain an interest in the 2011, 2012 and 2013 underwriting years of account, subject to a limit denominated in pound sterling. At the end of 2015, the Company had fully provided for the contingent exposure relating to this business (the limit). During 2017 there were positive developments in this exposure which resulted in net income of US $10.1 million. our financial strength. The current ratings are as follows: In the statement of financial position as at December 31, 2017, assets amounted to US $6.8 billion, compared to US $6.5 billion in the prior year. Liabilities closed at US $5.9 billion, compared to US $5.7 billion in the prior year. Sagicor’s Group equity totalled US $932.3 million, compared to US $795.4 million in the prior year; an increase of US$136.9 million. The Group’s debt, which is included in other liabilities, was US $413.8 million. The debt to capital ratio was 30.7%, down from 33.2% for the prior year. Sagicor has voluntarily adopted the Canadian international capital standard, “Minimum Continuing Capital and Surplus Requirements” (MCCSR), and has been following this standard since 1991. The MCCSR seeks to demonstrate to policyholders and shareholders the capital strength of the life insurance companies of the Group, as a measure of its ability to meet its long-term obligations. Canadian regulators expect insurance companies to maintain an MCCSR ratio of 150% and Sagicor has consistently maintained a ratio above 175%. As at the end of the year our MCCSR Ratio was 258%. Sagicor is listed on the Barbados Stock Exchange, The Trinidad and Tobago Stock Exchange and the London Exchange. We comply with the rigorous requirements of these exchanges. Sagicor is rated on an annual basis by AM Best, Standard and Poor’s Global Ratings, and Fitch Ratings. We have been rated by AM Best since 1998, S&P since 2006 and Fitch since 2015. These ratings are an independent measure of • AM Best - “A-“ Excellent • S&P - BB- stable • Fitch - B stable Sagicor has embarked on a programme to provide relief from the recent hurricanes. To date, Sagicor has made a financial contribution of US $300,000, as well as the provision of goods and services. Consistent with our vision to improve the lives of the people in the communities in which we operate, key initiatives include a school feeding programme to students, a mobile medical clinic and assistance to the regional airline, LIAT. We have also partnered with The University of the West Indies to host a Celebrity T20 Cricket Hurricane Relief Benefit to raise additional funds for the islands which have suffered significant damage during the passage of hurricanes Irma and Maria in 2017. During 2018, the Sagicor Group will continue to work on the corporate re-organisation to respond to the changing regulatory environment, while we continue to pursue opportunities for growth. On behalf of the Board of Sagicor, I wish to thank our shareholders and customers for their continued support. Stephen McNamara Chairman April 4, 2018 2017 ANNUAL REPORT 11 FINANCIAL HIGHLIGHTS We earn the trust of our clients by delivering a solid performance. FINANCIAL HIGHLIGHTS SHAREHOLDER RETURNS Amounts in US$ millions unless otherwise stated NET INCOME 1 COMMON DIVIDENDS 62 60 75 60 45 30 15 0 15 14 18 12 6 0 BOOK VALUE PER SHARE Amounts in US cents 204 177 300 200 100 0 2017 2016 2017 2016 2017 2016 1 from continuing operations Basic earnings per share 1 20.4¢ 19.5¢ Return on shareholder’s equity 1 11.3% 12.3% 2017 2016 NET INCOME1 REVENUE BENEFITS GROUP RESULTS 1 105 108 125 100 75 50 25 0 1,221 1,134 1500 1000 500 0 661 561 1000 500 0 2017 2016 2017 2016 2017 2016 1 from continuing operations 14 SAGICOR FINANCIAL CORPORATION LIMITED ASSETS 1 OPERATING LIABILITIES EQUITY & DEBT CAPITAL (TOTAL CAPITAL) GROUP FINANCIAL POSITION Amounts in US$ millions unless otherwise stated 6,805 6,532 8000 6000 4000 2000 0 5,469 5,341 8000 6000 4000 2000 0 1,346 1,190 1500 1000 500 0 2017 2016 2017 2016 2017 2016 1 from continuing operations 2017 2016 Debt to Capital 30.7% 33.2% MCCSR 258% 249% SAGICOR LIFE INC - NET INCOME SAGICOR GROUP JAMAICA- NET INCOME SAGICOR USA - NET INCOME SEGMENT RESULTS 80 60 40 20 0 63 64 100 94 90 50 0 13 11 20 10 0 2017 2016 2017 2016 2017 2016 2017 2016 Revenue 421 411 Assets 1,953 1,928 2017 2016 Revenue 592 524 Assets 2,836 2,674 2017 2016 Revenue 159 149 Assets 1,982 1,901 2017 ANNUAL REPORT 15 TECHNOLOGY & INNOVATION Investing in technology to bring real value to our clients. TECHNOLOGY & INNOVATION DIRECT TO CONSUMER Direct to Consumer is a programme that introduces innovative change to our industry. Initially designed for the US marketplace, SagicorNow is a new way for consumers to secure life insurance. It is a fast, fully online experience. US consumers can obtain life insurance coverage up to US $1,000,000 on term or up to US $250,000 on whole life in just 20 minutes. With SagicorNow, getting life insurance has never been easier. This initiative will be rolled out to the Caribbean in 2018. Sagicor’s investment in Information Technology (IT) is a key component in supporting customer satisfaction, growth, and profitability goals. Sagicor’s IT strategy is focused on accelerating all facets of our business and enhancing our reputation for quality. The following are a few of 2017’s technology highlights. ELECTRONIC APPLICATION At Sagicor USA, the new Accelewriting platform is a state-of-the-art automated underwriting system for Simplified Issue products. Recognised by Celent as the winner in the Digital and Omnichannel category, the technical platform provides real-time underwriting decisions within minutes. Building on the successful introduction in the US, this capability was deployed across all Sagicor territories in the Southern Caribbean. Its real-time underwriting brings the value of insurance to our customers. In the Caribbean context, the total elapsed time required to create an insurance application, and move it through the entire review and approval process is experiencing reductions of up to 50%, with additional improvements to come. MOBILE APPLICATION Sagicor Go is a new service that enables customers to access their policy information as well as general information on insurance from smartphones and tablets. Available in Apple’s App Store and Google’s Play store, Sagicor Go allows customers and policyholders to view details and balances for life insurance policies, view general product information, and locate a Sagicor branch. 18 SAGICOR FINANCIAL CORPORATION LIMITED CORPORATE & SOCIAL RESPONSIBILITY We are honoured to support the people and places in our communities. CORPORATE & SOCIAL RESPONSIBILITY raise awareness of prevalent gynaecological diseases and the importance of regular screening. Persons were further engaged with an online social media campaign, resulting in an additional $10,000 being raised towards the purchase of additional equipment for the hospital’s gynaecological unit. HEALTH SAGICOR LIFE INC, BARBADOS HEALTHY CARIBBEAN COALITION PARTNERSHIP In May 2017, Professor Sir Trevor Hassell, President of the Healthy Caribbean Coalition (HCC) presented the organisation’s Strategic Plan 2017 – 2021 to its major funder, Sagicor. The Plan assessed the work of the organisation and regional NGOs, and also put forth strategies on how to better combat non-communicable diseases (NCD’s) over the next five years. Since 2008, the HCC has worked primarily with regional, non-governmental organisations (NGOs) to align civil society action with the mandates of the Port–of-Spain Declaration, which was ratified to address the NCD epidemic affecting the Caribbean. September 2017 marked the 10th anniversary of the Declaration. BREAST CANCER AWARENESS PINK WEEK In October, as the Barbados Cancer Society marked Breast Cancer Awareness month, Sagicor did its part to raise awareness by encouraging women to undergo breast examinations. During “Pink Ribbon Week” the Mobile Breast Health Clinic was hosted by Sagicor Life Inc’s Collymore Rock office in Barbados, and both staff and customers were encouraged to visit and receive free manual breast examinations from nurses who also provided guidance on the technique and stressed the importance of early detection. SAGICOR LIFE INC & SAGICOR GENERAL INSURANCE INC, BARBADOS GLOBE-A-THON 5K WALK & RUN TO END GYNAECOLOGICAL CANCERS Sagicor was the title sponsor of this initiative in 2017, launching the event with a donation of ultrasound equipment to the Queen Elizabeth Hospital’s Gynaecological Cancer & Diagnostic Unit. The equipment had been purchased with funds raised from the previous year’s event. Held on the first Sunday in September, the event saw over 2,000 Barbadians complete the five kilometer course through the island’s capital, Bridgetown to help SAGICOR GROUP JAMAICA SAGICOR SIGMA CORPORATE RUN The first quarter of the year saw the 19th staging of the Sagicor Sigma Corporate Run with a record 25,320 participants, raising over USD $387,596 in cash and kind. Proceeds were divided among three beneficiaries. Medical equipment valued at USD $170,542 was presented to the Spanish Town Hospital Special Care Unit and the Mandeville Regional Hospital Neonatal Intensive Care Unit in November and December, respectively, while the handing over ceremony for the Bethlehem Home for Abandoned Children, is slated for late 2018. Proceeds from the event also funded a number of refurbishment projects, improving the ambiance at all three locations, and a much-needed vehicle was purchased for The Bethlehem Home for Abandoned Children. COMMUNITY HEALTH TOUR In keeping with its health mandate, the Sagicor Foundation impacted eight parishes in Jamaica with its annual Community Health Tour. Utilising the Sagicor Mobile Wellness Units, the exercise aims to provide basic and essential healthcare services to Jamaicans who ordinarily are neither able to access, nor afford them. Free health checks were provided to over 6,000 persons, inclusive of blood pressure, blood sugar and blood cholesterol tests, as well as vision and eye checks. SICKLE CELL DONATION In August, the Sagicor Foundation donated JAD $2 million to support the Sickle Cell Trust in its research efforts, enabling the continuation of a research project that had generated much awareness about the disease some years ago. KEEPING ABREAST LUNCHEON In October, the Sagicor Foundation also continued its support of the Jamaica Cancer Society’s premier fundraiser, the annual “Keeping Abreast” luncheon, which honours cancer survivors. Sagicor’s support was given in both cash and kind. Held during Breast Cancer Awareness Month, proceeds helped support the Cancer Society’s ongoing programme of screening and education. In previous years, funds raised have also been used to assist women undergoing cancer treatments. 22 SAGICOR FINANCIAL CORPORATION LIMITED SAGICOR LIFE INSURANCE COMPANY, TAMPA, USA WALK TO CURE ARTHRITIS Sagicor was once again a General Sponsor of the Walk to Cure Arthritis, held in May by the Tampa Bay chapter of the Arthritis Foundation. The Walk to Cure Arthritis takes place annually in a number of cities throughout the United States and the proceeds help fund research aimed at finding a cure for the condition, America’s leading cause of disability. This was the 9th consecutive year for Sagicor’s corporate support of the event, with a further $2,745 being raised by staff who were inspired to form a team and participate in the walk. Sagicor was recognised as being the #1 Corporate Fundraising Team for 2016, taking the spotlight during the Night of Heroes Awards Reception at the picturesque Westshore Yacht Club in July. 1 2 3 4 1. Ready Set Go! Participants at the 19th staging of the 2017 Sagicor Sigma Corporate Run in Jamaica. 2. Journalist Janet Silvera (left) gets a health check from nurse Marlene Cox on the Sagicor Foundation’s Health Tour in St James, Jamaica. The Sagicor Mobile Unit toured across the island, doing free health checks at nine (9) Sagicor locations. 3. Team Sagicor, recognised as the #1 Corporate Fundraising Team at the Walk To Cure Arthritis in Tampa. 4. Sagicor Foundation presents its JAD $2 million donation to the Sickle Cell Trust’s former Chairman, Professor Graham Serjeant. 2017 ANNUAL REPORT 23 EDUCATION SAGICOR LIFE INC, BARBADOS SAGICOR ADOPT-A-SCHOOL Sagicor continued its Adopt-A-School programme, offering support to eleven primary schools across the island. Assistance was offered to students, parents and teachers in the areas of financial and personal mentorship, and beautification projects included renovations to the schools’ surroundings. Supplies and stationery were also provided over the course of the school year, and students benefitted from a special campaign promoting good health and nutrition. 1 2 GIRLS IN INFORMATION COMMUNICATION TECHNOLOGY (ICT) DAY - CARIBBEAN HACKATHON Sagicor recognised April 27, 2017 as “Girls in Information Communication Technology (ICT) Day”. A Gold Sponsor of the Barbados segment of the Caribbean Hackathon, Sagicor Life Inc sponsored a team of students for the event, which was held simultaneously in Jamaica and Trinidad. Participants were young women from various Barbadian secondary schools and the University of the West Indies, Cave Hill, and they assembled at the Sagicor Cave Hill School of Business and Management to learn more about current areas of technology and participate in activities such as app development, coding and programming. HEALTHY BODY INITIATIVE In June, an initiative to raise awareness of childhood obesity and its physiological consequences was rolled out to students participating in the Sagicor Adopt-A-School programme. Each adopted school was given health- related activity books at the start of the new year, and were encouraged to start health clubs for their students. Later in the school year, a full day of activities was held at the Usain Bolt Sports Complex at the University of the West Indies (UWI), with the ultimate hope of inspiring a new generation of young athletes and sports enthusiasts. Under the guidance of the UWI Academy of Sport’s professional coaches, the students participated in cricket, football and track and field drills and were given tours of the newly built facilities, before wrapping up the day with a seminar on diet and nutrition. 1. Representatives from Sagicor Life Eastern Caribbean Dominica with recipients of the Student Education Grants. 2. Children from the Adopt-A-School initiative presented with their Healthy Body Books. 3. GSAT and tertiary scholarship recipients at the Sagicor Scholarship Awards Ceremony. 24 SAGICOR FINANCIAL CORPORATION LIMITED aims to foster greater understanding and appreciation of the region’s deep- sea environment. It is based on the experiences of Dr Judith F. Gobin, lecturer in the Department of Life Sciences, the University of the West Indies, St Augustine, and part of the team of the EV Nautilus. SAGICOR GENERAL INSURANCE INC, BARBADOS WORKMANS PRIMARY During an address at the 2017 graduation ceremony of Workmans Primary School, Sagicor congratulated all the students and teachers of the St. George institution for their outstanding performance over the past year, and pledged continued support for the school. Held at Sunbury Great House, the graduation event was sponsored by Sagicor General Insurance Inc in keeping with the group’s mandate to give back to the community. Having adopted the school, Sagicor staff joined with partners, teachers and parents to complete several projects, including the upgrade of bathrooms at the school. SAGICOR GROUP JAMAICA SAGICOR SCHOLARSHIP AWARDS The Sagicor Foundation disbursed over US $155,039 in awarding sixty-eight exemplary secondary students with new scholarships in 2017. Thirty-seven of them were rewarded for exceptional performance in the national Grade INNOVATE BARBADOS Sagicor supported a seminar entitled “Imagine Tomorrow – The Blue Flame Challenge”, as part of the Barbados Investment & Development Corporation’s annual Innovate Barbados conference. The conference examined novel strategies and concepts needed to propel Barbados forward in the areas of Renewable Energy, Health, Wellness and Wellbeing, Creative Industries and Cuisine. In the Sagicor-sponsored segment, young people were challenged to imagine what Bridgetown 2025 would be like in terms of accessibility, commerce, food security, green space, transportation, energy, infrastructure, waste management and security. SAGICOR LIFE (EASTERN CARIBBEAN) INC, DOMINICA STUDENT EDUCATION GRANTS At the beginning of the school year, twelve students whose parents were Sagicor policyholders were rewarded for their hard work during the previous term. Education grants of EC $500 were presented to the six students advancing from primary to secondary school, while grants of EC $1,000 were presented to the six students advancing to college. The grants encouraged continued excellence in their academic endeavours. SAGICOR LIFE (EASTERN CARIBBEAN) INC, ST KITTS & NEVIS PUBLIC LIBRARY READ-A-THON Over the Easter school break, the Charles A. Halbert Public Library in St. Kitts & Nevis hosted a Read-A-Thon for children and Sagicor donated prizes in the form of gift certificates from a local book store. Students were encouraged to read as many books as possible, and their recall and understanding of what they read was evaluated. SAGICOR LIFE INC, CURACAO GIVING BACK TO BONAM In September 2017, Sagicor donated 10 laptops to the Bonam Homework Centre, replacing computer equipment previously stolen from the centre. In keeping with its commitment to education, Sagicor staff partnered with the team at the Bonam Centre to offer a computer literacy programme, and volunteered to give their time on a weekly basis over a six-month period. SAGICOR LIFE INC, TRINIDAD & TOBAGO DEEP SEA WONDERS OF THE CARIBBEAN In January 2017, Sagicor was a proud sponsor of the ‘Deep Sea Wonders of the Caribbean’ educational video series and book, produced by the National Institute for Higher Education, Research, Science and Technology. The series 3 2017 ANNUAL REPORT 25 Six Achievement Test (GSAT), while thirty-one others received awards for their academic performance, community involvement, volunteerism, strong leadership potential and financial need. The GSAT scholarship recipients included children of clients, team members and members of the Jamaica Defence Force. Scholarships were also awarded to the 2017 Champion boy and girl from the Jamaica Teachers’ Association/Sagicor National Athletics Championship. Receiving almost US $2,000 each per year to cover tuition fees, the tertiary scholars were selected from some of Jamaica’s top institutions, including the University of the West Indies; University of Technology Jamaica; Mico University College; the Caribbean Maritime Institute; Northern Caribbean University; University of the Commonwealth Caribbean, and the Edna Manley College of the Visual and Performing Arts. ADOPT-A-SCHOOL Sagicor Foundation’s Adopt-a-School programme was re-launched in October in the child-friendly and festive Jamaica Pegasus Ballroom. This initiative aided infrastructural improvements at three rural basic schools, all with an aim of creating a comfortable environment for the toddlers. The newly adopted schools were the Haughton Grove Early Childhood Institution in Hanover, the AME Basic School in Clarendon, and the D’Frank Early Childhood Institution in Manchester. The Foundation hosted various activities at the schools throughout the academic year, and during the Christmas season the students were feted and given toys. Students from other adopted schools across the island were also given Christmas treats. READING IS COOL In May, during Child month, the Sagicor Foundation once again staged its second “Reading is Cool” event at the Hope Zoo, working in partnership with Lasco. Over 150 children from seven early childhood institutions and primary schools across Jamaica enjoyed a day of fun, frolic and ‘edutainment’. The students, aged five to twelve, hailed from the Bath Early Childhood Institution, Westmoreland; Glendevon Primary & Junior High School, St. James; Maranatha Basic School, Kingston; New Day Primary School, Kingston; Rollington Town Primary School, Kingston; Small Treasures Child Care, Kingston; and Treadlight Primary School, Clarendon. 1. A student from the AME Basic School greets Christopher Zacca, President and CEO of Sagicor Group Jamaica, while Chairman of the Sagicor Foundation, R Danny Williams looks on during the launch of the 2017/2018 Sagicor Foundation Adopt-a School programme. 2. Students from Small Treasures Daycare are deeply interested in the story being read by Sherika Nelson, a Sagicor team volunteer at Sagicor’s ‘Reading is Cool’ event. 26 SAGICOR FINANCIAL CORPORATION LIMITED 1 2 3 3. PCA Scholarship recipients with Bart Catmull (left), President and Chief Operating Officer, Sagicor USA, during the cheque presentation at the start of the Tampa Bay Rays vs Kansas City Royals Major League Baseball game. SAGICOR LIFE INSURANCE COMPANY, TAMPA, USA POSITIVE COACHING ALLIANCE Sagicor is a founding member of the Tampa Bay Chapter of the Positive Coaching Alliance (PCA), a non-profit organisation dedicated to developing better athletes and better people by providing resources to high school coaches, parents, administrators and student-athletes. In February, the PCA of Tampa Bay hosted a Triple-Impact Competitor® Scholarship event in downtown Tampa, following which, twenty-five high school student-athlete seniors from the area were selected as finalists and introduced to their designated PCA mentors. The inclusion of PCA mentors is a new component of the scholarship program. In May, an on-field presentation was held before the start of the Tampa Bay Rays vs Kansas City Royals Major League Baseball game, during which Sagicor presented a cheque for US $50,000 to cover awards of $2,000 each for the 25 PCA scholarship finalists. Following the presentation, the scholarship recipients, their families, and friends watched the game from a fully hosted hospitality suite. STEP UP FOR STUDENTS Sagicor was once again a proud partner of “Step Up for Students”, contributing US $100,000 in tax-credited contributions to expand opportunities for underprivileged families across Florida. Seventeen scholarships were funded for the 2016-2017 school year in support of a state- approved non-profit Scholarship Funding Organisation that helps administer both the Personal Learning Scholarship Account (PLSA) for special needs students, and the Florida Tax Credit Scholarship Programme, which is an income-based scholarship. Demand for these scholarships remains high in Florida, due in a large measure to the effectiveness of the programme. LUAU, LUNCH AND LOOT The ‘Tropical Team’ from Sagicor’s Tampa office hosted a Luau-style feast and 50/50 raffle, raising US $851.19 for the Hillsborough County Education Foundation. Luau guests dressed in tropical attire befitting the theme, while enjoying music and games throughout the celebration BT WASHINGTON HOLIDAY PARTY Sagicor held its annual holiday party for the third-grade class of BT Washington Elementary at the public library next door to the school. Sagicor staff members started the day by packing up gifts for the children, transporting them and then decorating the library ballroom where the party was held. Later in the day, the staff served lunch to approximately 105 students and their teachers, also organising a DJ for entertainment. 2017 ANNUAL REPORT 27 HILLSBOROUGH EDUCATION FOUNDATION In July, staff from the Tampa office spent time at the Hillsborough Education Foundation’s Teaching Tools Store which provides free school supplies to economically disadvantaged students attending designated Title I schools. Currently, 149 of the 263 public and charter schools in Hillsborough County qualify for the Title I designation and the store served 140 of them. The Teaching Tools Store is stocked with donations from the community, using dedicated volunteers to sort donations, stock shelves and assist teachers in procuring supplies to take back to their classrooms for the children. SAGICOR LIFE INSURANCE COMPANY, PHOENIX, USA SAGICOR INTERNSHIPS Sagicor continued its annual Actuary Internship programme, recruiting Jeremy Ryan and Kimiko Inouye in 2017. They both attended the ASU Actuarial Science Career Day in February as part of a wider recruitment campaign, with Jeremy representing Sagicor on a panel of actuarial analysts who shared their experiences in starting careers in Phoenix. Other Sagicor representatives interacted with students as well, promoting the benefits of interning with Sagicor. Sagicor interns from previous years who also took part in the event included Shea Ingram (Sagicor intern Fall 2015); Hieu Tran (Sagicor intern Fall 2016); and Julie Tang (Sagicor intern Spring 2016). Jeremy Ryan is now a full-time Sagicor Actuarial Analyst. ARIZONA LUTHERAN ACADEMY FUNDRAISING GALA In March, Sagicor became a first-time sponsor of the Arizona Lutheran Academy’s (ALA) 6th Annual Benefit Gala, which provides tuition assistance and supplies non-budgetary items for the high school. Donated items such as gift baskets, craft beer, wine, dream vacation packages and a tour of the Samuel Adams Brewery in Boston were auctioned and outright donations were also made, helping the charitable event to raise nearly US $40,000. The gala was considered a tremendous success. ANNUAL BACK TO SCHOOL CLOTHING DRIVE Thirty-six employees from Sagicor’s Scottsdale and Mesa Riverview offices donated over two hundred and sixteen hours to the annual Back to School Clothing Drive for children of low-income families, held at the Grand Canyon University Arena. During the event, staff assisted with registering students and distributing badges; stuffing and distributing backpacks; escorting students through the various departments; and serving as “personal shoppers” to ensure that shoes and clothing items fit each student. The recipients were children from the area, ranging from kindergarten through sixth grade. 28 SAGICOR FINANCIAL CORPORATION LIMITED 1 2 ADOPT-A-CLASSROOM SCOTTSDALE Staff from the Scottsdale office had their annual Adopt-a-Classroom event, visiting a second-grade class at the Wilson Elementary School in downtown Phoenix. Sagicor spent approximately US $90 on each student, enabling each one to receive toys from their ‘Wish List’ to Santa along with clothes, a coat or jacket, and a pair of shoes and socks. During the event, the pupils received a snack and juice box while listening to Santa read stories. Most of the students at Wilson are from low income families and some are homeless, and each year Sagicor volunteers eagerly await the children’s letters so that they can begin shopping. 3 4 1. Volunteers from Sagicor’s Tampa office sorting stock for the Hillsborough Education Foundation’s Teaching Tools Store. 2. Students trying out their new laptops donated by the Giving Back to Bonam initiative in Curaçao. 3. School Children are assisted by a Sagicor volunteer at the annual Back to School Clothing Drive in Arizona. 4. Sagicor Interns at the ASU Actuarial Science Career Day in Arizona. 2017 ANNUAL REPORT 29 YOUTH & COMMUNITY DEVELOPMENT SAGICOR LIFE INC, BARBADOS CLASSICAL BEST OF YOUTH CONCERT Sagicor’s investment in youth development and culture in Barbados was demonstrated through its sponsorship of the “Classical Best of Youth Concert V” event in December. Organised by the Rotary Club of Barbados South, this was the fifth installment of the classical music concert and was entitled. “Pan and A Minor”. Musical selections by the Barbados National Youth Symphony Orchestra were featured, along with those from a number of trained vocalists and steel pannists. SAGICOR LIFE (EASTERN CARIBBEAN) INC, ST LUCIA TELEVISION TRIBUTE TO GOVERNOR GENERAL OF SAINT LUCIA In March, Sagicor sponsored the television premiere of a locally-produced biography on Dame Pearlette Louisy, Governor General of St Lucia. At the time of her retirement on December 31, 2017, Dame Louisy was the longest serving Governor General in the Commonwealth. The television programme aired on four local stations, and was also broadcast over additional stations in the region, the United States and the United Kingdom. SAGICOR LIFE (EASTERN CARIBBEAN) INC, DOMINICA PHENOMENAL WOMAN In January, Sagicor participated in the 8th Phenomenal Caribbean Women Symposium, held in Cabrits National Park. This occasion provided a unique opportunity for Sagicor representatives to engage participants, and share financial solutions available to them in their professional environment. SAGICOR LIFE (EASTERN CARIBBEAN) INC, CURAÇAO VILLA HELENA In December, Sagicor helped the Villa Helena guest house to complete work on their greenhouse. Villa Helena provides accommodation for people with mental and/or physical disabilities, enabling them to receive short-term care away from home thereby giving their caregivers a brief respite. Through the efforts of Sagicor staff, a brick path was installed, a water-resistant wooden table was built, and fruits and vegetables were planted. Staff also cleaned a birdcage and donated new birds, bringing joy to residents of the guest house. 30 SAGICOR FINANCIAL CORPORATION LIMITED 1 2 SAGICOR GROUP JAMAICA LABOUR DAY On May 23rd more than 400 Sagicor volunteers were involved in various Labour Day projects across the island. The teams successfully enhanced the learning environment in ten schools, undertaking structural repairs to buildings; fencing; painting; landscaping, and generally beautifying the compounds. Projects were completed at Bigswood Primary School, Mountainside District, St. Elizabeth; Rollington Town Primary School, Kingston; Colin’s Close Basic School, Kingston; D’Frank Early Childhood Institute, Greenvale, Mandeville, Manchester; May Pen Unit for the Deaf, May Pen, Clarendon; Montego Bay Autism Centre, Montego Bay, St. James; Vision Academy, Tucker District, Montego Bay, St. James; Naggo Head Primary School, Portmore, St. Catherine; Chantilly Gardens Early Childhood, Chantilly Gardens, Savanna-Lar-Mar, Westmoreland, and Ocho Rios Primary School, Ocho Rios, St. Ann. RELAY FOR LIFE In July, the Jamaica Cancer Society’s annual Relay for Life event was supported, with more than 300 Sagicor team members and their relatives numbering among the participants. The event recognises and pays tribute to cancer victims and survivors, fostering awareness about the disease. The event was held at the Police Officer’s Club. IMAGINE AWARDS The inaugural “Sagicor Imagine Awards” were introduced in 2017 to assist promising young Jamaican entrepreneurs who either own an existing business, or who have developed a new business idea. It aimed to encourage creativity and entrepreneurial aptitude and entrants were asked to submit a well-articulated business plan outlining their business idea or concept, growth strategy and the funds required. Winners were presented with trophies and money to invest in their businesses. First place winner, Invitokens received a Sagicor Bank SME account valued at JAD $500,000, while second place winner, Billodex Limited received JAD $300,000. Third place finisher Castor Field Farms received JAD $150,000. The contestants made pitches to a judging panel which included some of Jamaica’s leading business minds, such as Sagicor Group Jamaica’s former President and CEO, Richard Byles, and Chairman Emeritus R Danny Williams. 2017 ANNUAL REPORT 31 3 SAGICOR LIFE INC & SAGICOR GENERAL INSURANCE INC, TRINIDAD AND TOBAGO FLOOD RELIEF Sagicor Life Inc and Sagicor General Insurance partnered to launch “Our Brother’s Keeper”, a campaign devoted to assist families affected by the unprecedented rains and floods that affected southern and north-eastern Trinidad during the week of October 15th. The initiative saw care packages of cleaning supplies being delivered later that month to 160 families in the affected communities of Avocat, Vega de Oropouche, Sangre Grande, and Mayaro. 1. A Sagicor staff member pots soil to begin replanting the greenhouse at Villa Helena. 2. Volunteers from Sagicor’s Trinidad office handing over a cleaning supplies package to Sangre Grande residents affected by floods. 3. Team Sagicor excitedly complete laps around the track at the 2017 staging of Relay for Life. JAMAICA ASSOCIATION FOR THE DEAF The Sagicor Foundation also donated JAD $4 million to the Jamaica Association for the Deaf (JAD) in September, helping to establish a scholarship fund in honour of the late Herbert Hall. Hall served the association for over 50 years prior to his death last year. Having also served as chairman of the JAD in the 1960’s, Hall is widely recognised as one of the insurance industry’s stalwarts, having co-founded Life of Jamaica, now Sagicor Life Jamaica. SAGICOR LIFE INSURANCE COMPANY, TAMPA, USA CATHOLIC FOUNDATION EVENT The Tampa Career Agency participated in the Tampa Bay Catholic Foundation’s, “A Gift from the Heart” celebration. The purpose of the event was to raise scholarship funds for the benefit of students attending Tampa Bay area Catholic Schools. A formal dinner and presentation was held at the Hilton Hotel in Downtown Tampa, featuring Herm Edwards, former NFL star and current sports announcer, as the keynote speaker. The Tampa Career Agency worked with the Catholic Foundation to provide Sagicor products to those parishioners who made donations to the church. pallets of sod and planting various shrubs to adorn the property. The Jeon- Kim family, originally from North Korea, was scheduled to move into their new home at the end of the month. One early October morning, a team of Sagicor staff members also helped Habitat for Humanity by doing some landscaping and touch ups on the new home being prepared for Leo Mejia on Kesler Lane. The team shoveled piles of stones, dug holes for plants, installed and repaired irrigation and covered the front yard with landscaping rocks. Over six trees and several plants were installed. Work was also done in the kitchen, where painting was done, and a new countertop and vent covers installed. JOHNS HOPKINS ALL CHILDREN’S HOSPITAL Each year Sagicor staff members join with Rays players to conduct a series of hospital visits to the Johns Hopkins All Children’s Hospital in St. Petersburg, Florida, giving away Sagicor-branded baseball pillows on each occasion. Rays players also take the opportunity to give out autographed baseball cards to the young patients. These “Kids Spirit Day” visits bring smiles to the brave young patients and are always appreciated by the parents and hospital staff. HABITAT FOR HUMANITY In June, a group of volunteers from the Tampa office met at a Habitat build site in the Citrus Park area of the city to work on the future home of the Jeon-Kim family. The home was approaching the final stages of construction and the team of Sagicor volunteers focused on landscaping, laying seven In May, Sagicor staff members joined with Tampa Bay Rays shortstop Daniel Robertson and catcher Wilson Ramos for the first of the year’s four hospital visits. The second visit took place in June, where Rays pitchers Tommy Hunter and Danny Farquhar, along with Raymond the mascot, visited with children, parents and staff for approximately two hours. During this visit, some patients 1 2 32 SAGICOR FINANCIAL CORPORATION LIMITED received complimentary Rays’ tickets, and Tommy Hunter played some make- shift baseball with an eager young patient anxious to show off her skills. On the third occasion, shortstop Matt Duffy, outfielder Mikie Mahtook and Raymond the mascot were accompanied by Sagicor staff members, spending approximately two hours at the hospital. Mahtook made special visits to children who had recently undergone bone marrow transplants, donning a fresh disposable gown, mask and rubber gloves before entering each room. In August, the Rays made their final visit for the year, and Sagicor staff members, Rays pitchers Nathan Eovaldi and Jake Faria made their rounds in the hospital, leaving gifts, autographs, and big smiles with the patients, families, and nurses. Raymond the mascot posed for selfies with Faria and friends, while Eovaldi interacted with as many patients as possible, while observing the strict no-contact policies. 4 In December, Sagicor participated in the 10th Annual “US 103.5 FM Cares for Kids” radiothon, raising a total of $406,488 for the Johns Hopkins All Children’s Hospital. The 2017 event saw several Tampa staff members working the phone banks, accepting donations and pledges from callers. One Sagicor employee went on air to present the company’s $10,000 donation, also taking the opportunity to talk about Sagicor and its community activities. This was the ninth consecutive year that Sagicor had participated in either the hospital’s telethon or radiothon, donating an accumulated total of $90,000. The hospital is part of the Children’s Miracle Network. 3 Tampa staff members attending their Sagicor holiday party were asked to donate an unwrapped gift appropriate for a teenager. The gifts were then delivered to Johns Hopkins All Children’s Hospital just before the holidays and added to other gifts being collected by the hospital for distribution to patients on Christmas Day. RAYS PARTNER LUNCH Sagicor is a proud partner of the Tampa Bay Rays, and as Sagicor’s largest partnership, the Tampa Bay Rays provides Sagicor with consistent exposure for seven months out of the year. The Tampa Bay Rays hosted a Partner Lunch aboard the Yacht StarShip, which featured an address by Rays President, Brian Auld. He thanked the attendees for their partnerships and gave an update on what might be expected from the team moving forward. A Q&A session followed, and there was a meet-and-greet with players Steven Souza Jr., Chase Whitley and Álex Colomé. The highlight of the event came when a member of the Sagicor team had the winning raffle ticket and was presented with the top prize of a baseball jersey signed by former Rays third baseman Evan Longoria. 1. Team Sagicor under instruction for the landscaping of a home for the Jeon-Kim Family as part of a Habitat for Humanity Project. 2. Sagicor Group Jamaica’s President and Chief Executive Officer, Christopher Zacca (left) and Sagicor Foundation Chairman, R Danny Williams (second left) present a cheque for JAD $4 million to Iris Soutar, Executive Officer at the Jamaica Association for the Deaf and Christopher Williams (right), Chairman of the Jamaica Association for the Deaf. 3. Tampa Bay Rays player, Nathan Eovaldi, sharing a warm hug during a visit to Johns Hopkins All Children’s Hospital. 4. Team Sagicor USA at the Rays Partner Lunch. 2017 ANNUAL REPORT 33 the ‘Bagel Blowout’ in the second week. As an added bonus to buying the delicacies, for every dollar donated, participants chose a raffle ticket from one of six different raffle options. HABITAT FOR HUMANITY All Sagicor locations in the USA are active in their local Habitat for Humanity chapters. Over the years, volunteers have performed many different jobs and the tradition was continued in April, when staff worked on a new-build project of three-story townhouses, wearing hard hats and carrying hammers and electric drills. Their task for the day was to install dry-wall on various levels of the units. SALVATION ARMY WATER DRIVE ‘Team 2’ from the Scottsdale office raised money for the Salvation Army Water Drive through its 50/50 raffle, with the grand prize winner taking home half of the pot. USD $1,024 was collected as a result of the raffle, with USD $512.00 being donated to the Salvation Army. The Salvation Army’s Extreme Heat Emergency Project was launched in the summer of 2005, after a prolonged heat wave resulted in the deaths of twenty people in the Metropolitan Phoenix area. During the summer months, eleven hydration stations were set up to provide bottled water, sunscreen, moisturiser with SPF, lip balm, hats, bandanas, cooling towels and sun safety information for the homeless and less fortunate. Monetary donations were also provided through the project. 1 TAMPA CHAMBER OF COMMERCE Tampa Career Agents attended a networking reception organised by the Tampa Chamber of Commerce to honor the contributions of senior enlisted members of the military residing in the area. A member of the Chamber of Commerce, Sagicor purchased ten tickets to support the event, held on the MacDill Air Force Base. For each civilian ticket purchased, a senior enlisted member received a complimentary ticket. METROPOLITAN MINISTRIES In August, a group of Tampa staff made its way to Metropolitan Ministries to sort a warehouse full of donated school supplies and prepare back-to-school packs for local low-income Hillsborough children. The Sagicor volunteers ensured the quality of the items and assisted with the distribution to those in need. 99.5 WQYK GUITAR PULL Sagicor was a sponsor of the 3rd annual Guitar Pull concert presented by Tampa country radio station, 99.5 WQYK FM at the Straz Center for the Performing Arts in downtown Tampa. The Guitar Pull was a unique concert experience, featuring a host of artists on stage at the same time, taking turns performing songs and swapping stories about the unique experiences they have had during their careers. Featured artists included Big & Rich, Jon Pardi, Chris Jenson, Joe Nichols, High Valley and Danielle Bradbery. As part of its sponsorship, Sagicor provided free valet parking for the first 500 persons arriving by car, and Tampa Career Agents were able to promote Sagicor and its products prior to the show and during intermission. Sagicor also organised a draw, with the prize being a free Martin Guitar autographed by the performers. COMMUNITY SERVICE WALL The Tampa office recently established a community service wall to highlight the corporate and social responsibility activities undertaken in their community. Displayed on the wall were certificates and plaques presented to Sagicor for its participation in various community events and its corporate donations to organisations. Another feature of the wall was a collection of photos featuring staff members involved in community service projects. SAGICOR LIFE INSURANCE COMPANY, PHOENIX, USA BREAKFAST BONANZA STAFF FUNDRAISER The Scottsdale office kicked off their staff fundraising efforts with a series of breakfast-themed events. The ‘Sagicor Bakery Store’ team offered Dunkin Donuts and homemade cookies during the first week of March, followed by 34 SAGICOR FINANCIAL CORPORATION LIMITED PHOENIX CHILDREN’S HOSPITAL GIVE-A-THON Now in its 17th year, the annual Phoenix Children’s Hospital (PCH) Give-A- Thon remains the top fundraiser of its kind in the whole country, successfully collecting over US $1.66 million in donations over a nineteen-hour period. Sagicor maintained its usual support to PCH in 2017, donating both funds and volunteer time to the event. Staff from the Scottsdale office volunteered to work as greeters, also manning the phone bank, answering calls and taking donations. The funds raised were donated to the hospital’s Hope Fund which helps finance research projects, new clinical programmes and technology. It also enables the hospital to recruit world-renowned physicians, funds child- and family-friendly services and provides healthcare to children in the community who are in need. PHOENIX CHILDREN’S HOSPITAL GOLF TOURNAMENT Sagicor was a proud sponsor of the 19th Annual Phoenix Children’s Hospital Golf Tournament Fundraiser. The tournament was a 4-person scramble with fun activities at every hole. Additionally, Sagicor sponsored a hole to help in support of this great cause. 2 3 SAGICOR LIFE INSURANCE COMPANY, OKLAHOMA, USA OKLAHOMA REGIONAL FOOD BANK Volunteers from the Oklahoma City office gave two days of service to the Oklahoma Regional Food Bank, helping to assemble meals for the Food Bank’s Kids Café. Students across the Oklahoma City metro area enrolled in after-school programmes received meals from the Kids Café, representing more than 37 percent of the Regional Food Bank’s emergency food recipients. In previous years, the Regional Food Bank’s Food for Kids programme distributed almost 3 million meals to more than 37,700 children. 1. Sagicor USA’s Community Service Wall in the Tampa office. 2. Team Sagicor Arizona at the Phoenix Children’s Hospital Give-a-Thon. 3. Sagicor volunteers from the Oklahoma office at the Regional Food Bank. 2017 ANNUAL REPORT 35 SPORT SAGICOR LIFE INC, BARBADOS UNIVERSITY OF THE WEST INDIES (UWI) GAMES In May 2017, Sagicor sponsored the 2017 University of the West Indies (UWI) Student Games at the Usain Bolt Sports Complex. The nine days of competitive events, in which the region’s top student athletes showcased their talents, attracted hundreds of athletes, officials and supporters from across the Caribbean. NATIONAL SPORTS COUNCIL SUMMER CAMP During the months of July and August, the Barbados National Sports Council once again hosted a Sagicor sponsored summer camp for children aged eight to sixteen, offering over twenty sports disciplines at various locations across the island. The camp featured workshops and special visits, and in 2017 there was a special session with former Barbadian Olympian and swimmer, Lani Cabrera. Cabrera, who represented Barbados at the 2016 Summer Olympics in Rio, Brazil, shared her journey to the Olympics with enthusiastic campers, stressing the importance of setting goals, sacrifice and determination to achieve one’s dreams. Campers also benefited from a session with recognised sports nutritionist, Kimberley Rudder, who educated the children about proper diet and nutrition. NATIONAL SPORTS COUNCIL YOUTH BASKETBALL TOUR Sagicor provided financial support to assist twenty-four junior basketballers in reaching their fund-raising goal so they could attend the Dwight & Sheryl Howard Foundation Basketball Summer Camp in Atlanta, Georgia. Participants in the National Sports Council’s basketball development programme, the junior players received training, mentorship and personal enrichment during the seven day summer camp which was founded by the parents of current NBA player, Dwight Howard Jr. Although the National Sports Council covered part of the cost, additional fund-raising efforts had to be undertaken to meet the full cost of the trip. SAGICOR LIFE (EASTERN CARIBBEAN) INC, ST KITTS & NEVIS INTERSCHOOL ATHLETIC CHAMPIONSHIPS Sagicor continued its commitment to youth athletics with the sponsorship of the 41st edition of the Inter-School Championships at the Kim Collins Stadium in St Kitts. Top secondary school athletes competed, as close to 431 athletes from twelve tertiary and secondary institutions came together to create the 36 SAGICOR FINANCIAL CORPORATION LIMITED largest inter-school event ever to take place in the twin-island nation. The annual athletic competition is the preeminent national event for amateur student athletes in the federation. SAGICOR LIFE INC, BELIZE SAGICOR PHOENIX WALK AND RUN In September, the Sagicor Phoenix Walk/Run was held, with the 5K course beginning and ending at Sagicor’s offices at Coney Drive, Belize City. The event supported both the Kidney Association of Belize, and the Belize Diabetes Association, giving participants an opportunity for personal rejuvenation. The event also served to sensitise Belizeans to ways to avoid kidney disease, while also promoting proper management and care of persons living with diabetes. SAGICOR LIFE INC, TRINIDAD & TOBAGO SAGICOR ST ANDREWS TOURNAMENT The Sagicor St Andrews 17th Invitational Golf Tournament took place in April, attracting over 100 golfers to the greens. Proceeds from the event supported the Downs Syndrome Family Network (DSFN), whose focus is on providing parents or caregivers of persons with Downs Syndrome with the resources, support and answers they need to educate and develop the full potential of these individuals over their lifetime. 1 2 3 1. Olympian swimmer, Lani Cabrera, with swimming students at the National Sports Council Summer Camp in Barbados. 2. Athletes sprinting for the finish line at the Interschool Athletic Championships in St Kitts. 3. The Sagicor management team flank the winners of the seven flights of the two-day Sagicor St Andrews Invitational Golf Tournament in Trinidad. 4.. And they’re off! Runners at the starting line for the second annual Phoenix Walk Run, outside Sagicor’s Coney Drive office, Belize City. 4 2017 ANNUAL REPORT 37 SAGICOR PHOENIX WALK AND RUN In April 2017, thousands participated in the second annual Sagicor Phoenix Walk and Run which raised TTD $100,000 for the Dyslexia Association and the Downs Syndrome Family Network, with each charity receiving $50,000. His Worship, The Mayor of Port-of-Spain, Joel Martinez, blew the starting horn for the one lap around the Queen’s Park Savannah. Runners were treated to lighting displays and the sounds of tassa and steelpan at various points along the route, SAGICOR JUNIOR LAWN TENNIS TOURNAMENT In June, Sagicor continued its sponsorship of the 15th Sagicor Junior Lawn Tennis Tournament at the Trinidad Country Club, Maraval, where more than 90 junior players took part. 1 2 RED STAR UNDER-10 TOURNAMENT Sagicor hosted the fourth annual Red Star under-10 Tournament, in addition to the Junior Lawn Tennis Tournament. This competition is an introductory beginners’ tournament, whereby the siblings of participants from the junior competition are encouraged to enter. SAGICOR GROUP JAMAICA JTA/SAGICOR PRIMARY, ALL-AGE AND JUNIOR HIGH CHAMPIONSHIPS Through a partnership with the Jamaica Teachers’ Association (JTA), the Sagicor Foundation provided approximately US $62,015 in sponsorship toward the 34th staging of the Primary, All-Age and Junior High School National Athletics Championships. An energetic, two-day athletics competition, the June meet allowed over 1200 students in fifty-two track and field activities to showcase their athletic prowess at the National Stadium. Sagicor also provided over 200 team member volunteers to ensure the smooth execution of the two- day event, with the Sagicor Foundation offering two five-year scholarships at the secondary level to the Champion boy and girl of the meet. SAGICOR LIFE INSURANCE COMPANY, TAMPA, USA RAYS FAN FEST As a major sponsor of the Tampa Bay Rays, Sagicor featured prominently during their annual Fan Fest at Tropicana Field, drawing approximately 20,000 fans. In addition to Sagicor’s branded signage behind-the-plate, in the concession stand and on the outfield wall, Sagicor also conducted the “Salute to Education” in-game promotion, while the Tampa Career Agents in the Sagicor-branded tent registered individuals for their chance to win an autographed Kevin Kiermaier game jersey, major league baseball memorabilia, 38 SAGICOR FINANCIAL CORPORATION LIMITED 3 and Sagicor-branded items. Sagicor sponsored other aspects of the Fan Fest, such as the Coaches’ Clinic, the High Five Station and a Run the Bases competition. LIGHTNING BOLT RUN Sagicor was the proud sponsor of the Tampa Bay Lightning’s 16th Annual Bolt Run in March, which saw approximately 2,200 runners taking part in the 5K, 5 Mile, and 1 Mile Family Fun events. Career Agents Morris Windless and Magnos Beckett represented Sagicor at the event, manning the Sagicor-branded tent and giving out Sagicor branded foam hockey pucks and water bottles. They also were available to discuss Sagicor products and services with interested persons. Proceeds from the race were shared between the Lightning Foundation and local charities. Runners enjoyed a post-race party on the arena’s plaza and received tickets to the Lightning’s NHL Hockey game played later that evening. 1. Host, Sunny Bling, engages runners and walkers at the Sagicor Phoenix Walk Run, at the Queen’s Park Savannah, Port-of-Spain. 2. A young tennis player gets ready to return a volley during the 14th edition of the Sagicor Junior Tennis Tournament in Trinidad. 3. The Sagicor Booth at the Rays Fan Fest, Tropicana Field in Tampa. 4. Young athletes race to the finish line at the JTA/Sagicor National Athletic Championships in Jamaica. 5. Tampa Career Agents engaging visitors to the Sagicor Booth before the 16th Annual Lightning Bolt Run. 4 5 2017 ANNUAL REPORT 39 GOLFING WITH THE KNIGHTS OF COLUMBUS Sagicor supported the Knights of Columbus charitable golf outing, raising funds to support the less fortunate in the community. The outing raised over $10,000 and an initial $5,000 cheque was provided to the St Vincent de Paul charitable organisation, one of the groups supported by the fundraising. BIG LEAGUER FOR THE DAY During April, two members of Sagicor USA were in a group of approximately 50 Tampa Bay Rays corporate sponsors, and participated in what has become the annual “Big Leaguer for a Day” event. Participants experience a day in the life of a Major League ballplayer, starting off by dressing out in an official Tampa Bay Rays uniform, complete with their last name on the back of the jersey. Throughout the day, the group visited several skills stations where they benefitted from hitting drills; batting practice; pitching; fielding pop- ups and fly balls in the outfield, and taking infield grounders. After a lunch of traditional ballpark food favourites, the participants were divided into teams and played a game just like the pros. SAGICOR LIFE INSURANCE COMPANY, PHOENIX, USA SAGICOR KICKOFF KID For the fifth consecutive year, Sagicor partnered with Arizona State Football to sponsor the Kickoff Kid contest which saw one young Sun Devil fan, between six and twelve years old, receive tickets to the game, as well as a t-shirt and an autographed football. The lucky winner also got the privilege of running onto the field and retrieving the kicking tee after the opening kickoff. They were also featured on the big video board in the stadium. 1 1 Sagicor USA’s Laura Morrison, Vice President Sales, and Shaun Williams, Chief Financial Officer, became Big leaguers for the day compliments of the Tampa Bay Rays. 2. (l-r) Professor Sir Hilary Beckles, Sagicor Financial Corporation Limited Director; Donald Austin, President and Chief Executive Officer, Sagicor Life (Eastern Caribbean) Inc; J Edward Clarke, Sagicor Life Inc Chief Operating Officer and General Manager; and Brenton Hilaire, Sagicor Life Inc Dominica Agency Manager presenting US $100,000 for hurricane relief. 3. Dominican patrons proudly wearing their national colours at the Celebrity Tournament. 40 SAGICOR FINANCIAL CORPORATION LIMITED SAGICOR FINANCIAL CORPORATION LIMITED CELEBRITY T20 CRICKET HURRICANE RELIEF BENEFIT In November, the University of the West Indies, Cave Hill Campus, and Sagicor Financial Corporation Limited came together to host the Celebrity T20 Cricket Hurricane Relief Benefit in aid of the many Caribbean islands which suffered significant damage during the passage of hurricanes Irma and Maria. continued its destructive path to the Turks and Caicos Islands and the northern border of Haiti, as well as the southeastern islands of the Bahamas. Then, the category 5 Hurricane Maria descended on Dominica on September 18. Guadeloupe, St. Kitts and Nevis, the Virgin Islands, Puerto Rico, the northeastern coast of the Dominican Republic, and the southeastern Bahamas were all impacted. Among the participating celebrities were cricketers Fidel Edwards, Sulieman Benn, Dwayne Smith, Floyd Reifer, Vasbert Drakes, Tino Best, Ian Bradshaw, Dale Richards, Daren Ganga, Rayad Emrit, Ramnaresh Sarwan, Curtly Ambrose, Franklyn Rose and Yohan Blake. Vice-Chancellor of the UWI, Professor Sir Hilary Beckles also played on the Sagicor-UWI Icons side. The match was held at the Sagicor 3W’s Oval at the UWI Cave Hill Campus in Barbados, and saw the Prime Ministers’ XI play against a Sagicor-UWI Icons XI. While admission was free, members of the public were asked to give generously by making cash donations at the match. Funds raised were directed towards the rebuilding of hospitals and schools in the affected Caribbean countries. During the first week of September, Hurricane Irma hit Anguilla, Antigua and Barbuda, Cuba, the Virgin Islands, and St. Maarten/St Martin. The system 2 3 This partnership was one initiative of a larger two-phased approach to response efforts by The UWI. Phase 1, or the “rapid response” phase was largely concentrated on the deployment of relief aid and experts to assist in the areas of greatest need as identified by the impacted states, in conjunction with the Caribbean Disaster Emergency Management Agency (CDEMA), and regional Heads of Governments. Phase 2, or the “recovery and rehabilitation phase”, focuses on the mobilisation of funding and expertise to assist in the restoration of these affected islands, with special priority, from The UWI perspective, on the sectoral areas of education and healthcare. 2017 ANNUAL REPORT 41 HUMAN CAPITAL REPORT We manage our people to ensure we achieve our productivity and strategic goals to better serve our clients. ORGANISATIONAL TRANSFORMATION The Human Resources Committee of the Board of Directors and Executive Management continued to guide organisational transformation through several projects and new initiatives. At the Executive Management level, the Sagicor Group completed the following successful transitions, driven by retirements, regional transfers and new talent acquisitions. CHANGING OF THE GUARD SAGICOR LIFE INC, SOUTHERN CARIBBEAN Mr Richard Kellman retired as Group Chief Operating Officer with responsibility for Sagicor Life Inc Southern Caribbean on December 31, 2017, a position he had held since November 2009. During the past eight years, he provided entrepreneurial leadership, guidance and oversight of the Sagicor Group of Companies, while serving as a member of the Executive Committee and member of the Board of Directors of Sagicor Financial Corporation Limited. He will continue to serve on the Board of Sagicor Financial Corporation Limited. Mr Ravi Rambarran was appointed to the post of Group Chief Operating Officer with responsibility for Sagicor Life Inc Southern Caribbean on January 1, 2018. He first joined the Sagicor Group of Companies in 1997 in Jamaica, where he held senior management positions with Sagicor Life Jamaica Limited. A Director on the Sagicor Life USA Board since 2008, he was previously the Appointed Actuary of the Subsidiaries, the Group’s President and Chief Executive Officer - International Division, and most recently, the Executive Vice President-Corporate Strategy and Investor Relations at Sagicor Financial Corporation. SAGICOR GROUP JAMAICA LIMITED. Mr Richard Byles retired as President and Chief Executive Officer of Sagicor Group Jamaica Limited on April 30, 2017, having held the post since 2004. Under his leadership the Group evolved through a series of acquisitions, the most recent being the purchase of the banking operations of RBC Royal Bank Jamaica. Mr Byles will continue to serve as the Chairman of Sagicor Group Jamaica Limited, replacing Dr the Hon R. Danny Williams who was subsequently appointed Director Emeritus on June 1, 2017. Mr Byles is also Chairman of the Board of Sagicor Real Estate X-Fund, and serves as a Director on the Boards of Sagicor Investments Jamaica Limited, Sagicor Life Jamaica Limited, and Sagicor Bank Jamaica Limited. Mr Christopher Zacca was appointed to the post of President and Chief Executive Officer at Sagicor Group Jamaica Limited, effective May 1, 2017. Highly respected in the private sector in Jamaica, he has held senior management positions at Desnoes and Geddes, ATL Group, and Air Jamaica Limited. He has also had two stints as the President of the Private Sector Organisation of Jamaica, with the most recent term ending in 2014. Mr Donovan Perkins retired as President and Chief Executive Officer of Sagicor Bank Jamaica Limited, following a career spanning some 25 years in the industry. He will continue to serve on the Board of Sagicor Bank Jamaica. Other Executive and Key Senior Management Appointments Brand Experience at Sagicor Financial Corporation Limited. She was formerly Vice President-Group Marketing with Sagicor Group Jamaica Limited. Rohan Miller has been appointed to the post of Head of Treasury with Sagicor Financial Corporation Limited. He has formerly served as the President and Chief Executive Officer at Sagicor Investments Jamaica Limited. and Sagicor Real Estate X-Fund Limited, and as the Chief Investment Officer at Sagicor Group Jamaica Limited. Nari Persad has been appointed to the post of Group Chief Actuary with Sagicor Financial Corporation Limited, where he will assume leadership of actuarial functions in the USA and Southern Caribbean. SAGICOR LIFE INC Christian Pasea was promoted to the post of Vice President - Finance at Sagicor Life Inc, Trinidad and Tobago, with responsibility for Financial, Regulatory, Investment and Management Accounting. SAGICOR GENERAL INC Keston Howell was appointed to the post of President and Chief Executive Officer of Sagicor General Insurance Inc, on October 1, 2017. Patrick Hinkson was appointed to the post of Chief Financial Officer at Sagicor General Insurance Inc, Barbados, with effect from November 1, 2017. TRANSFORMATIONAL PROJECTS SAGICOR FINANCIAL CORPORATION LIMITED. Ingrid Card has been appointed to the post of Vice President–Corporate Communications and TECHNOLOGY: SAGICOR SUCCESS PROJECT In 2017 the Human Resources Departments across the Sagicor Group of Companies implemented 44 SAGICOR FINANCIAL CORPORATION LIMITED an upgrade to the existing Sagicor Success Performance Management System, introducing an additional platform, Employee Central. This upgrade to the Human Resource Information Management System will permit greater operating efficiency, advancing the move towards a paperless environment as team member records are conveniently stored online. This will result in increased data reliability, make information on skills gaps and employees’ achievements more accessible, and allow for a more strategic focus from the Human Resources Team. Team recognition should also be positively impacted as management will have access to more complete employee profiles. FLEXIBLE WORKING ARRANGEMENTS The workplace flexibility pilot program at Sagicor Life Insurance Company continued during 2017. As a result, workplace arrangements could be influenced as technology and the evolving workspace influence how, where and when work is performed. CHANGE MANAGEMENT INITIATIVES Sagicor Life Inc Southern Caribbean, partnered with the University of the West Indies Sagicor Cave Hill School of Business and Management to conduct a series of Change Management Workshops in support of the organisation’s transformation initiative – Sagicor Next. The initiative aims to provide fora that enhance communication and feedback on the implementation of change and its impact on our people and our business, therefore strengthening commitment, engagement and personal performance within Sagicor as we look to the future. A Change Management Committee chaired by Keston Howell, formerly the Executive Vice- President and General Manager for the Dutch Caribbean and Central America, steered the first phases of this project, but by the end of year, Robert Trestrail– Executive Vice President and General Manager in Trinidad and Tobago, had assumed the chairmanship. Workshops will continue in 2018, as this project moves into a new phase. EMPLOYEE ENGAGMENT Employee Opinion Surveys were facilitated by the Life Office Management Association (LOMA) in 2017, yielding impressive ratings for Sagicor Life Inc, Southern Caribbean, Sagicor USA and Sagicor Group Jamaica. The surveys were confidential examining: • Company image, organisational commitment and job satisfaction, to assess overall satisfaction with the company and jobs. • The degree to which employees are involved in the functioning of the organisation. • Leadership provided by Executive Management and by direct Supervisors. • The degree of recognition and satisfaction with salary and benefits. • The degree to which employees feel the company is a good place to work in terms of demands placed on them and the more general company environment in which they work. Survey results for Sagicor Life Southern Caribbean indicated a satisfaction rating of 74.12%, reflecting a 2.3% increase over the last survey. Within this group, Sagicor Life Eastern Caribbean achieved top scores in all measured dimensions, increasing its ratings by 6.36% in the satisfaction index as compared to the last survey. Sagicor USA earned a satisfaction rating of 80.16%, an 1.88% increase compared to the previous survey report, while Sagicor Group Jamaica recorded a satisfaction rating of 78.6%, an increase of 1.2% over the previous year. Notably, this was the highest rating ever achieved by Sagicor Group Jamaica in the annual LOMA Team Member Opinion Survey, with increased levels of satisfaction in all variables of the survey, particularly in the area of Company Image and Recognition. The survey results provided valuable feedback from employees, and will guide the development of employee engagement initiatives and corporate branding programmes into 2018 and beyond. ANNUAL MEETINGS Companies throughout the Sagicor Group held their Annual “Kick-off” meetings in the new year, gathering employees and Sagicor Advisors to review the past year’s performance and present strategies for the upcoming year. Branded with such motivational themes as “Dare to Soar”, “Blast Off” and “Sagicor Strong”, the upbeat meetings featured presentations from energised motivational speakers, executives and other business leaders who shared inspirational stories and success strategies to help individuals shape their personal plans for the new year. A distinctive feature of some of the meetings in the Southern Caribbean was a fireside chat with Mr Ravi Rambarran, newly appointed Group Chief Operating Officer with responsibility for the Southern Caribbean. 2017 ANNUAL REPORT 45 NEW CORPORATE UNIFORMS New Sagicor corporate uniforms were issued in 2017 to company employees in Barbados, Trinidad, the Eastern and Dutch Caribbean, and Central America. PEOPLE DEVELOPMENT SAGICOR GROUP OF COMPANIES The Sagicor Group of Companies saw the delivery of a robust talent development program during 2017, reflecting its commitment to world- class learning and development interventions to increase productivity and engagement. In Barbados, 301 team members were certified under the Competency Based Training Fund project which was funded by the Inter-American Development Bank and the Government of Barbados. Participants received training in the areas of Customer Service, Management, Leadership and Business Communication. Certification in the areas of Time Management, Stress Management and Conflict Management was also achieved by an additional group of 429 participants. The introduction of a full business curriculum for the Sagicor University at the Sagicor Cave Hill School of Business in Barbados, and a scholarship programme is planned for 2018. SAGICOR GROUP JAMAICA In Sagicor Group Jamaica, the Learning and Development Unit developed and facilitated “#Creating Smiles,” a client experience course which directly aligns with the Client Experience Group Strategy. Their Middle Managers’ Development Programme provided accelerated leadership skills for participants, equipping them to meet the strategic goals of the Organisation. A new cross-training initiative also led to forty-three employees successfully transitioning into new opportunities. SAGICOR LIFE INC TRINIDAD AND TOBAGO In Sagicor Life Inc Trinidad and Tobago, 199 Sagicor Advisors were introduced to the Electronic Application Platform, an innovative automated application system. In addition, 400 staff and advisors were better equipped to manage internal and external customer encounters following their participation in the Priority You Customer Focus Programme. The company also developed a full curriculum comprising 120 business programmes for staff in 2017, which covered such topics as Performance Management, Financial Empowerment, Time Management and Entrepreneurial Skills, and Sagicor programmes and The new Sagicor Corporate Uniforms 46 SAGICOR FINANCIAL CORPORATION LIMITED initiatives such as the Sales Cycle and Crossroads Pre-Management Programmes. - Associate of the Society of Actuaries (ASA) SAGICOR GENERAL INSURANCE INC Sagicor General Insurance Inc introduced a new slate of corporate cultural standards and associated behaviours to its companies in in Barbados, Trinidad and Tobago, Antigua and St. Lucia. The five cultural standards are (1) Service Excellence, (2) Teamwork, (3) Accountability, (4) Urgency and (5) Integrity, and will be reflected all regions, to inspire consistency in corporate behavior and align employees with strategic objectives. Leadership development was the focus of in- house training initiatives for the leadership team. Some of the topics covered were Employee Engagement and its link to critical business outcomes, Managing for Results, Managing Performance and Goal-setting. Key Performance Indicators to be achieved by successful leaders were also shared. Sagicor General Insurance Inc continued to invest in the enhanced industry knowledge of its people through various general insurance certification programme s. Notable professional achievements in 2017 included: SAGICOR GENERAL INSURANCE INC 1. Elizabeth Alleyne - Fellow, Life Management Institute (FLMI) 2. Ingrid Brathwaite - Fellow, Life Management Institute (FLMI) 3. Liesl Gajadhar - Fellow, Life Management Institute (FLMI) 4. Nathalia Smith - SHRM Certified Professional (SHRM-CP) 5. Michael Hoffman - Fellow, Life Management Institute (FLMI) 6. Michael Morrison ENGAGING TOMORROW’S LEADERS YOUNG MILLENNIALS INITIATIVE The year began with Sagicor Group President and Chief Executive Officer Mr Dodridge Miller hosting a series of highly engaging and interactive meetings for the company’s young millennials under the theme, “Engaging Tomorrow’s Leaders Today”. Facilitated by the Sagicor Cave Hill School of Business, the sessions provided our millennials with a historical perspective of the company’s development, and provided an opportunity for the future managers and leaders to put forth ideas pertaining to Sagicor’s business, products and systems transformation. This pilot programme precedes the launch of the new “Sagicor Young Leaders Initiative” planned for the second quarter of 2018, which will hopefully inspire the millennials as they decide on and shape their own careers. PRO-MILLENNIAL MENTORSHIP SOCIETY The Pro-Millennial Mentorship Society was launched by Sagicor Group Jamaica in March 2017. The Society’s membership now exceeds two hundred millennials (aged 18-35) across the Group. The strategic objective is the development of a team of the company’s young leaders, with members benefitting from mentorship by Sagicor leaders as they become more adept in Financial Management, Personal Branding, Leadership, Communication and Interpersonal Skills. Community Service is also important, and the Society is required to undertake a project annually that will add value to Sagicor Group Jamaica. SUMMER MENTORSHIP PROGRAMME Also in Jamaica, the Sagicor Summer Mentorship Programme welcomed two-hundred and seventy-four (274) 6th-form high school and Participants of the Summer Mentorship Programme. university students. The programme provided robust professional development experience, coupled with workshops on managing emotional intelligence, teambuilding and strategies for critically assessing and leveraging their skills and business competencies. Twenty-seven (27) of the participants have since returned to fill vacant roles in the Company. MILLENNIALS ENGAGEMENT COMMITTEE Sagicor General Insurance Inc established the Millennials Engagement Committee and the Engagement Committee; both Committees play a critical role in providing feedback on initiatives to be rolled out, and are champions of the organisational cultural changes being introduced. 2017 ANNUAL REPORT 47 INTERNSHIP PROGRAMMES Sagicor Group Companies in Barbados, Trinidad and Tobago and the USA supported summer internships for five young Caribbean students under the 2017 Student Programme for Innovation in Science and Engineering (SPISE). The SPISE programme targets gifted Caribbean secondary school students interested in studying and exploring careers in disciplines related to Science, Technology, Engineering and Math (STEM), and is open to students of most Caribbean countries as well as those of Caribbean descent residing in the United Kingdom. SPISE is an integral part of the partnership between the Caribbean Science Foundation and the University of the West Indies, Cave Hill Campus in Barbados. Funding for the SPISE Sagicor Visionaries Challenge also continued, with five tertiary students receiving awards. Sagicor Life Inc Chief Operating Officer and General Manger for Barbados, Ed Clarke, with staff at the Millenials workshop for “Engaging Tomorrow’s Leaders Today”. 48 SAGICOR FINANCIAL CORPORATION LIMITED 1. Quilee Simeon is a St. Lucian student who has completed an Associate Degree in Natural Sciences at the Sir Arthur Lewis Community College in Castries, St. Lucia, where he made the Dean’s List and Honor Roll. He began his studies in Neuroscience at the Massachusetts Institute of Technology (MIT) in the Fall of 2017. 2. Kyra-Akilah Richards is a Dominican student who has completed an Associate Degree in Chemistry, Physics and Biology at the Dominica State College. She will begin studies in Medicine (Pathology) in 2018. 3. Kamau Bridgeman is a Barbadian who received a Barbados Scholarship in 2015. He is currently studying Electrical Engineering at the University of Toronto, Canada. 4. David Serrant is a Trinidadian student currently enrolled at the University of the West Indies, St. Augustine Campus. He is studying Mechanical Engineering and expects to complete his degree in 2018. 5. Obe Joseph is a Dominican student who is pursuing a Bachelor of Science degree in Industrial Engineering at the State University of New York at Buffalo, and anticipates graduating in May of 2019. SAGICOR EXPERIENCE INTERNSHIP PROGRAMME The Sagicor Experience Internship Programme is now in its fourth year, and continues to support and develop talented, bright university graduates with at least a Bachelor’s Degree. The Programme offers valuable work experience and helps build confidence, and make a seamless transition to the workforce. The interns were placed in twenty- eight (28) different departments across all five (5) divisions, while aligning them with opportunities in sync with their career goals. The current cohort of 31 interns benefitted from multiple training sessions and meaningful work experiences during the invigorating three-month programme, which culminated at the end of December. A Showcase and Mingle event was also held, where the interns were organised into seven (7) groups and asked to present their ideas on how to make Sagicor a stronger organisation. BARBADOS COMMUNITY COLLEGE STUDENT INTERNSHIPS Sagicor Life Inc continued its partnership with the Barbados Community College, providing internship opportunities to students in the College’s Divisions of Computer Studies and Commerce. Students from the Division of Health Sciences who were enrolled in the Health Information Management programme also participated. These internships allowed students to gain practical work experience, and in some instances, satisify prerequisites for the completion of their Associate Degrees. SAGE TOASTMASTERS YOUTH LEADERSHIP PROGRAMME The SAGE Toastmasters Club, based at the Sagicor Corporate Centre in Barbados, successfully organised its inaugural Youth Leadership Programme, hosting 25 students between the ages of 10 and 17 years. The programme focused on building self- confidence and improving both written and oral communication skills. 2017 HEART TRAINEE PROGRAMME The Sagicor Life Jamaica Group continues its partnership with HEART Trust NTA which provides employment opportunities for young Jamaicans. Graduates from these programs provide a strong pool of talent to support the Group’s recruitment strategy. RECOGNISING EXCELLENCE 2016 AWARDS HIGHLIGHTS Barbados The Annual Awards ceremony in 2017 recognized the outstanding performance of the following team members: Janice Mullin-Sargeant - Most Outstanding Sagicor Advisor – Sagicor Life Inc - Barbados Janice Mullin Sargeant captured four (4) awards, the President’s Trophy for the fifth consecutive year; the Honour Club Diamond; the 100 Club; and the D.W. Allan Production Award. Nadia Chandler-Guy - the Manager of the Year award; Samanta Pinder - the Employee of the Year award; Russel Campbell - the Contributor of the Year award; and Gillian De Roche-Austin - the Pioneer of the Year award. The Leading Agency award in Barbados was won by the Nana Agency. 2017 ANNUAL REPORT 49 Trinidad and Tobago Sagicor General Inc - Eastern Caribbean Contributor of the Year 2016 – Jason Edwin Sagicor General Inc - Trinidad and Tobago Asha Nabbie, Manager of the Year; Sergio Smith – Employee of the Year; and Marlon De Leon – Agent of the Year Sagicor General Inc - Barbados Sagicor General Inc - Lisa Mahabir – Manager of the Year and Garvin Ali – Employee of the Year Employee of the Year 2016 – Andrea Evans and Pioneer of the Year 2016 – Yvonne Griffith 50 SAGICOR FINANCIAL CORPORATION LIMITED Sagicor Life Eastern Caribbean Inc Caril Archibald- Employee of the Year SAGICOR GROUP AWARDS: Outstanding performance is also recognised at the Sagicor Group level. The coveted Sagicorian Awards are presented in two categories, to an outstanding Manager and non-managerial employee. The Contributor and Pioneer awards are presented for personal performance, Customer service and for innovation and creativity. Jennifer Tross-Clarke received the President’s Trophy. This award is given to an Advisor who is a member of the Diamond Club, or a member of the 100 club who also won the leading advisor case count and NAC awards. Asha Nabbie – The Sagicorian – Group Manager of the Year Asha Nabbie was a Marketing Manager at Sagicor Life Inc in Trinidad and Tobago, who among other things, created a high-performance environment, challenging her reports to excel, and worked assiduously to collect and collate a myriad of documents from the relevant departments, both in Barbados and Trinidad as Project Co-ordinator for an important acquisition. She was an instrumental business partner on critical projects for product development and research, as well as projects related to her substantive role. She supported the development of two creative sales and reinstatement campaigns, which resulted in improved persistency rates, and increased Year on Year Annual Premium income by more than 19%. Asha has since been promoted to the post of Assistant Vice President Marketing, Research and Sales Support. 2017 ANNUAL REPORT 51 Garvin Ali – The Sagicorian – Employee of the Year Garvin Ali is a Claims Specialist with Sagicor General Inc in Trinidad and Tobago. He copped the Rookie, and Contributor of the Year awards in SGI for the last three years and subsequently the Sagicor Group Contributor of the Year award. In 2016, he was selected to work on a special Subrogation project, where he recovered over $6 million in premium income. He was the only employee to consistently make referrals, resulting in earnings of over $83,000 in gross written premium in the ‘Road Map To 65M’ challenge for non-underwriting staff. Gillian De Roche-Austin – Group Pioneer of the Year Gillian De Roche-Austin is a Customer Retention Officer with the Sales Department in Sagicor Life Inc in Barbados. Her project to implement strategies to mitigate lapses and surrenders, involved soliciting buy-in from sales staff at all levels through participation at sales meetings and other fora where she spoke on the issues impacting Sagicor Life’s overall persistency. Gillian’s advocacy efforts improved customer retention, the quality of customer service from our Sagicor Advisors, and the quality of business, as well as the creation of greater value for customers. WELLNESS INITIATIVES IN 2017 Group Companies continued a series of Wellness intiatives that provided information on lifestyle, opportunties for Biometric testing for blood pressure, blood glucose, cholesterol and Body Mass Indices. Programs were presented under various themes including “Fit for Life”, and provided staff with Fitbits to monitor physical activity. A range of programs that included Hike or Bike, Zumba, Group Exercise sessions , Line dancing, Dancersize, Healthy Fruit day intiative, a Womens Heath week, and Man Talk provided considerable diversity and choice for Sagicor Employees. Russel Campbell – Group Contributor of the Year Russel Campbell is a Mortgages Officer with the Mortgages Department of Sagicor Asset Management Inc in Barbados. He achieved 181% of his annual target, or $12.7 million in underwriting in approved and accepted new business, in an aggressive mortgage industry where competitors reduced interest rates to approximately 4%. His personal performance pushed the department to exceed its annual target for 2016. These programs take a preventative approach to providing Health Care and aim to provide information on Chronic lifestyle illnesses, influence life style changes, and so manage the national costs of providing health care. A full suite of staff events saw some new innovations to the substantial calendar with the addition of the Spring Celebration, the Cinco De Mayo Salsa Challenge, the Taste of Freedom, and Paint and Sip events. Super Bowl functions, photographic competitions, Movie nights, Family picnics, Thanksgiving Luncheons and themed Christmas parties are now part of the annual calendar. Local teams join national hikes and marathons and compete against other teams at football and cricket, and support national charities. 52 SAGICOR FINANCIAL CORPORATION LIMITED 1 STAFF COMMUNITY PROJECTS AND OTHER EVENTS The 2017 Hurricane Season captured international attention and tested the planning and training of the Crisis Management teams in the Caribbean, but particularly tested the training and the resolve of the Eastern Caribbean Crisis Management team. Since June of 2017, this team comprised of Branch Managers, members of the EC Executive Management team and Miss Kim Jones – Business Continuity Co-Ordinator went through the emergency plans with every business unit, ensuring compliance with the Business Emergency Plans (BEP). These plans were fully tested in August and September. As hurricane Irma approached the islands the emergency plans were activated, with office closures, landlines and mobile phones checked in the call chains, and WhatsApp groups formed at the Branch, EC Group, and Corporate levels. 2 1. Water and other supplies ready to be shipped to Dominica. 2. Staff at Sagicor Life Inc’s Antigua office packaging urgent hurricane supplies. 2017 ANNUAL REPORT 53 1 2 1. Supplies ready to be shipped to Dominica 2. Brenton Hilaire, Agency manager, Sagicor Life Inc, Dominica. Barbuda and Saint Martin suffered significant infrastructural damage from Hurricane Irma. Hurricane Jose on August 31, caused additional destruction in the region and on September 13, Dominica suffered a direct strike from the category five (5) Hurricane Maria. The Crisis Management team quickly had met with the respective personnel from offices in Barbados and the US. The Executive team, led by Donald Austin, Shaunita Jordan and General Manager of the Branch Office in St Lucia, pulled together food supplies, water, and personal hygiene items for the Dominica staff and their surrounding neighbors. Sagicor Life Eastern Caribbean Inc commended Mr Brenton Hilaire for his courage and commitment to Sagicor. Initially he was the primary contact on the island of Dominica immediately after hurricane Maria, Brenton along with Sagicor Team Dominica assisted with the distribution of relief supplies to staff and clients of Sagicor Life Inc and Sagicor General Inc, despite challenging personal circumstances. This team undertook the massive clean-up of knee-high debris left behind because of the flooding of the city and made a significant contribution to our ability to reopen offices in Roseau, Dominica to our clients. Cash Contributions and donations of personal supplies from employees across the Sagicor Group of companies, as well as corporate contributions, provided critical assistance to employees and their families, customers, local hospitals and other community groups. 54 SAGICOR FINANCIAL CORPORATION LIMITED While Sagicor staff in Tampa, Florida were busy raising funds to assist Dominica’s recovery efforts, they were also helping their own neighbours affected by hurricanes. In September, staff came together to help clean up debris on Marco Island in Southwest Florida, an area that received heavy damage from Hurricane Irma. 3, 4 & 5. Staff from Tampa, Florida working to clear debris on Marco Island. 3 4 5 2017 ANNUAL REPORT 55 OPERATING & FINANCIAL REVIEW As we continue to grow stronger and wiser into the future, we want our clients to do the same. OPERATING AND FINANCIAL REVIEW 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. 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 economic activity continued its rebound for 2017 as growth increased slightly to 3% based on World Bank’s estimates. This growth was broad based; however, most noticeable increases came within Emerging Markets and Developing Economies which averaged growth of 4.3%. In the USA, GDP growth of 2.3% was estimated for 2017. Furthermore, economic indicators showed favourable improvement as evidenced by increased consumer spending during the fourth quarter of 2017, while the unemployment rate trended down to 4.1% in December. The US dollar strengthened against the currencies of all major trading partners during the year as the price of crude oil maintained its upward trend. The US Federal Reserve Bank continued to tighten monetary policy as short-term interest rates were increased three times during the year from a range of 0.50% to 0.75% as at December 2016 to a range of 1.25% – 1.5% as at December 2017. Europe and Japan experienced growth of 2.3% and 2.4%, respectively as their respective Central Banks generally continued accommodative fiscal and monetary policies throughout 2017. The Bank of England raised its interest rates incrementally during the period from 0.25% to 0.5% while Japan’s short-term rates remained unchanged. International equity markets advanced during 2017. The Nasdaq composite gained 28.2% for the year, while the Dow Jones Industrial Average Index and the S&P 500 Index grew 25.1% and 19.4% respectively. The MSCI Emerging Market Index led major indices with a gain of 34.3%. Interest rate hikes saw the yield on 10- year treasury increased from 2.1% to 2.4%, which induced a flatter yield curve. Regional Economic Environment Regionally, economic growth across the Caribbean generally 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 and dwindling foreign reserves, resultant from a decline in foreign direct investment, remained a hindrance to the economic stability of the region. The issue of de-risking became prevalent during the year as foreign correspondent 58 SAGICOR FINANCIAL CORPORATION LIMITED banks withdrew their services from respondent banks, which created an even greater strain on an already fragile foreign exchange market. The Barbados economy slowed during the period in the face of multiple downgrades during the year; due to high government deficits; limited appetite for private-sector financing and depleting international reserves. Barbados’ economy grew by 1% during the year while unemployment increased to 10.2% and inflation to 4%. This moderate improvement during 2017 was buoyed by expansion in the tourism and construction sectors. International reserves remained worrisomely low and decreased to $0.4 billion, which represented 6.6 weeks of import cover. The fiscal deficit for the fiscal year 2017/2018 was projected to have decreased to 5.7% of GDP. The country’s debt burden remained high with the gross central government debt decreasing slightly to 145.9%. During 2016, Barbados’ sovereign rating was downgraded to B- and Caa1 by Standard and Poor’s and Moody’s rating agencies. 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. S&P further downgraded the island’s long-term local currency to CCC during the third quarter of 2017. Trinidad and Tobago’s economy is estimated by the Central Statistical Office to have contracted by 1.9% for 2017. The unemployment rate increased to 4.5% during 2017, which contributed to the contraction in an environment of sluggish economic activity. Headline inflation remained low during the year at 1.3%. The Central Bank’s net foreign reserves fell to US$8,369.8 million or 9.7 months of prospective imports of goods and non- factor services as foreign debt service requirements increased during 2017. The declining economic conditions during the previous two fiscal years lead to a downgrade of the country’s credit by Standard’s and Poor rating agency. Trinidad and Tobago’s long-term debt was downgraded to BBB+ during the second quarter of 2017. The Jamaica economy grew between 1% and 2% facilitated by the Bank of Jamaica expansionary policies during the 2017 fiscal year. The bank reduced its lending rate by 50 basis points or 0.5% to 3.25% as at December 2017. This monetary policy action reflected the Bank’s assessment that inflation for the next four to eight quarters would remain within the target range of 4.0% to 6.0% per cent. The economic expansion translated to gains on the Jamaica Stock Exchange which returned 50% in local currency terms for the year. Regulation Insurance Regulation The following revisions to insurance legislation have been initiated and/or are contemplated in the near future: • A new Insurance Act together with regulations to replace the existing legislation in Trinidad is expected to be enacted in 2018. • Industry consultations have concluded on the draft Harmonised Insurance Bill in the Eastern Caribbean which will repeal existing legislation in the eight EC countries. The final draft of the Harmonised Insurance Bill is projected to be completed in the 3rd quarter of 2018. Once finalised, the Bill will be circulated to the EC countries for enactment. GROUP RESULTS Revenues from continuing operations in 2017 reached US $1,221 million and were US $87 million higher than the prior year amount of US $1,134 million. Net premium revenue was US $746 million, compared to US $664 million, an improvement of US $82 million or 12.3%. Premium income increased in all segments and benefited especially from the issuance of a single premium annuity relating to our Jamaica segment. Net investment income was US $379 million, compared to US $353 million in the prior year, an improvement of US $26 million, and benefited from higher investment gains in our international investment portfolios. Fees and other revenue closed the year at US $94 million, compared to the prior year amount of US $117 million, a decline of US $23 million. There was a reduction in commissions income on insurance and reinsurance contracts amounting to US $20 million, 2017 ANNUAL REPORT 59 reflecting commissions net of gains due to reinsurers on supporting assets in our USA segment. Exchange losses were US $4 million, compared to gains of US $13 million in the prior year, a reduction of US $17 million. Foreign exchange movements were affected by a strengthening of the Jamaica dollar when compared to the United States dollar in 2017, resulting in foreign exchange declines in financial assets denominated in United States dollars in our Jamaica segment. Overall, the Group experienced a gain on translation of the Jamaica segment, which is reported in other comprehensive income. In addition, the prior year included exchange gains relating to declines in the Trinidad dollar, when compared to the United States dollar. There was no significant foreign exchange movement, relative to the Trinidad dollar currency in 2017. Total benefits closed at US $661 million, up from the prior year amount of US $561 million. The growth in benefits is consistent with that of the growth in premium revenue and partially represented increased provisions for future benefits. Included in benefits were net costs of US $9 million relating to claims exposure from hurricane activity during the year, along with an increase of US $14 million relating to the impact of the Tax Cuts and Jobs Act rate reduction in the United States, which came into effect in 2017. Expenses (including agents’ and brokers’ commissions) closed the year at US $436 million, compared to the prior year amount of US $424 million, an increase of US $12 million. The Jamaica Segment incurred some non-recurring costs, together with higher administration costs relating to the expansion of cards and payments business. Income taxes were US $19 million, compared to US $42 million in the prior year, a reduction of US $23 million. This was principally related to our USA Segment. During 2017 the Tax Cuts and Jobs Act was signed into law in the United States, which reduced the effective corporation tax rate. This contributed to a decrease of US $20 million in income taxes and an increase in the provision for future benefits of US $14 million in the segment. CONSOLIDATED INCOME 1 - $ millions Revenue Benefits Expenses & taxes Net income COMPREHENSIVE INCOME Other comprehensive (loss) Total comprehensive income 1 from continuing operations 2017 1,221 2016 1,134 (661) (561) (455) (466) 105 2017 64 169 107 2016 (13) 94 Other comprehensive income was US $64 million, compared to a loss of US $13 million for the prior year, an increase of US $ 77 million. The principal sources of the increase were an improvement in net gains on financial assets of US $19 million, resulting from marked-to-market gains on financial assets in our international portfolios; a positive movement of US $38 million on retranslation of foreign currency operations, resulting from a gain in the Jamaica dollar when compared to the United States dollar; and a positive change in gains/(losses) on defined benefit plans for employees of US $ 38 million. In December 2012, the Board and Management decided to dispose of Sagicor Europe, which owns the Sagicor at Lloyd’s operations. In accordance with International Financial Reporting Standards, the results of Sagicor Europe have been separated from the Group’s continuing operations and presented as a discontinued operation. 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 60 SAGICOR FINANCIAL CORPORATION LIMITED 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 2017 financial year US $62 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 20.4 cents. The comparative amounts for 2016 were US $60 million of net income and earnings per share of US 19.5 cents. The respective annual returns on shareholders’ equity were 11.3% for 2017 and 12.3% for 2016. Dividends declared to common shareholders in respect of 2017 totalled US $15 million and represented US 5.0 cents per share. Dividends of US 4.5 cents per share were declared for 2016. COMMON SHAREHOLDER RETURNS 1 2017 2016 Net income - $ millions Dividends - $ millions Earnings per share - cents Dividends per share - cents Return on equity - % 62 15 20.4 5.0 11.3 60 14 19.5 4.5 12.3 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 2017 2016 Net insurance premiums: Life and annuity Health Property & casualty Net investment income Fees and other revenues Gain arising on disposal 568 149 29 746 379 94 2 496 150 18 664 353 117 - 1,221 1,134 Premium revenue from life insurance and annuity was US $568 million and represented 76% of total premium revenue. The comparative amounts for 2016 were US $496 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. 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 higher by US $82 million when compared to the prior year. Premium income increased in all segments and benefited from the issuance of a single premium annuity relating to our Jamaica segment. The Group also markets annual renewable health insurance contracts to employers and associations. These provide benefits against medical costs incurred by insured persons. Premium 2017 ANNUAL REPORT 61 revenue from health insurance totalled US $149 million, and stood at approximately the same level as the prior year. the United States dollar, there was no significant foreign exchange movement, relative to this currency in 2017. 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 $29 million. The Group increased its retention on this business in 2017 when compared to the prior year. Income is generated from the investments made by the Group. Net investment income closed the year at US $379 million compared to US $353 million in 2016 an improvement of US $26 million and benefited from higher investment gains in our international investment portfolios. INTEREST YIELDS 2017 2016 Debt securities Mortgage loans Policy loans Finance loans & finance leases Securities purchased for resale Deposits 6.1% 5.7% 7.2% 11.6% 5.1% 2.3% 6.2% 6.1% 6.9% 12.6% 9.2% 1.0% Income from fees and other revenues totalled US $94 million compared to US $117 million in the prior year, a reduction of US $23 million. There was a reduction in commissions income on insurance and reinsurance contracts amounting to US $20 million, reflecting commissions net of gains due to reinsurers on supporting assets in our USA segment. Exchange gains/(losses) also showed a loss of US $4 million, compared to gains of US $13 million in the prior year, a reduction of US $17 million. Foreign exchange movements were affected by a strengthening of the Jamaica dollar when compared to the United States dollar in 2017, resulting in foreign exchange declines in financial assets denominated in United States dollars in our Jamaica segment. In addition, the prior year included exchange gains relating to declines in the Trinidad dollar, when compared to Benefits The table below summarises the expense incurred by the Group in providing benefits. BENEFITS - $ millions 2017 2016 Net insurance benefits: Life and annuity Health Property and casualty Interest expense 465 114 27 606 55 661 376 116 8 500 61 561 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 $465 million in 2017, of which US $343 million related to current benefits and US $122 million related to future benefits. The corresponding amounts for 2015 were a total of US $373 million, of which US $346 million were for current benefits and US $27 million were in respect of future benefits. 62 SAGICOR FINANCIAL CORPORATION LIMITED 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. The corresponding amounts for 2016 were a total of US $376 million, of which US $331 related to current benefits and US $45 million related to future benefits. 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. Total health insurance benefits were US $114 million representing an overall claims to premium ratio of 77%. The comparative 2016 amounts were US $116 million and an overall claims to premium ratio of 77%. Property and casualty claims amounted to US $27 million in 2017, compared US $8 million from the 2016 an increase of US $19. The company decided to increase its retention of this business in 2017. Property and casualty claims also Included $9 million relating to claims exposure from hurricane activity during the year. The interest returns the Group has provided to investment contract- holders and financial institutions which have advanced funds are summarised in the following table: Expenses and taxes EXPENSES & TAXES - $ millions Administrative expenses Commissions Finance costs, depreciation and amortisation Premium, asset and income taxes 2017 267 99 57 32 2016 255 99 60 52 455 466 Expenses and taxes totalled US $455 million for 2017 down from US $466 million for 2016. Expenses of administration represent the largest expense category and totalled US $267 million in 2017 compared to US $255 million in 2016 an increase of US $12 million. The Jamaica Segment incurred some non-recurring costs, together with higher administration costs relating to the expansion of cards and payments business. 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. INTEREST YIELDS Investment contracts Other funding instruments Customer deposits Securities sold for repurchase 2017 2016 5.6% 2.1% 2.0% 3.6% 6.1% 1.9% 2.1% 4.5% Premium assets and income taxes was US $32 million compared to US $52 million in the prior year, a reduction of US $20 million. Of the total taxes, income taxes were US $19 million, compared to US $42 million in the prior year, a reduction of US $23 million. This was principally related to our USA Segment. During 2017 the Tax Cuts and Jobs Act was signed into law in the United States, which reduced the effective corporation tax rate. This contributed to a decrease of US $20 million in income taxes and an increase in the provision for future benefits of US $14 million in the segment. Comprehensive income Gains and losses recorded within other comprehensive income arise from fair value changes of certain classes of assets and from the retranslation of foreign currency operations. 2017 ANNUAL REPORT 63 Other comprehensive income was US $64 million, compared to a loss of US $13 million for the prior year, an increase of US $77 million. The principal sources of the increase were an improvement in net gains on financial assets of US $19 million, resulting from marked- to-market gains on financial assets in our international portfolios, a positive movement of US $38 million on retranslation of foreign currency operations, resulting from a gain in the Jamaica dollar when compared to the United States dollar and a positive change in gains/(losses) on defined benefit plans for employees of US $38 million. 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 $179 million for 2017 compared to US $97 million for 2016. 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, 2017 and 2016. STATEMENT OF FINANCIAL POSITION - $ millions 2017 2016 Assets Liabilities arising from operations Borrowings Equity 6,815 5,469 414 932 6,532 5,342 395 795 6,815 6,532 Assets Invested assets and cash balances as of December 31 are summarised in the table below. INVESTMENTS & CASH - $ millions 2017 1 2016 1 Debt securities Mortgage loans Policy loans Finance loans and finance leases Securities purchased for re-sale Deposits Cash Investment property and other items 1 continuing operations 3,498 3,441 342 142 564 17 111 360 456 332 138 509 5 139 279 417 5,490 5,260 Debt securities are the largest class of invested assets, and represented 64% of total investments and cash as of December 31, 2017 (65% as of December 31, 2016). These securities are very suitable instruments to back long-term insurance liabilities because of their medium to long term duration, the regular interest payments received, and the relatively low credit risk. 64 SAGICOR FINANCIAL CORPORATION LIMITED The Group’s liabilities which arise from issuing investment contracts, accepting deposits and funding are as follows. FINANCIAL LIABILITIES - $ millions 2017 2016 Investment contracts Securities sold for re-purchase Customer deposits Other funding instruments and other items 379 476 751 285 378 321 915 353 1,891 1,967 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. 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. 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. The discontinued operation (Sagicor at Lloyds) was sold on December 23, 2013. At the end of 2017 there was a receivable of US $10 million due to the company. 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 2017 1 2016 1 Future benefits - individual contracts 2,473 2,349 Future benefits - group contracts Current benefits and other payables 1 continuing operations 477 269 428 245 3,219 3,022 Future benefits represent amounts recognised at the date of the financial statements for liabilities not yet due. These liabilities may become due in the near, medium or long-term and are estimated using established actuarial techniques. Current benefits and other payables represent amounts which are currently due and are in the course of settlement. These include benefits in respect of all classes of insurance written - life, annuity, health, property and casualty. 2017 ANNUAL REPORT 65 On July 18, 2016, the Company redeemed the 6.5% convertible redeemable preference shares due 2016. On March 2, 2017, Sagicor Bank Jamaica Limited issued: i Cumulative redeemable preference shares with a tenor of three (3) years at 8.25% interest per annum. ii Cumulative redeemable preference shares with a tenor of eighteen (18) months at 7.75% interest per annum. 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 30.7%, down from 33.2% for the prior 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 of the Group’s life insurers was 258% as of December 31, 2017 compared to 249%, at December 31, 2016, 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 2017 Common shareholders’ equity Preference shareholders’ balances Minority interest shareholders’ balances 8.875% senior notes due 2022 4.6% notes due 2015 Participating accounts & other 623 16 309 317 75 6 2016 536 - 258 315 75 6 Classified as: Equity Borrowings 1,346 1,190 932 414 795 395 1,346 1,190 306,555,644 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 $320.0 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). On March 22, 2016, the Company repaid, before maturity, the $43.4 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. 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). 66 SAGICOR FINANCIAL CORPORATION LIMITED SAGICOR GROUP SUMMARY ORGANISATIONAL CHART SAGICOR FINANCIAL CORPORATION LIMITED - 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 BARBADOS, TRINIDAD & TOBAGO, EASTERN BARBADOS, TRINIDAD & TOBAGO, U.K. & EASTERN WORLDWIDE CARIBBEAN CARIBBEAN 2017 ANNUAL REPORT 67 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 2017 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 2017, this segment generated revenues of US $421 million. The main revenue component was premium income which totalled US $309 million. Investment income totalled US $77 million while other items totalled US $35 million. Benefits totalled US $222 million, and were higher than the prior year by US $9 million. Current insurance benefits were US $210 million, while amounts recognised for future insurance benefits amounted to US $12 million. Total expenses and taxes in 2017 closed the year at US $131 million compared to US $129 million in 2016. SAGICOR LIFE INC INCOME - $ millions Revenue Benefits Expenses and taxes Inter-segment reinsurance expense Segment income Segment income attributable to shareholders FINANCIAL POSITION - $ millions Assets Liabilities Net assets 2017 421 (222) (131) (5) 63 65 2017 1,953 2016 411 (213) (129) (5) 64 64 2016 1,928 (1,413) (1,399) 540 529 Net segment income for the year was US $63 million compared to US $64 million for the prior year. After accounting for income allocated to policyholders, the net income attributable to shareholders for the segment totalled US $65 million in 2017, compared to US $64 million in 2016. Financial investments comprised 71% of segment assets and policy liabilities comprised 92% of segment liabilities at the end of 2017. Sagicor Jamaica Segment This segment comprises subsidiaries in Jamaica and Cayman Islands. 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 $592 million in 2017, an increase of US $68 million over the 2016 total. The main revenue component was premium income which totalled US $320 million compared to US $268 million in 2016 an increase of US $52 million. The Jamaica segment benefited from the issuance of a significant single premium annuity during 2017. 68 SAGICOR FINANCIAL CORPORATION LIMITED Investment income totalled US $207 million compared to US $201 million in the prior year and benefited from significant investment gains. Financial investments comprised 81% of the segment’s assets at the end of 2017. The liabilities of this segment were distributed 33% to policy liabilities and 66% to deposit and security liabilities at the end 2017. Benefits totalled US $292 million and was higher than the prior year amount of US $249 million an increase of US $43 million. This is consistent with the growth in premium revenue and represents partially the impact of the provision for future benefits on the single premium annuity. Expenses and taxes incurred totalled US $206 million in 2017 compared to US $185 million in 2016, and increase of US $21 million over the prior year. The Jamaica segment incurred some non- recurring costs, together with higher administration costs relating to the expansion of cards and payments business. 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 $159 million in 2017 compared to US $149 million in 2017. INCOME - $ millions 2017 2016 SAGICOR USA SAGICOR JAMAICA INCOME - $ millions Revenue Benefits Expenses and taxes Segment income Segment income attributable to shareholders FINANCIAL POSITION - $ millions Assets Liabilities Net assets 2017 592 (292) (206) 94 46 2017 2,836 2016 524 (249) (185) 90 44 2016 2,674 (2,276) (2,223) 560 451 Net segment income for the year was US $94 million, compared to a total of US $90 million recorded for 2016. As the Sagicor Jamaica segment is owned 49% by the Group, the resulting net income attributable to shareholders was US $46 million in 2017. (US $44 million in 2016). Revenue Benefits Expenses and taxes Inter-segment reinsurance expense Segment income Segment income attributable to shareholders FINANCIAL POSITION - $ millions Assets Liabilities Net assets 159 (117) (34) 5 13 13 149 (86) (57) 5 11 11 2017 1,982 2016 1,901 (1,742) (1,682) 240 219 Total benefits amounted to US $117 million in 2017 compared to US $86 million in 2016, an increase of US $31 million. Current insurance benefits were US $88 million while the expense for future insurance benefits in 2017 was US $27 million. The passage of Tax Cuts and Jobs Act in the United States, which reduced the effective corporation tax rate contributed to a decrease of US $20 million in income taxes and an increase in the provision for future benefits of US $14 million in the segment. 2017 ANNUAL REPORT 69 Expenses and taxes totalled US $34 million in 2017 compared to US $57 million in 2016 a reduction of US $23 million, Income taxes showed a reduction of US $20 million when compared to the prior year and was principally related to the passage during 2017 of the Tax Cuts and Jobs Act in the United States as previously noted. Net income of the segment for 2017 was US $13 million, compared to the US $11 million recorded for 2016. As of December 31,2017, financial investments comprised 56% of the segment assets and policy liabilities comprised 86% 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. • If the experience is better than expected during the financial period 2016 to 2018, then Sagicor may receive a portion of the favourable experience. If there is no improvement, no payment is expected. DISCONTINUED OPERATION INCOME - $ millions 2017 2016 Movement in price adjustment Net income 10 10 1 1 FINANCIAL POSITION - $ millions 2017 2016 Assets Liabilities Net assets 10 - 10 - - - LOOKING FORWARD The International Monetary Fund (IMF) projects that the momentum in global growth experienced in 2017, is expected to continue throughout 2018 with expected growth of 3.9% based on expected lower unemployment, higher trade levels and higher commodity prices. The Economic Commission for Latin America and the Caribbean has projected economic growth within the Caribbean to increase slightly to 2.2% in 2018 following average growth of 1.3% in 2017. Central Banks within developed economies are expected to maintain the generally accommodative monetary policy environment for the foreseeable future with moderate tightening supported by improved fundamentals, particularly within the USA. This policy stance favours risk seeking asset classes and therefore supports the favourable performance outlook for international markets led by emerging market equities for 2017. Emerging market economies led by the BRIC’s (Brazil, Russia, India and China) are expected to maintain the lead in spurring economic growth. Despite expected moderate monetary policy tightening to restrain inflationary pressures, many emerging market economies, are expected to maintain strong fundamentals, sound policy frameworks and prudent macro-economic policies, which should position them to outperform their developed market counterparts. • Sagicor Europe made income of US $10 million in 2017 compared to income of US $1 million in 2016. We remain cautiously optimistic about the Caribbean’s economic recovery, which hinges on the economic stability of developed 70 SAGICOR FINANCIAL CORPORATION LIMITED economies. In light of the expected economic strengthening within the developed world, the region is expected to experience modest expansion, in tourism and related industries which remain the primary drivers of growth for regional economies. During 2018 the company will continue to work on the corporate re-organisation to respond to the changing regulatory environment, while we continue to pursue opportunities for growth. 2017 ANNUAL REPORT 71 BOARD OF DIRECTORS We look to the future, committed to oversight and leadership towards greatness. BOARD OF DIRECTORS DR STEPHEN D R MCNAMARA , Barrister-at-law; CBE, LLD (Hon) Chairman Appointed as Chairman in January 2010. Appointed to the Board in December 2002 Citizen of St. Lucia and Ireland Dr McNamara was called to the Bar at Lincoln’s Inn, and in St Lucia in 1972. He is the senior partner of McNamara & Company, Attorneys-at-Law of St. Lucia. The barrister/solicitor specialises in the representation of foreign investors in St Lucia in the Tourism, Manufacturing and Banking sectors. He served as Chairman of the St Lucia Tourist Board for nine years. Dr Mcnamara is the Chairman of the Group’s main operating subsidiaries, Sagicor Life Inc, Sagicor USA and Sagicor Finance Inc, and formerly served as Vice Chairman, Sagicor Financial Corporation Limited, between June 2007 and January 2010. He is a Director of Sagicor Group Jamaica Limited and a number of other subsidiaries within the Group. Dr McNamara’s St Lucia-based service includes the Board of St Lucia Electricity Services Ltd, where he was elected Chairman in December 2015, and served until his retirement at the end of 2017, and as President of the St Lucia Tennis Association. Dr McNamara was made a Commander of the Order of the British Empire (CBE) in the 2015 Queen’s Birthday Honours for public service and services to the legal profession. Also in 2015 he was awarded an honorary doctorate from the University of the West Indies for his outstanding achievements and contribution to the region in the areas of business, sport and general philanthropy for more than forty years. ANDREW ALEONG, MBA Appointed June 2005 Citizen of Trinidad and Tobago Mr Aleong holds an MBA from the Richard Ivey School of Business, University of Western Ontario, Canada. He is Group Managing Director of the Albrosco Group of Companies, Trinidad and Tobago, and has served the Trinidad and Tobago manufacturing industry for over 30 years. Mr Aleong is a former President of the Trinidad and Tobago Manufacturers’ Association. He also serves as a Director of a number of private companies. Mr Aleong was elected a Director of Sagicor Life Inc in 2005, and is also a Director of a number of other subsidiaries within the Group. 74 SAGICOR FINANCIAL CORPORATION LIMITED PROFESSOR SIR HILARY MCD BECKLES, KA, BA, PhD Appointed June 2005 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 Chairman of the Caribbean Examinations Council. He is a member of the Secretary General of the UN, Advisory Board on Science and Sustainable Development, a member of UNDP’s Advisory Panel on the Caribbean Human Development Report, Vice President of UNESCO’s Slave Route Project, and also Vice President of the Commonwealth Ministers’ Advisory Board on Sport. PETER E CLARKE, Barrister-at-Law, BA (History), BA (Law) Appointed June 2010 Citizen of Trinidad and Tobago Mr Clarke 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 the Chairman of Guardian Media Ltd in Trinidad and Tobago, as well as a director of a number of companies including the Trinidad and Tobago Stock Exchange. He is also a member of 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. 2017 ANNUAL REPORT 75 DR L JEANNINE COMMA, BA, MA, EDD Appointed June 2007 Citizen of Trinidad and Tobago and Barbados Dr Comma is Chairman of the Human Resources Committee for Sagicor Financial Corporation Limited. She holds a PhD from George Washington University, Washington, DC, USA, and is also a graduate of the University of the Virgin Islands. Formerly the 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. Dr Comma 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). She was elected a Director of Sagicor Life Inc in 2006. MONISH K DUTT, BA, MBA, FCA Appointed June 2012 Citizen of India and Permanent resident of the United States of America Mr Dutt holds an MBA 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. A Consultant on Emerging Markets, Mr Dutt is a seasoned investment professional who serves as a non-executive director on several Boards including Ecobank, a pan- African bank with assets of US$22 billion; Peak Reinsurance of Hong Kong, controlled by the Fosun Group of China together with Prudential of the US; and FINCA Microfinance USA, with operations in around 20 countries in emerging markets. Within the Sagicor Group, Mr Dutt serves as a Director of Sagicor Bank Jamaica Limited, and Sagicor Life Insurance Company USA. Prior to 2011, Mr Dutt was employed for 25 years 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, structuring and managing investments in financial institutions and private equity funds globally. Mr Dutt has also represented IFC on the boards of investee companies. 76 SAGICOR FINANCIAL CORPORATION LIMITED DR MARJORIE M FYFFE-CAMPBELL, BSc, MSc, DBA Appointed June 2005 Citizen of Jamaica Dr Fyffe-Campbell is a Management Consultant with over 30 years’ experience in Finance, Accounting and Executive Management, and holds a Doctorate in Business Administration (DBA) from Mona School of Business and Management, with emphasis in Corporate Governance, an MSc in Accounting and a BSc (Hons) from the University of the West Indies. She is a Fellow of the Institute of Chartered Accountants of Jamaica, a member of the Hospitality, Financial and Technology Professionals, and is a Justice of the Peace/Lay Magistrate in Jamaica. She is a former President and Chief Executive Officer of the Urban Development Corporation, Jamaica. Dr Fyffe-Campbell possesses extensive experience in Finance and Accounting, Corporate Governance, Risk Management and Property Development and Management. She is a former Adjunct Lecturer in Financial and Managerial Accounting and 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. RICHARD M KELLMAN, BSc Appointed June 2009 Citizen of Guyana Mr Kellman was appointed Group Chief Operating Officer in June 2009 and retired from this position on December 31, 2017. Mr Kellman holds a BSc degree in Statistics from University College, London University, and is a retired Fellow of the Institute of Actuaries. His career in the financial services industry spans 43 years, during which time, he has held senior actuarial and management positions with several leading regional insurance companies, and served on a number of industry boards. 2017 ANNUAL REPORT 77 WILLIAM P LUCIE-SMITH, MA,FCA Appointed June 2005 Citizen of Trinidad and Tobago Mr Lucie-Smith 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 DODRIDGE D MILLER, FCCA MBA, LLM, LLD (Hon) Appointed December 2002 Citizen of Barbados Dr Miller was appointed Group President and Chief Executive Officer of Sagicor Financial Corporation Limited in July 2002. He has been a Director since December 2002. He 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. Dr Miller has more than 30 years’ experience in the banking, insurance and financial services industries. Dr Miller joined the Group in 1989. 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. He is a Director of Sagicor Life Inc, Sagicor USA, Sagicor Group Jamaica Limited, Sagicor Life Jamaica, Sagicor Investments Jamaica Limited and a number of other subsidiaries within the Group. 78 SAGICOR FINANCIAL CORPORATION LIMITED JOHN F SHETTLE, JR, BA, MBA Appointed June 2008 Citizen of the United States of America Mr Shettle 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, Mr Shettle has 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, 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, FCCA Appointed January 2014 Citizen of Trinidad and Tobago Mr Young 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. 2017 ANNUAL REPORT 79 CORPORATE GOVERNANCE We take our responsibility seriously, to make each day better than the last. CORPORATE GOVERNANCE DIRECTORS’ INTERESTS Directors’ interests as at December 31, 2017, and as at the record date, April 17, 2018, are as follows: Shares as at 31-Dec-17 Shares as at 17-Apr-18 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 Dodridge Miller John Shettle, Jr Richard P. Young 23,993 553,358 9,579 25,000 22,300 1,000 50,850 638,988 150,338 2,505,696 1,000 34,266 0 0 0 0 0 0 0 0 0 0 0 0 23,993 553,358 9,579 25,000 22,300 1,000 50,850 638,988 150,338 2,505,696 1,000 34,266 0 0 0 0 0 0 0 0 0 0 0 0 Restricted Stock Grants As at 31-Dec-17* Vested Unvested Richard Kellman 1,037,898 0 Dodridge Miller 3,501,089 1,542,446 * These remained unchanged at April 17, 2018 82 SAGICOR FINANCIAL CORPORATION LIMITED Stock options As at 31-Dec-17* Vested 1,380,624 3,865,278 Exercised Expired Unvested 1,145,787 1,954,366 234,837 455,754 0 3,120,465 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 two 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, 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. 2017 ANNUAL REPORT 83 h t i i m S - e c u L m a i l l i W r e l l i M e g d i r d o D r D . r J , e l t t e h S n h o J g n u o Y d r a h c R i l s e k c e B y r a l i H r i S r o s s e f o r P a m m o C e n n n a e J i r D a r a m a N c M n e h p e t S l g n o e A w e r d n A l l e b p m a C - e f f y F e i r o j r a M r D n a m l l e K d r a h c R i l e k r a C r e t e P t t u D h s i n o M 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 2017 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. Stephen McNamara, Dr Marjorie Fyffe-Campbell, Richard Kellman and William Lucie-Smith, having been designated as Class III Directors, will retire at the fifteenth Annual Meeting, and all being qualified, have offered themselves for re-election. Profiles of the nominees will be provided in the Management Proxy Circular accompanying the Notice of the Meeting sent to shareholders. The Director nomination process is 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. All Directors who have served on the Board for nine or more years are subject to enhanced evaluation by an independent Corporate Governance professional 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. 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 corporate governance, risk, actuarial movements, cyber security, reinsurance, regulatory changes 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, 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. 2017 ANNUAL REPORT 85 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 and 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. The mandate of the Audit Committee is to oversee the external audit process, and manage all aspects of the relationship with the External Auditors. The Committee is also required to review the annual audit plan, interim and audited financial statements, and International Financial Reporting Standards having a significant impact on the financial statements. It also reviews actuarial reports and recommendations. 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: • Stephen McNamara (appointed a Member on March 9, 2004 and Chairman on February 17, 2010); • 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). 86 SAGICOR FINANCIAL CORPORATION LIMITED 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 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. 2017 ANNUAL REPORT 87 BOARD OPERATIONS 8 During 2017, Management engaged the Board of Directors (BOD) 13 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 4 times; the Corporate Governance and Ethics Committee (CGC) met 4 times; the Human Resources Committee (HRC) met 4 times; and the Investment and Risk Committee (IRC) met 3 times. Directors’ record of attendance was as follows: DIRECTOR Stephen McNamara Andrew Aleong Prof Sir Hilary Beckles Peter Clarke Dr Jeannine Comma Monish Dutt BOD 13 of 13 12 of 13 12 of 13 13 of 13 12 of 13 13 of 13 Dr Marjorie Fyffe-Campbell 13 of 13 Richard Kellman William Lucie-Smith Dr Dodridge Miller John Shettle, Jr Richard P Young 12 of 13 13 of 13 13 of 13 12 of 13 12 of 13 AC 3 of 4 3 of 4 4 of 4 4 of 4 4 of 4 CGC 4 of 4 3 of 4 4 of 4 4 of 4 4 of 4 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 2017 was to: 88 SAGICOR FINANCIAL CORPORATION LIMITED HRC 4 of 4 4 of 4 4 of 4 4 of 4 IRC 3 of 3 2 of 3 3 of 3 2 of 3 1 of 3 3 of 3 Total 24 of 24 18 of 20 15 of 17 19 of 20 19 of 21 21 of 21 21 of 21 12 of 13 19 of 20 13 of 13 17 of 20 19 of 20 % 100 90 88 95 90 100 100 92 95 100 85 95 • • • • • • • • • • • • consider and approve the Group strategic plan, capital plan and projections for the period 2018 to 2020; review proposal to increase authorized share capital; review proposal to extend term of Executive Long Term Incentive Plan; review causes of postponement of Annual General Meeting consider acquisition opportunities; 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; 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. 9 COMMITTEE OPERATIONS AUDIT COMMITTEE REPORT: The 2017 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; reviewing the External Auditors’ 2016 Management Letter and Report on the 2016 audit; approving the 2017 Audit Engagement Letter; reviewing and recommending for approval by the Board interim and annual audited financial statements; • making dividend recommendations to the Board; • • • reviewing actuarial reports of the Appointed Actuary; reviewing reports of the External Auditors on key audit issues; reviewing the financial performance of the Group and key subsidiaries; examining the implications of changes to International Financial Reporting Standards; approving the 2017 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 2017 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 conflicts of interest; overseeing the Director self and peer performance evaluation process; • monitoring Director attendance; • • reviewing Corporate Governance structure of subsidiaries; conducting its annual review of the adequacy of the Code of Business Conduct and Ethics; generally monitoring the operation of Corporate Governance policies and practices and assessing the adequacy of the Committee’s mandate, and evaluating its effectiveness in fulfilling same. • • HUMAN RESOURCES COMMITTEE REPORT: During 2017, activities of the Human Resources Committee included: • reviewing executive performance, compensation and terms of engagement; • monitoring succession planning and leadership and development • • plans at the executive level; considering succession planning needs across the Group for senior employees below the executive level; granting 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; 2017 ANNUAL REPORT 89 • • • reviewing aspects of the rules of the Company’s annual long-term incentive plans; reviewing ESOP financial statements, and assessing the adequacy of the Committee’s mandate and evaluated its effectiveness in fulfilling same. 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 $6,920,096. 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. INVESTMENT AND RISK COMMITTEE REPORT: In 2017, 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 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 Balanced Scorecard. 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) 90 SAGICOR FINANCIAL CORPORATION LIMITED Restricted Stock Grants Stock options For the financial year ended 31-Dec-17 For the financial year ended 31-Dec-17 Top 5 Members of the Group Executive Management Team Vested 2,055,528 Vested 2,353,355 BOARD OF DIRECTORS The Company’s compensation philosophy for the Board of Directors has objectives akin to that for employees. It is designed to attract, retain and motivate Directors of the quality required to ensure the efficient oversight of the Company’s business. In 2006, the Board commissioned the independent firm of Ernst & Young of Atlanta to review Directors’ compensation and make compensation recommendations. After examination of international best practice in the area, and consideration of various factors, including the level of responsibility, potential liability, and the time and commitment required for the role, Ernst & Young made certain recommendations to the Board regarding the levels and structure of compensation for Directors. These recommendations were approved by shareholders at the 2007 Annual Meeting, and remain unaltered to-date. Non-Executive Directors do not participate in any performance-based incentive plans, and their remuneration consists solely of cash. The Board Chairman and Directors are paid fees, and Committee Chairmen and Members are paid an additional fee for each Committee on which they serve. Non-Executive Directors’ fees for the financial year under review amounted in aggregate to US $631,000. Directors receive no additional benefits, but are reimbursed reasonable and customary out-of-pocket expenses associated with their attendance at meetings, and the performance of their role as Directors. Executives who are Directors are not paid fees. 2017 ANNUAL REPORT 91 FEES PAID TO EXTERNAL AUDITORS 11 PricewaterhouseCoopers is the Group’s external auditor. Following is a statement of the fees paid to the external auditors for audit and non-audit services during 2016 and 2017: Services Fees Paid US$ ‘000 Audit Non-Audit Statutory Returns Other Total 2016 2,950 273 944 454 4,621 2017 3,675 349 952 244 5,220 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 44 to the 2017 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. 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 and determined that further enhancements will be made in 2018. 92 SAGICOR FINANCIAL CORPORATION LIMITED INVESTOR RELATIONS AND COMMUNICATIONS 16 During 2017, 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 April 30, 2018 2017 ANNUAL REPORT 93 EXECUTIVE MANAGEMENT We deliver growth to our stakeholders through leadership and sound business strategies. EXECUTIVE MANAGEMENT DR 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 (Retired December 31, 2017) • 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. 96 SAGICOR FINANCIAL CORPORATION LIMITED 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. RAVI C RAMBARRAN BSc, MSc, FIA Chief Operating Officer with responsibility for Sagicor Life Inc, Southern Caribbean Operations (Effective January 1, 2018) • In January 2018 he was appointed Chief Operating Officer with responsibility for Sagicor Life Inc, Southern Caribbean Operation. • 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 pensions, 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. 2017 ANNUAL REPORT 97 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, FICA 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. 98 SAGICOR FINANCIAL CORPORATION LIMITED 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 30 years in the insurance industry. 2017 ANNUAL REPORT 99 NARI T PERSAD BSc Biochemistry, BSc Actuarial Science, FSA, FCIA Group Chief Actuary • Appointed Group Chief Actuary in August 2017. • Holds a BSc Specialist in Actuarial Science and Biochemistry from the University of Toronto. • Fellow of the Canadian Institute of Actuaries, Fellow of the Society of Actuaries. • Affiliate member of the Caribbean Actuarial Association. • Previously served as Partner – Canadian Life Actuarial Practice Leader with Ernst & Young and Principal of Eckler Ltd. • More than 25 years in the insurance industry including positions at Crown Life Insurance Company, Canada Life Assurance Company, Toronto Dominion Life Insurance Company, Swiss Re Life and Health and Dion Durrell + Associates. DONALD S AUSTIN BSc, MBA, FCCA Chief Executive Officer, 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 degree (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. 100 SAGICOR FINANCIAL CORPORATION LIMITED RICHARD O BYLES BSc, MSc President and Chief Executive Officer, Sagicor Group Jamaica Limited (retired April 2017) • Appointed Chairman of Sagicor Group Jamaica Limited on May 1, 2017. • Appointed President and CEO of Sagicor Life Jamaica Limited in 2004. • In February 2016 he reached retirement age and was employed on a short-term contract until the new Chief Executive Officer assumed 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. 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. 2017 ANNUAL REPORT 101 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 (seconded to Sagicor General Insurance Inc as President & CEO (AG) in October 2017) • 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. 102 SAGICOR FINANCIAL CORPORATION LIMITED 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 industries. • Promoted to Vice President – Administration in 2004, and became Executive Vice President and General Manager Designate in 2006. CHRISTOPHER W ZACCA, CD, BSc, MBA President and Chief Executive Officer, Sagicor Group Jamaica Limited • Appointed President and CEO of Sagicor Group Jamaica Limited in May 2017. • Holds a BSc in Engineering from the Massachusetts Institute of Technology and an MBA from the University of Florida. • More than 30 years of experience in public and private sector management, in particular, during the period 1982-2009 where he held various Senior Management positions in the private sector namely:- • Vice President, Engineering - Desnoes & Geddes Limited (t/a Red Stripe), Brewers of Red Stripe Beer and Manufacturers of Soft Drinks. • Managing Director - Caribrake Products Limited, Manufacturers and Distributors of Automotive Parts and Accessories. • Managing Director - Appliance Traders Limited, Dealers in Air Conditioning, Appliance and Commercial Equipment. • Chief Executive Officer - Air Jamaica Limited, former National Airline of Jamaica. • Served as President of the Private Sector Organisation of Jamaica from December 2006 to June 2009 and from June 2012 to December 2014. • Former Chairman of the Development Bank of Jamaica and the National Health Fund and has also served on numerous State boards, including the Factories Corporation, National Education Trust and JAMPRO. • Served as special advisor to the Prime Minister of Jamaica from 2009 to 2011. • In 2014, he was conferred with the National Honour of the Order of Distinction in the rank of Commander (CD) for his invaluable contribution to the private and public sectors in Jamaica. 2017 ANNUAL REPORT 103 INDEX TO FINANCIAL STATEMENTS We continue to operate with integrity, honesty and transparency. INDEX TO THE FINANCIAL STATEMENTS AND NOTES Page Page Independent Auditor’s Report 108 10 Reinsurance Assets Appointed Actuary’s Report 113 11 Income Tax Assets Consolidated Statement of Financial Position 114 12 Miscellaneous Assets and Receivables Consolidated Statement of Income 115 13 Actuarial Liabilities Consolidated Statement of Comprehensive Income 116 14 Other Insurance Liabilities Consolidated Statement of Changes in Equity 117 15 Investment Contract Liabilities Consolidated Statement of Cash Flows 118 16 Notes and Loans Payable 1 Incorporation and Principal Activities 119 17 Deposit and Security Liabilities 2 Accounting Policies 119 18 Provisions 3 Critical Accounting Estimates and Judgements 144 19 Income Tax Liabilities 4 Segments 146 20 Accounts Payable and Accrued Liabilities 5 Investment Property 156 21 Common and Preference Shares 6 Associates and Joint Ventures 157 22 Reserves 7 Property, Plant and Equipment 161 23 Participating Accounts 8 Intangible Assets 162 24 Premium Revenue 9 Financial Investments 165 25 Net Investment Income 167 167 167 168 171 172 172 173 173 174 174 175 177 178 178 179 106 SAGICOR FINANCIAL CORPORATION LIMITED Page 26 Fees and Other Revenue 180 42 Insurance Risk - Property & Casualty Contracts 27 Policy Benefits & Change in Actuarial Liabilities 180 43 Insurance Risk - Life, Annuity & Health Contracts 28 Interest Expense 29 Employee Costs 180 44 Fiduciary Risk 181 45 Statutory Restrictions on Assets 30 Equity Compensation Benefits 181 46 Capital Management 31 Employee Retirement Benefits 184 47 Related Party Transactions Page 222 224 229 229 230 233 32 Income Taxes 188 48 Breach of Insurance Regulations – Related Party Balances 233 33 Deferred Income Taxes 189 49 Events after December 31, 2017 233 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 193 194 195 196 196 198 199 200 2017 ANNUAL REPORT 107 AUDITOR’S REPORT 108 SAGICOR FINANCIAL CORPORATION LIMITED 2017 ANNUAL REPORT 109 110 SAGICOR FINANCIAL CORPORATION LIMITED 2017 ANNUAL REPORT 111 112 SAGICOR FINANCIAL CORPORATION LIMITED ACTUARY’S REPORT 2017 ANNUAL REPORT 113 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As of December 31, 2017 Sagicor Financial Corporation Limited Amounts expressed in US $000 Note 2017 2016 Note 2017 2016 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 Assets of discontinued operation Total assets 5 7 6 8 9 10 11 12 38 80,816 165,560 97,223 81,714 80,662 167,723 87,293 83,487 LIABILITIES Actuarial liabilities Other insurance liabilities Investment contract liabilities Total policy liabilities 4,953,241 4,813,748 Notes and loans payable 797,391 39,980 228,543 360,064 10,110 777,344 59,575 183,018 279,070 - 6,814,642 6,531,920 These financial statements have been approved for issue by the Board of Directors on April 4, 2018. ………………………………………………  Director    ………………………………………………     Director  Deposit and security liabilities Provisions Income tax liabilities Accounts payable and accrued liabilities 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 21 21 22 23 2,950,820 2,776,362 224,159 379,018 3,553,997 413,805 1,559,232 80,027 28,277 246,976 207,122 377,576 3,361,060 395,213 1,623,325 101,292 50,641 204,975 5,882,314 5,736,506 3,059 300,470 (47,482) 367,327 623,374 865 308,089 932,328 3,029 297,050 (64,795) 300,865 536,149 1,291 257,974 795,414 Total liabilities and equity 6,814,642 6,531,920 114 SAGICOR FINANCIAL CORPORATION LIMITED 2    CONSOLIDATED STATEMENT OF INCOME Year ended December 31, 2017 Sagicor Financial Corporation Limited Amounts expressed in US $000 Note 2017 2016 Note 2017 2016 REVENUE Premium revenue Reinsurance premium expense Net premium revenue Net investment income Fees and other revenue Gain arising on disposal 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 from discontinued operation 38 NET INCOME FOR THE YEAR 105,169 10,110 115,279 107,897 1,412 109,309 898,354 (152,722) 745,632 379,236 93,740 2,261 833,918 (169,962) 663,956 353,352 116,839 - Net income/(loss) is attributable to: Common shareholders: From continuing operations 1,220,869 1,134,147 From discontinued operation Participating policyholders Non-controlling interests Basic earnings per common share: 34 From continuing operations From discontinued operation Fully diluted earnings per common share: 34 From continuing operations From discontinued operation 720,651 (114,839) 605,812 54,949 660,761 693,173 (194,262) 498,911 61,448 560,359 267,427 255,326 98,749 13,569 34,746 21,871 436,362 123,746 (18,577) 105,169 98,570 10,679 38,333 21,283 424,191 149,597 (41,700) 107,897 62,123 10,110 72,233 (1,044) 44,090 60,259 1,412 61,671 110 47,528 115,279 109,309 20.4 cents 3.3 cents 23.7 cents 19.9 cents 3.2 cents 23.1 cents 19.5 cents 0.5 cents 20.0 cents 18.7 cents 0.4 cents 19.1 cents 2017 ANNUAL REPORT 115 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended December 31, 2017 Sagicor Financial Corporation Limited Amounts expressed in US $000 OTHER COMPREHENSIVE INCOME Note 2017 2016 TOTAL COMPREHENSIVE INCOME 2017 2016 Items net of tax that may be reclassified subsequently to income: 35 Available for sale assets: Gains on revaluation (Gains) / losses 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 (Losses) / gains on revaluation of owner-occupied property Gains/ (losses) on defined benefit plans Other items 57,900 (12,259) (13,475) 9,721 41,887 (1,759) 23,914 - 22,155 39,183 2,675 (17,090) (28,481) (3,713) 5,145 (13,875) (128) (8,858) OTHER COMPREHENSIVE GAIN / (LOSS) FROM CONTINUING OPERATIONS 64,042 (12,571) Net income Other comprehensive income / (loss) TOTAL COMPREHENSIVE INCOME FOR THE YEAR Total comprehensive income / (loss) is attributable to: Common shareholders: From continuing operations From discontinued operation Participating policyholders Non-controlling interests 115,279 64,042 179,321 96,141 10,110 106,251 (210) 73,280 179,321 109,309 (12,571) 96,738 45,811 1,412 47,223 132 49,383 96,738 116 SAGICOR FINANCIAL CORPORATION LIMITED 4  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended December 31, 2017 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 2017 Balance, beginning of year 3,029 297,050 (64,795) 300,865 Total comprehensive income from continuing operations Total comprehensive income from discontinued operation Transactions with holders of equity instruments: Allotments of common shares Movements in treasury shares Changes in reserve for equity compensation benefits Dividends declared (note 21.3) Transfers and other movements - - 21 9 - - - - - 2,021 1,399 - - - 21,432 - - - (6,270) 74,709 10,110 - - - - (15,216) 2,151 (3,141) Balance, end of year 3,059 300,470 (47,482) 367,327 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 (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 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 5    536,149 96,141 10,110 2,042 1,408 (6,270) (15,216) (990) 623,374 506,046 45,811 1,412 - 759 2,132 (18,880) (1,131) 536,149 1,291 (210) 257,974 73,280 - - - - - (216) 865 1,383 132 - - - - - (224) 1,291 - - - (75) (19,861) (3,229) 308,089 231,735 49,383 - - - (50) (17,684) (5,410) 257,974 795,414 169,211 10,110 2,042 1,408 (6,345) (35,077) (4,435) 932,328 739,164 95,326 1,412 - 759 2,082 (36,564) (6,765) 795,414 2017 ANNUAL REPORT 117 CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, 2017 Sagicor Financial Corporation Limited Amounts expressed in US $000 Note 2017 2016 Note 2017 2016 OPERATING ACTIVITIES Income before taxes 123,746 149,597 Movement in treasury shares FINANCING ACTIVITIES Adjustments for non-cash items, interest and dividends 36.1 (110,518) (188,098) Interest and dividends received Interest paid Income taxes paid 305,810 (83,627) (43,352) 299,968 (93,620) (24,948) Net increase in investments and operating assets Net increase in operating liabilities Net cash flows - operating activities 36.1 36.1 (157,602) (100,362) 18,052 52,509 83,793 126,330 INVESTING ACTIVITIES Property, plant and equipment, net 36.2 (13,385) (17,996) Associates and joint ventures Intangible assets Changes in ownership of associate, net of cash and cash equivalents Net cash flows - investing activities (6,908) (6,182) 7,766 (18,709) (188) (4,272) - (22,456) Redemption of SFCL preference shares Shares issued to non-controlling interest Other notes and loans payable, net 36.3 Dividends received from associates (203) - (5,504) 16,182 2,561 (98) (119,991) (6,634) 34,008 1,788 Dividends paid to common shareholders (14,950) (13,381) Dividends paid to preference shareholders Dividends paid to non-controlling interests Net cash flows - financing activities - (19,861) (21,775) (5,256) (17,824) (127,388) Effects of exchange rate changes 1,595 (4,645) 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 13,620 (28,159) - (44,614) 312,106 325,726 384,879 312,106 118 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, 2017 have been approved by the Board of Directors on April 4, 2018. 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    2017 ANNUAL REPORT 119 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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, 2017, 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. 120 SAGICOR FINANCIAL CORPORATION LIMITED 8  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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, 2017, 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    2017 ANNUAL REPORT 121 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 2017 closing 2017 average 2016 closing 2016 average 2.4 Segments Barbados dollar 2.0000 Eastern Caribbean dollar 2.7000 2.0000 2.7000 2.0000 2.7000 2.0000 2.7000 Jamaica dollar 124.5754 128.0938 127.9824 124.7554 Trinidad & Tobago dollar 6.7628 Pound sterling 0.74020 6.7428 0.77496 6.7458 0.81280 6.6190 0.73444 Reportable operating segments have been defined on the basis of performance and resource allocation decisions of the Group’s Chief Executive Officer. 122 SAGICOR FINANCIAL CORPORATION LIMITED 10  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 the 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    2017 ANNUAL REPORT 123 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 124 SAGICOR FINANCIAL CORPORATION LIMITED 12  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 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  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. Fair value amounts represent the price (or estimates thereof) that would be agreed upon in an orderly transaction between market participants at the valuation date. 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. 13    2017 ANNUAL REPORT 125 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 126 SAGICOR FINANCIAL CORPORATION LIMITED 14  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 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. A number of insurance contracts contain a discretionary participation feature. A discretionary participation feature entitles the holder to receive, supplementary to the main benefit, additional benefits or bonuses:     that are likely to be a significant portion of the total contractual benefits; whose amount or timing is contractually at the discretion of management; and that are contractually based on the performance of a specified pool of contracts; investment returns on a specified pool of assets held by the insurer; or the profit or loss of a fund or insurer issuing the contract. 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    2017 ANNUAL REPORT 127 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 128 SAGICOR FINANCIAL CORPORATION LIMITED 16  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 directly 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    2017 ANNUAL REPORT 129 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 130 SAGICOR FINANCIAL CORPORATION LIMITED 18  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 Group 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    2017 ANNUAL REPORT 131 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 2.12 Financial liabilities (continued) 2.14 Derivative financial instruments and hedging activities (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 Fair value amounts represent the price (or estimates thereof) that would be agreed upon in an orderly transaction between market participants at valuation date. 2.13 Provisions Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into, and subsequently are re-measured at their fair value at each financial statement date. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various hedging transactions. The Group also documents its assessments, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. For cash flow hedges, gains and losses relating to the effective portion of changes in the fair value of derivatives are initially recognised in other comprehensive income, and are transferred to the statement of income when the forecast cash flows affect income. The gain or loss relating to the ineffective portion is recognised immediately in the statement of income. Gains and losses from changes in the fair value of derivatives that do not qualify for hedge accounting are included in net investment income or interest expense. 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 2.16 Presentation of current and non-current assets and liabilities 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. 132 SAGICOR FINANCIAL CORPORATION LIMITED 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. 20  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0002.17 Employee benefits (a) Pension benefits 2.17 Employee benefits (continued) (c) Profit sharing and bonus plans Group companies have various pension schemes in place for their employees. Some schemes are defined benefit plans and others are defined contribution plans. The liability in respect of defined benefit plans is the present value of the defined benefit obligation at December 31 less the fair value of plan assets. The defined benefit obligation is computed using the projected unit credit method. The present value of the defined benefit obligation is determined by the estimated future cash outflows using appropriate interest rates on government bonds for the maturity dates and currency of the related liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to 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. The Group recognises a liability and an expense for bonuses and profit sharing, based on various profit and other objectives of the Group as a whole or of individual subsidiaries. An accrual is recognised where there are contractual obligations or where past practice has created a constructive obligation. (d) Equity compensation benefits The Group has a number of share-based compensation plans in place for administrative, sales and managerial staff. (i) Equity-settled share-based transactions with staff The services received in an equity-settled transaction with staff are measured at the fair value of the equity instruments granted. The fair value of those equity instruments is measured at grant date. 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. 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 a minimum funding requirement exists, the Group assesses the obligation, to determine whether the additional contributions would affect the measurement of the defined benefit asset or liability. (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 other comprehensive income and retained earnings or non-controlling interest in the period in which they arise. 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    2017 ANNUAL REPORT 133 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 0.35% 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. 134 SAGICOR FINANCIAL CORPORATION LIMITED 22  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0002.18 Taxes (continued) 2.19 Common and preference shares 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) Registered annuities Other lines of business Nil Nil Nil 25% of net income 25% - 33.33 % of profit before tax 25% of net income (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 35% of net income 21% of net income 21% of net income 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. Income tax rates Barbados Jamaica Trinidad and Tobago United States of America (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. 23    The redemption value was recognised as a contractual liability, and was measured initially at its discounted fair value. The discount rate reflected 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 preference shareholders’ rights to receive dividends were recognised within shareholders’ equity, and were 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 was initially recorded as a preference share reserve in note 22. Incremental costs directly attributable to the issue of the preference shares were 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 was 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 was transferred to retained earnings pro- rata to the dividends declared over the period to redemption. No preference shares were converted to common shares prior to the redemption. 2017 ANNUAL REPORT 135 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 2.19 Common and preference shares (continued) 2.20 Participating accounts (continued) (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.  136 SAGICOR FINANCIAL CORPORATION LIMITED 24  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0002.20 Participating accounts (continued) 2.23 Fees and other revenue (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. 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 and excluded restricted cash. 25    2017 ANNUAL REPORT 137 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000  2.25 Future accounting developments and reporting changes IFRS (Effective Date) Subject / Comments Certain new standards and amendments to existing standards have been issued but are not effective for the periods covered by these financial statements. The changes in standards and interpretations which may have a significant effect on future presentation, measurement or disclosure of the Group’s financial statements are summarised in the following tables. IFRS (Effective Date) Subject / Comments IFRS 9 – Financial Instruments (January 1, 2018) (continued) Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss. IFRS 9 – Financial Instruments (January 1, 2018) ‘Financial instruments’, addresses IFRS 9, the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. The standard is effective for accounting periods beginning on or after January 1, 2018. IFRS 9 replaces the guidance in IAS 39, ‘Financial instruments: recognition and measurement’. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through other comprehensive income (“FVOCI”) and fair value through profit and loss (“FVPL”). The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (“SPPI”). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL. Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition. Management is in the process of assessing how the Group’s business model will impact the classification and measurement of financial assets in scope of IFRS 9. An Implementation Committee was created to oversee the implementation project. The project involves three phases: • • • Phase 1: Key decisions; this includes identification of key decisions, deciding on the measurement and classification for all products, determining stage migration and cure rate thresholds; Phase 2: Assessing availability of data, defining and determining detailed credit modelling methodology based on available data, resources and infrastructure, defining and developing methodology to estimate unadjusted credit losses and defining methodology to incorporate forward looking information; Phase 3: Implementation; this includes finalizing forward-looking information, applying multiple scenarios and determining the weight for each scenario to calculate the expected credit losses (“ECL”). Currently management has completed Phase 1 and Phase 2 and management is in the process of completing Phase 3. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. 138 SAGICOR FINANCIAL CORPORATION LIMITED 26 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0002.25 Future accounting developments and reporting changes (continued) IFRS (Effective Date) Subject / Comments IFRS (Effective Date) Subject / Comments IFRS 9 – Financial Instruments (January 1, 2018) The new standard is not expected to impact the Group’s consolidated financial liabilities as there are no financial liabilities which are currently designated at fair value through profit or loss without off-setting assets carried at fair value. IFRS 9 – Financial Instruments (January 1, 2018) The assessment of whether credit risk has increased significantly since initial recognition is performed on an ongoing basis by considering the change in the risk of default occurring over the remaining life of the financial instrument, rather than by considering an increase in ECL. 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. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The new standard relating to hedge accounting is not expected to impact the Group’s consolidated financial statements, as the Group does not use hedge accounting. lease receivables and certain The impairment requirements apply to financial assets measured at amortised cost and FVOCI, loan commitments and financial guarantee contracts. At initial recognition, an allowance is required for expected credit losses (‘ECL’) resulting from default events that are possible within the next 12 months (’12-month ECL’). In the event of a significant increase in credit risk, allowance is required for ECL resulting from all possible default events over the expected life of the financial instrument (‘lifetime ECL’). Financial assets where 12-month ECL is recognised are considered to be ‘stage 1’; financial assets which are considered to have experienced a significant increase in credit risk are in ‘stage 2’; and financial assets for which there is objective evidence of impairment are considered to be in default or otherwise credit impaired are in ‘stage 3’. The assessment of a significant increase in credit risk is done on a relative basis. To assess whether the credit risk on a financial asset has increased significantly since origination, the Group compares the risk of default occurring over the expected life of the financial asset at the reporting date to the corresponding risk of default at origination, using key risk indicators that are used in the Group’s existing risk management processes. At each reporting date, the assessment of a change in credit risk will be individually assessed for those considered individually significant. This assessment is symmetrical in nature, allowing credit risk of financial assets to move back to Stage 1 if the increase in credit risk since origination has reduced and is no longer deemed to be significant. When measuring ECL, the Group must consider the maximum contractual period over which the Group is exposed to credit risk. All contractual terms should be considered when determining the expected life, including prepayment options and extension and rollover options. For certain revolving credit facilities that do not have a fixed maturity, the expected life is estimated based on the period over which the Group is exposed to credit risk and where the credit losses would not be mitigated by management actions. 27 2017 ANNUAL REPORT 139 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 2.25 Future accounting developments and reporting changes (continued) IFRS (Effective Date) Subject / Comments IFRS (Effective Date) Subject / Comments IFRS 9 – Financial Instruments (January 1, 2018) The objective of the impairment requirements is to recognize lifetime expected credit losses for all financial instruments for which there have been a significant increase in credit risk since initial recognition – whether assessed on an individual or collective basis – considering all reasonable and supportable information, including that which is forward looking. The ECL is required to be unbiased and probability-weighted, and should incorporate all available information which is relevant to the assessment including information about past events, current conditions and reasonable and supportable forward looking information specific to the counterparty as well as forecasts of economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money. As a result, the recognition and measurement of impairment is intended to be more forward-looking than under IAS 39. It will also tend to result in an increase in the total level of impairment allowances, since all financial assets will be assessed for at least 12-month ECL and the population of financial assets to which lifetime ECL applies is likely to be larger than the population for which there is objective evidence of impairment in accordance with IAS 39. Any adjustment on initial adoption of this standard will impact retained earnings. The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group’s disclosures about its financial instruments particularly in the year of the adoption of the new standard. IFRS 15 - Revenue from contracts with customers (January 1, 2018) The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers construction contracts. IFRS 15 - Revenue from contracts with customers (January 1, 2018) The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. A new five-step process must be applied before revenue can be recognised: • • • • identify contracts with customers identify the separate performance obligation determine the transaction price of the contract allocate the transaction price to each of the separate performance obligations, and recognise the revenue as each performance obligation is satisfied. • Key changes to current practice are: • • • • • Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. Revenue may be recognised earlier than under current standards if the consideration varies for any reasons (such as for incentives, rebates, performance fees, royalties, success of an outcome etc.) –minimum amounts must be recognised if they are not at significant risk of reversal. The point at which revenue is able to be recognised may shift: some revenue which is currently recognised at a point in time at the end of a contract may have to be recognised over the contract term and vice versa. licenses, warranties, There are new specific rules on nonrefundable upfront fees and, consignment arrangements, to name a few. As with any new standard, disclosures. there are also increased 140 SAGICOR FINANCIAL CORPORATION LIMITED 28 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0002.25 Future accounting developments and reporting changes (continued) IFRS (Effective Date) Subject / Comments IFRS (Effective Date) Subject / Comments IFRS 15 - Revenue from contracts with customers (January 1, 2018) Entities will have a choice of full retrospective application, or prospective application with additional disclosures. IFRS 16 - Leases (January 1, 2019) The Group’s primary activities are insurance and banking. Insurance product revenue recognition is defined in IFRS 4. Banking revenue primarily arises from the recognition of income on financial assets and liabilities in accordance with the provisions of IFRS 9. IFRS 16 will affect primarily the accounting by lessees and will result in the recognition of almost all leases on balance sheet. The standard removes the current distinction between operating and financing leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for virtually all lease contracts. An optional exemption exists for short-term and low-value leases. The income statement will also be affected because the total expense is typically higher in the earlier years of a lease and lower in later years. Additionally, operating expense will be replaced with interest and depreciation, so key metrics like Earnings before Interest Tax Depreciation and Amortization will change. Operating cash flows will be higher as cash payments for the principal portion of the lease liability are classified within financing activities. Only the part of the payments that reflects interest can continue to be presented as operating cash flows. The accounting by lessors will not significantly change. Some differences may arise as a result of the new guidance on the definition of a lease. 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 fully assess the impact of this standard. Classification and Measurement of Share-based Payment Transactions – Amendments to IFRS 2 (January 1, 2018) The amendments made to IFRS 2 in July 2016 clarify the measurement basis for cash-settled share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. They also introduce an exception to the classification principles in IFRS 2. Where an employer is obliged to withhold an amount for the employee’s tax obligation associated with a share-based payment and pay that amount to the tax authority, the whole award will be treated as if it was equity-settled provided it would have been equity-settled without the net settlement feature. Entities with the following arrangements are likely to be affected by these changes: • equity-settled awards that include net settlement features relating to tax obligations cash-settled share-based payments that include performance conditions, and cash-settled arrangements that are modified to equity-settled share-based payments. • • Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4 (January 1, 2018) The Group does not expect the adoption of these improvements to have any material impact. In September 2016, the IASB published an amendment to IFRS 4 which addresses the concerns of insurance companies about the different effective dates of IFRS 9 Financial instruments and the forthcoming new insurance contracts standard. The amendment provides two different solutions for insurance companies: a temporary exemption from IFRS 9 for entities that meet specific requirements (applied at the reporting entity level), and the ‘overlay approach’. Both approaches are optional. The Group has assessed its eligibility for deferral and has concluded that it will adopt IFRS 9 on January 1, 2018. 29 2017 ANNUAL REPORT 141 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 2.25 Future accounting developments and reporting changes (continued) IFRS (Effective Date) Subject / Comments IFRS (Effective Date) Subject / Comments Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4 (January 1, 2018) Annual improvements 2014-2016 cycle (January 1, 2018) Transfers of Investment Property – Amendments to IAS 40 (January 1, 2018) IFRS 4 (including the amendments) will be superseded by the forthcoming new insurance contracts standard. Accordingly, both the temporary exemption and the ‘overlay approach’ are expected to cease to be applicable when the new insurance standards becomes effective. Transfers of Investment Property – Amendments to IAS 40 (January 1, 2018) Interpretation 22 Foreign Currency Transactions and Advance Consideration (January 1, 2019) The overlay approach will give 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 the new insurance contracts standard is issued. The Group is currently assessing the impact of this approach on its financial statements. The following improvements were finalised in December 2016: • • IFRS 1 - deleted short-term exemptions covering transition provisions of IFRS 7, IAS 19 and IFRS 10 which are no longer relevant. IAS 28 - clarifies that the election by venture capital organisations, mutual funds, unit trusts and similar entities to measure investments in associates or joint ventures at fair value through profit or loss should be made separately for each associate or joint venture at initial recognition. The Group does not expect the adoption of these improvements to have any material impact. The amendments clarify that transfers to, or from, investment property can only be made if there has been a change in use that is supported by evidence. A change in use occurs when the property meets, or ceases to meet, the definition of investment property. A change in intention alone is not sufficient to support a transfer. The list of evidence for a change of use in the standard was recharacterized as a non-exhaustive list of examples to help illustrate the principle. 142 SAGICOR FINANCIAL CORPORATION LIMITED • • The Board provided two options for transition: prospectively, with any impact from the reclassification recognized as adjustment to opening retained earnings as at the date of initial recognition, or retrospectively - only permitted without the use of hindsight Additional disclosures are required if an entity adopts the requirements prospectively. The Group does not expect the adoption of this amendment to have any material impact. The interpretation clarifies how to determine the date of transaction for the exchange rate to be used on initial recognition of a related asset, expense or income where an entity pays or receives consideration in advance for foreign currency-denominated contracts. For a single payment or receipt, the date of the transaction should be the date on which the entity initially recognises the non-monetary asset or liability arising from the advance consideration (the prepayment or deferred income/contract liability). If there are multiple payments or receipts for one item, a date of transaction should be determined as above for each payment or receipt. Entities can choose to apply the interpretation: • • • • retrospectively for each period presented prospectively to items in scope that are initially recognised on or after the beginning of the reporting period in which the interpretation is first applied, or prospectively from the beginning of a prior reporting period presented as comparative information. The Group is yet to assess the impact of this interpretation. 30 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0002.25 Future accounting developments and reporting changes (continued) IFRS (Effective Date) Subject / Comments IFRS (Effective Date) Subject / Comments Sale or contribution of assets between an investor and its associate or joint venture – Amendments to IFRS 10 and IAS 28 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 of recognised the other venture. The amendments apply prospectively. only to associate investor the extent joint investment the or the by in ** In December 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. IFRS 17 Insurance Contracts (January 1, 2021) IFRS 17 was issued in May 2017 as replacement for IFRS 4 Insurance Contracts. It requires a current measurement model where estimates are re-measured each reporting period. Contracts are measured using the building blocks of: • • • discounted probability-weighted cash flows an explicit risk adjustment, and a contractual service margin (“CSM”) representing the unearned profit of the contract which is recognised as revenue over the coverage period. The standard allows a choice between recognising changes in discount rates either in the income statement or directly in other comprehensive income. The choice is likely to reflect how insurers account for their financial assets under IFRS 9. An optional, simplified premium allocation approach is permitted for the liability for the remaining coverage for short duration contracts, which are often written by non-life insurers. There is a modification of the general measurement model called the ‘variable fee approach’ for certain contracts written by life insurers where policyholders share in the returns from underlying items. When applying the variable fee approach the entity’s share of the fair value changes of the underlying items is included in the contractual service margin. The results of insurers using this model are therefore likely to be less volatile than under the general model. The new rules will affect the financial statements and key performance indicators of all entities that issue insurance contracts or investment contracts with discretionary participation features. The Group is yet to assess the impact of IFRS 17. 31 2017 ANNUAL REPORT 143 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 3.3 Impairment of intangible assets 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. The Sagicor Group invests in a number of sovereign financial instruments that are not quoted in an active market, these assets are classified as loans and receivables and are carried at amortised cost less provision for impairment in the financial statements. At December 31, 2017 there were significant holdings in instruments of Government of Jamaica, Government of Trinidad and Tobago and Government of Barbados carried at amortised cost. The Group has assessed these instruments for impairment and concluded that based on all information currently available, that no impairment exists at December 31, 2017 in accordance with the accounting policies of the Group. 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. (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. 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. 144 SAGICOR FINANCIAL CORPORATION LIMITED 32  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0003.4 Fair value of securities not quoted in an active market (continued) (b) Best estimate reserve assumptions & provisions for adverse deviations 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.  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. 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, 2017, the asset of the discontinued operation is the estimated residual amount due from 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 asset 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. 33    2017 ANNUAL REPORT 145 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. Until 2015, the segments were (i) Barbados, Eastern Caribbean, Dutch Caribbean, Bahamas and Central America and (ii) Trinidad and Tobago. During 2016, 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% 146 SAGICOR FINANCIAL CORPORATION LIMITED 34  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000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% LOJ Holdings Limited Insurance holding company Jamaica 100% Sagicor Securities Jamaica Limited Securities trading Jamaica 49.11% Associates Sagicor Real Estate X-Fund Limited (note 37) Investment in real estate activities St. Lucia 14.39% Control of Sagicor Group Jamaica Limited is established through the following:    The Group’s effective shareholder’s interest gives it the power to appoint 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 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 subsidiaries operating in Jamaica are now wholly owned by Sagicor Group Jamaica Limited. The companies comprising this segment are as follows. Sagicor Jamaica Segment Companies Sagicor Group Jamaica Limited Principal Activities Country of Incorporation Effective Shareholders’ Interest Group holding company Jamaica 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 Employee Benefits Administrator Limited Sagicor Re Insurance Limited Sagicor Insurance Brokers Limited Life insurance The Cayman Islands Pension fund management Jamaica Pension administration services Property and casualty insurance Jamaica The Cayman Islands 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% 35    2017 ANNUAL REPORT 147 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 Other Group Companies Principal Activities Country of Incorporation Effective Shareholders’ Interest Life insurance and annuities USA - Texas 100% Sagicor Finance Inc Sagicor Life Insurance Company Sagicor USA Inc Insurance holding company USA - Delaware 100% Sage Distribution, LLC Life insurance and annuities USA - Delaware 100% Sage Partners, LLC Life insurance and annuities USA - Delaware 100% Sagicor Benfell, LLC Life insurance and annuities USA - Delaware 90% Sagicor Financial Partners, LLC Life insurance and annuities USA - Delaware 51% (d) Head office function and other operating companies These comprise the following: Other Group Companies Principal Activities Country of Incorporation Effective Shareholders’ Interest Group parent company Bermuda 100% Sagicor Financial Corporation Limited (1) Sagicor General Insurance Inc Loan and lease financing, and deposit taking St. Lucia 70% Investment management Trinidad & Tobago 100% Investment management Barbados 100% Investment management Barbados 100% Sagicor Asset Management (T&T) Limited Sagicor Asset Management Inc 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 Group financing vehicle Barbados 77% Barbados 100% Barbados Barbados The Cayman Islands The Cayman Islands 51% 73% 100% 100% Property and casualty insurance Barbados 53% (1) On July 20, 2016, Sagicor Financial Corporation continued as an exempted company under the laws of Bermuda under the name Sagicor Financial Corporation Limited. 148 SAGICOR FINANCIAL CORPORATION LIMITED 36  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0004.1 Statement of income by segment 2017 Net premium revenue Interest income Other investment income Fees and other revenues Gain arising on business combinations, acquisitions and divestitures 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 308,602 77,450 10,350 11,895 - 12,931 421,228 197,716 11,908 12,217 68,113 45,613 - 6,437 5,647(1) 347,651 73,577 (9,868) 63,709 64,753 320,067 159,462 47,459 62,580 2,261 - 591,829 171,038 83,338 37,501 127,855 42,967 1,089 9,219 1,858 474,865 116,964 (22,824) 94,140 46,235 86,719 48,842 26,160 (2,539) - - 159,182 87,606 27,081 2,144 28,298 15,071 156 2,491 (3,031)(1) 159,816 (634) 14,127 13,493 13,493 30,244 8,987 669 21,836 - 71,150 132,886 27,125 - 3,087 41,320 8,667 (251) 3,724 12,582 96,254 36,632 (12) 36,620 6,683 - - (143) (32) - (84,081) (84,256) - - - 1,841 - 33,752 - (17,056) 18,537 (102,793) - (102,793) (69,041) 745,632 294,741 84,495 93,740 2,261 - 1,220,869 483,485 122,327 54,949 267,427 112,318 34,746 21,871 - 1,097,123 123,746 (18,577) 105,169 62,123 59,864 75,876 21,555 6,564 (67,718) 96,141 (1) During 2015, Sagicor Life USA entered into a reinsurance agreement with Sagicor Life; included in the inter-segment expenses is $4,700 relating to this transaction. 37    2017 ANNUAL REPORT 149 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 4.1 Statement of income by segment (continued) 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) 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 (57,523) 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. 150 SAGICOR FINANCIAL CORPORATION LIMITED 38  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 $44,090 (2016 - $47,528), Sagicor Jamaica contributed $47,905 (2016 - $45,876). 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. Similarly on sale if the consideration received exceeds the carrying value of the business or portfolio a gain is recognised in the statement of income. 39    2017 ANNUAL REPORT 151 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 2016 Investment gains Impairment of financial investments Foreign exchange gains / (losses) Gains on acquisitions/ divestitures Decrease / (increase) in actuarial liabilities from changes in assumptions 5,136 56 514 - 47,768 (8,251) (4,864) 2,261 24,815 - - - 23,602 27,417 (11,120) 696 (166) 172 - - 78,415 (8,361) (4,178) 2,261 39,899 999 (328) 8,725 - 42,669 (4,652) 3,566 - 15,586 (4,488) - - 21,682 3,805 (18,176) 2,882 (153) 273 - - Total 62,136 (9,621) 12,564 - 7,311 29,308 64,331 13,695 702 108,036 31,078 45,388 (7,078) 3,002 72,390 152 SAGICOR FINANCIAL CORPORATION LIMITED 40  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 and losses Fair value investment gains and losses 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. 2017 Unrealised investment gains Changes in actuarial liabilities Retranslation of foreign currency operations Gains on defined benefit plans 2016 Unrealised investment (losses) / gains Changes in actuarial liabilities Retranslation of foreign currency operations Losses on defined benefit plans 41    Variations in other comprehensive income by segment Sagicor Life Sagicor Jamaica Sagicor Life USA Head Office and other Adjustments Total 6,873 (4,122) (444) 99 (2,474) 961 (7,490) (4,924) 26,143 5,135 11,405 22,249 32,226 (5,647) (21,058) (7,369) 22,147 (14,488) - - 11,034 (12,404) - - 194 - (1,139) 1,566 (137) - 10 (1,582) 2,543 - (101) - (1,466) - 57 - 57,900 (13,475) 9,721 23,914 39,183 (17,090) (28,481) (13,875) 2017 ANNUAL REPORT 153 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 4.4 Statement of financial position by segment 2017 Financial investments Other external assets Assets of discontinued operation Inter-segment assets Total assets Policy liabilities Other external liabilities Inter-segment liabilities Total liabilities Net assets 2016 Financial investments Other external assets Inter-segment assets Total assets Policy liabilities Other external liabilities Inter-segment liabilities Total liabilities Sagicor Life Sagicor Jamaica Sagicor Life USA Head office and other Adjustments Total 1,386,182 351,871 - 214,767 1,952,820 1,296,525 89,643 27,285 1,413,453 2,291,191 531,671 - 13,347 2,836,209 766,550 1,505,444 4,098 2,276,092 1,123,623 856,271 - 2,505 1,982,399 1,495,300 194,836 51,587 1,741,723 152,245 182,468 10,110 62,101 406,924 66,612 538,394 209,750 814,756 539,367 560,117 240,676 (407,832) 1,403,870 324,570 199,858 1,928,298 1,272,500 86,871 39,434 1,398,805 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 - (70,990) - (292,720) (363,710) (70,990) - (292,720) (363,710) - - (76,198) (268,178) (344,376) (76,198) - (268,178) (344,376) 4,953,241 1,851,291 10,110 - 6,814,642 3,553,997 2,328,317 - 5,882,314 932,328 4,813,748 1,718,172 - 6,531,920 3,361,060 2,375,446 - 5,736,506 Net assets 529,493 450,427 218,447 (402,953) - 795,414 154 SAGICOR FINANCIAL CORPORATION LIMITED 42  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 $308,089 (2016 - $257,974), Sagicor Jamaica contributed $274,211 (2016 - $219,361). 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 2017 9,822 17,297 3,175 1,649 31,943 2016 4,534 8,922 5,782 5,565 24,803 Barbados Jamaica Trinidad & Tobago Other Caribbean USA External revenue Non-current assets 2017 2016 2017 2016 169,135 560,906 173,027 158,759 159,042 170,271 188,005 495,476 133,275 166,066 152,161 150,173 65,559 28,465 10,009 193,522 120,178 66,115 30,025 9,325 1,220,869 1,134,147 425,313 419,165 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 2017 2016 678,849 635,289 307,046 276,893 42,026 162,497 30,451 36,621 157,573 27,772 1,220,869 1,134,147 43    2017 ANNUAL REPORT 155 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 2016 80,662 79,172 - - - - 74 80 7 555 846 (825) 1,847 (940) 80,816 80,662 Investment property includes $9,971 (2016 - $10,603) 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 25% -33% Percentage ownership 50% Trinidad & Tobago Freehold office building 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. 156 SAGICOR FINANCIAL CORPORATION LIMITED 44  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 Limited(2)(3) Trinidad & Tobago Bahamas Barbados Costa Rica St. Lucia 2017 33% 20% 38% 50% 29% 2016 33% 20% 38% 50% 29% Nature of relationship Measurement Method Carrying Amount 2017 2016 Associate Associate Associate Equity Method Equity Method Equity Method Joint Venture Equity Method Associate Equity Method 22,348 15,088 330 2,860 56,597 97,223 22,346 13,700 355 3,107 47,785 87,293 (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 $6.00 per share was $12,000 (2016 – $11,000). (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 $0.12 (J$15.00) per share was $78,895 (2016 - $66,508). (3) The Group both acquired and sold shares in Sagicor Real Estate X-Fund Limited during the year. These movements and the resulting gain on disposal are disclosed in note 37. 6.2 Commitments Commitments at the year-end if called are $374 (2016 – Nil). 45    2017 ANNUAL REPORT 157 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 6.3 Summarised Financial Information RGM Limited FamGuard Corporation Limited Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Limited 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 ASSETS Financial investments Cash resources Other investments and assets Total assets - 4,077 126,423 130,500 - 283,967 269,154 6,688 126,117 132,805 15,402 62,678 15,685 61,288 362,047 346,127 LIABILITIES Policy liabilities Other liabilities Total liabilities - 63,457 63,457 - 65,771 65,771 225,334 13,216 238,550 220,829 13,073 233,902 Net Assets 67,043 67,034 123,497 112,225 - - 1,000 1,000 - 219 219 781 - - 1,050 1,050 - 204 204 846 8,581 3,612 11,357 23,550 1,067 16,761 17,828 9,765 3,561 4,950 18,276 3,761 8,299 12,060 129,115 7,756 241,075 377,946 - 195,739 195,739 122,129 9,478 214,553 346,160 - 190,669 190,669 5,722 6,216 182,207 155,491 158 SAGICOR FINANCIAL CORPORATION LIMITED 46  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0006.3 Summarised Financial Information (continued) RGM Limited FamGuard Corporation Limited Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Limited 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Reconciliation to carrying amounts: Investment, beginning of year 22,346 23,199 13,700 14,059 355 362 Additions Transfers/Disposals 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 - - - - - - (1,281) (470) (480) 1,531 1,158 1,683 - (191) - - (402) - (57) (1,139) (72) - 257 - - - (580) 240 (72) - 53 - (25) (7) (76) - - - - - - - - - - - - - - 3,107 152 - - - - 77 6,326 188 (2,886) - 66 - - 47,785 6,756 (6,221) (800) 40,584 - - (738) 6,736 3,968 - - - - (400) (264) 828 6,762 (323) 3,107 1,513 (2,791) 56,597 47,785 Investment, end of year 22,348 22,346 15,088 13,700 330 355 2,860 47    2017 ANNUAL REPORT 159 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 6.3 Summarised Financial Information (continued) RGM Limited FamGuard Corporation Limited Primo Holding Limited Sagicor Costa Rica SCR, S.A. Sagicor Real Estate X-Fund Limited 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Summarised statement of comprehensive income REVENUE Net premium revenue Net investment and other income - - 92,705 90,753 24,768 23,522 23,331 28,593 Total revenue 24,768 23,522 116,036 119,346 BENEFITS AND EXPENSES Benefits Expenses Total benefits and expenses INCOME BEFORE TAXES Income taxes NET INCOME FOR THE PERIOD Other comprehensive income Total comprehensive income Dividends from associates and joint ventures received - 19,663 19,663 5,105 (572) 4,533 - 19,916 19,916 3,606 (1,195) 2,411 71,701 36,092 78,106 36,762 107,793 114,868 8,243 - 8,243 4,478 - 4,478 - - 1,413 634 4,533 2,411 9,656 5,112 1,281 470 480 580 - - - - 66 66 (66) - (66) - (66) - - - - - 18 18 (18) - (18) - (18) 12,735 1,029 13,764 9,118 4,269 13,387 377 (529) (152) (632) (784) 5,785 668 - 101,547 6,453 101,547 - 77,986 77,986 23,561 (2,087) 21,474 3,393 2,626 6,019 434 (301) 133 (670) (537) - 82,865 82,865 - 67,411 67,411 15,454 (1,916) 13,538 2,824 23,070 24,298 36,608 - - - 800 738 160 SAGICOR FINANCIAL CORPORATION LIMITED 48  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0007 PROPERTY, PLANT AND EQUIPMENT 2017 Owner-occupied property Lands Land & buildings Office furnishings, equipment & vehicles Operating lease vehicles & equipment Owner-occupied properties Total Land Land & buildings 2016 Office furnishings, equipment & vehicles Operating lease vehicles & equipment Total Net book value, beginning of year 37,185 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 - - - - - - (1,953) - - Net book value, end of year 35,232 Represented by: Cost or valuation Accumulated depreciation 35,232 - 35,232 - - (121) (1,575) - (274) (1,098) 503 78,465 81,697 (3,232) 78,465 77,855 3,175 41,179 15,101 11,504 167,723 38,031 577 18,853 - - (1,368) - (729) (1,539) - (1,575) (3,282) - (3,631) (2,227) (1,865) (12,174) - 859 - (846) - - - - - - - 80,694 2,680 - - - - (753) (1,583) (1,105) (2,078) 5,566 165,560 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) - (846) (2,885) 613 - (2,873) (1,583) (2,967) (12,442) - (2,846) 11,504 167,723 - (729) (50) - (349) - (9,211) 356 46,297 134,103 11,897 262,929 37,185 81,004 120,299 18,755 257,243 (87,806) (6,331) (97,369) - (3,149) (79,120) (7,251) (89,520) 46,297 5,566 165,560 37,185 77,855 41,179 11,504 167,723 Owner-occupied lands are largely utilised for farming operations. Owner-occupied land and buildings consist largely of commercial office buildings. 49    2017 ANNUAL REPORT 161 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 8 INTANGIBLE ASSETS 8.1 Analysis of intangible assets and changes for the year Goodwill 2017 Customer & broker relationships Software Total Goodwill 2016 Customer & broker relationships Net book value, beginning of year 43,911 13,737 45,272 16,441 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 - - - - 323 44,234 44,234 - 44,234 25,839 6,182 729 83,487 6,182 729 - - (1,674) (7,951) (9,625) - 328 - 290 - 941 12,391 25,089 81,714 - - - - (1,361) 43,911 36,552 (24,161) 12,391 71,006 (45,917) 25,089 151,792 (70,078) 81,714 43,911 35,579 63,466 - (21,842) (37,627) 43,911 13,737 25,839 Software Total 26,470 4,272 2,885 88,183 4,272 2,885 - - (1,719) (7,050) (8,769) - (985) - (738) 13,737 25,839 - (3,084) 83,487 142,956 (59,469) 83,487 162 SAGICOR FINANCIAL CORPORATION LIMITED 50  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2016, 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. The Group obtains independent professional advice in order to select the relevant discount factors, residual growth rates and earnings multiples. The carrying values of goodwill and the impairment test factors used are considered in the following sections. 8.2 Impairment of intangible assets (continued) (i) Years ended December 31, 2017 & 2016 An actuarial appraisal value technique was adopted to test goodwill impairment. The principal assumptions included the following:      Discount rates of 10% (2016, 7 - 11%) for individual life and annuity inforce business, New individual life and annuity business was included for the seven year period 2018 to 2024, (five year period 2017 to 2021) Annual growth rate for new individual life and annuity business was 12.4% - 21.0% for 2018 and 5% – 16.8 % from 2019 to 2024 (2017 – 0% - 21.8% and 5% to 19.7% from 2018 to 2021), Discount rates of 14% (2016, 11 - 15%) for new individual life and annuity business, Required Minimum Continuing Capital and Surplus Ratio (MCCSR) of 175% (2016 – 175%). 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. Sagicor Life Inc Segment MCCSR target ratio Discount rate Inforce New business 150% 175% Low Mid High 200% (a) Sagicor Life operating segment 2017 2016 Low Mid High 8% 10% 12% 12% 14% 16% 253,334 102,371 245,807 237,899 90,688 78,481 (10,104) (24,348) (39,153) Carrying value of goodwill 26,552 26,576 51    2017 ANNUAL REPORT 163 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 13,398 13,051 Carrying value of goodwill 4,284 4,284 2017 2016 2017 2016 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 8.6 (2016– 8.2) which was derived from a pre-tax factor of 6.9 (2016 – 6.6) 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 20.8% (2016 –12.8%) which was derived from an after tax factor of 15.0% (2016 – 12.5%) using an iterative method. The residual growth rate was 2.5% (2016 – 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. 2017 test Scenario 1 Scenario 2 Scenario 3 After tax earnings multiples Reduction in forecast earnings 8.6 n/a 7.3 10% Excess of recoverable amount (of 49.11% interest) 150,046 73,893 4.9 10% n/a Impairment (of 49.11% interest) Nil Nil (38,679) The possible impairment of goodwill is sensitive to changes in earnings multiples and after tax earnings. This is illustrated in the following table. After tax discount factor Residual growth rate Reduction in residual growth rate Increase in after tax discount factor 2017 test Scenario 1 Scenario 2 Scenario 3 15.0 2.5 n/a n/a 15.0 2.1 16% n/a 18.0 2.1 16% 20% Excess of recoverable amount (of 53.0% interest) 21,394 19,115 17,375 Impairment (of 53.0% interest) Nil Nil Nil 164 SAGICOR FINANCIAL CORPORATION LIMITED 52  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $0009 FINANCIAL INVESTMENTS 9.1 Analysis of financial investments Held to maturity securities: Debt securities Available for sale securities: Debt securities Equity securities Financial assets at fair value through income: Debt securities Equity securities Derivative financial instruments (note 41.6) Mortgage loans Loans and receivables: Debt securities Mortgage loans Policy loans 2017 2016 Carrying value Fair value Carrying value Fair value - - 20,665 21,688 2,266,275 2,266,275 2,271,020 2,271,020 86,862 86,862 96,684 96,684 2,353,137 2,353,137 2,367,704 2,367,704 180,484 180,484 164,005 164,005 158,621 158,621 123,524 123,524 32,477 45,447 32,477 45,447 28,980 40,347 28,980 40,347 417,029 417,029 356,856 356,856 9.1 Analysis of financial investments (continued) Non-derivative financial assets at fair value through income comprise: Assets designated at fair value upon initial recognition Assets held for trading 2017 2016 375,917 8,635 316,700 11,176 Debt securities comprise: Government and government-guaranteed debt securities 1,701,250 1,765,558 Collateralised mortgage obligations Corporate debt securities Other securities 240,363 214,320 1,444,086 1,352,387 112,743 109,089 3,498,442 3,441,354 Debt securities include $804 (2016 - $1,836) that contain options to convert to common shares of the issuer. Corporate debt securities include $28,496 (2016 - $29,693) in bonds issued by an associated company. 1,051,683 1,155,331 985,664 1,042,108 Equity securities include $166,899 (2016 - $146,708) in mutual funds managed by the Group. 296,939 296,867 291,419 291,154 142,132 149,995 137,940 148,141 Finance loans and finance leases 564,399 551,922 508,975 491,131 Securities purchased for re-sale 16,518 16,518 5,227 5,227 Deposits 111,404 111,404 139,298 139,298 2,183,075 2,282,037 2,068,523 2,117,059 Total financial investments 4,953,241 5,052,203 4,813,748 4,863,307 53    2017 ANNUAL REPORT 165 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 9.2 Pledged assets 9.4 Reclassification of financial investments Debt and equity securities include $140,418 (2016 - $275,250) 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 $6,520 (2016 - $5,982), and mortgages and mortgage backed securities having a total market value of $155,636 (2016 - $139,630). 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, 2017, these pledged assets totalled $514,674 (2016 - $328,062). Of these assets pledged as security, $513,468 (2016 – $326,884) represents collateral for securities sold under agreements to repurchase in instances when the transferee has the right by contract or by custom to sell or re-pledge the collateral. 9.3 Returns accruing to the benefit of contract-holders Financial investments include the following amounts for which the full income and capital returns accrue to the holders of unit linked policy and deposit administration contracts.   Government of Jamaica debt securities with a maturity date of 2018 and after, which are held to back long-term insurance liabilities; and Non-agency collateralised mortgage obligations in the USA. The reclassifications were made because the markets for these securities were considered by management to have become inactive. The following disclosures are in respect of these reclassified assets. 2017 2016 Carrying value Fair value Carrying value Fair value Government debt securities maturing after September 2018 26,344 35,367 27,591 35,879 Other debt securities 922 1,239 1,624 2,217 27,266 36,606 29,215 38,096 Debt securities Equity securities Mortgage loans 2017 2016 143,167 133,862 154,775 123,524 Cumulative net fair value gain, beginning of year 45,381 40,271 Net fair value gains 343,323 297,657 Disposals Effect of exchange rate changes Cumulative net fair value gain, end of year 2017 2016 5,090 3,245 (778) 84 7,641 4,263 1,887 (971) (89) 5,090 166 SAGICOR FINANCIAL CORPORATION LIMITED 54  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 736,547 713,252 41,571 11,561 7,712 35,994 21,775 6,323 797,391 777,344 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 2017 2016 20,477 19,503 39,980 36,279 23,296 59,575 Net defined benefit assets (note 31) Real estate developed or held for resale (ii) Prepaid and deferred expenses (ii) Premiums receivable Legal claim (iii) 2017 2016 Other assets and accounts receivable (i) 2017 2016 6,059 12,986 22,885 53,446 70,946 62,221 1,333 10,162 21,047 46,530 52,720 51,226 228,543 183,018 (i) Other assets and accounts receivables include $7,892 (2016 - $9,880) due from managed funds. (ii) Real estate developed for resale includes $7,291 (2016 - $7,878) 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) On March 17, 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 Jamaica Limited). This claim pre dated the acquisition of control of the Bank by RBTT from Finsac Limited (“Finsac”) in 2001. dated the acquisition of the Bank by Sagicor Group Jamaica Limited, and also pre ‐ 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 against any loss the bank may suffer in this matter. As the current owner of Sagicor Bank Jamaica Limited, Sagicor Group, is the current beneficiary of the Indemnity. The Indemnity from Finsac is further supported by a Government of Jamaica Guarantee on a full indemnity basis. The decision of the Supreme Court was appealed and is pending as at December 31, 2017. The amount previously awarded from Finsac/Government of Jamaica and correspondingly payable to the claimant with accrued interest. (note 20) the Claimant has been recorded as receivable to Income and withholding taxes recoverable are expected to be recovered within one year of the financial statements date. During 2017, interest was accrued on this liability and resulted in an increase in the amount outstanding to $70.9 million. 55    2017 ANNUAL REPORT 167 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 13 ACTUARIAL LIABILITIES 13.1 Analysis of actuarial liabilities 13.2 Movement in actuarial liabilities Gross liability Reinsurers’ share 2017 2016 2017 2016 Gross liability Reinsurers’ share 2017 2016 2017 2016 Balance, beginning of year 2,776,362 2,632,387 713,252 601,597 Contracts issued to individuals: Changes in actuarial liabilities: Life insurance - participating policies 238,695 238,604 51 51 Life insurance and annuity - non-participating policies Health insurance Unit linked funds 1,971,894 1,889,653 719,494 694,882 13,189 13,926 433 438 219,533 177,454 - - - - Reinsurance contracts held 30,121 28,894 Recorded in income (note 27) 145,656 156,983 23,329 111,731 Recorded in other comprehensive income 19,213 23,769 Other movements (227) 1 - 2 Effect of exchange rate changes 9,816 (36,778) (36) - (62) (14) Balance, end of year 2,950,820 2,776,362 736,547 713,252 2,473,432 2,348,531 719,978 695,371 Analysis of changes in actuarial liabilities Contracts issued to groups: Life insurance Annuities Health insurance 32,057 30,404 79 118 411,259 362,980 16,418 17,660 34,072 34,447 72 103 477,388 427,831 16,569 17,881 Total actuarial liabilities 2,950,820 2,776,362 736,547 713,252 The following notes are in respect of the foregoing table:    Life insurance includes coverage for disability and critical illness. Actuarial liabilities include $83,277 (2016 - $83,238) 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 171,398 206,505 18,089 105,642 (39,899) (7,311) 1,917 (12,915) - - - - Other items Total 31,453 (5,527) 5,240 6,089 164,869 180,752 23,329 111,731 168 SAGICOR FINANCIAL CORPORATION LIMITED 56  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 reviews the validity of each assumption by referencing current data, and where appropriate, changes the assumptions for the current valuation. A similar process of review and assessment is conducted in the determination of margins for adverse deviations. Returns on existing variable rate securities, shares, investment property and policy loans are linked to the current economic scenario. Yields on reinvested assets are also tied to the current economic scenario. Returns are however assumed to decrease and it is assumed that at the end of twenty years from the valuation date, all investments, except policy loans, are reinvested in long-term, default free government bonds. Any changes in actuarial standards and practice are also incorporated in the current valuation. (b) Assumptions for mortality and morbidity Mortality rates are related to the incidence of death in the insured population. Morbidity rates are related to the incidence of sickness and disability in the insured population. Annually, insurers update studies of recent mortality experience. The resulting experience is compared to external mortality studies including tables from the Canadian Institute of Actuaries. 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. (c) Assumptions for lapse Policyholders may allow their policies to lapse prior to the maturity date either by choosing not to pay premiums or by surrendering their policy for its cash value. Lapse studies are updated annually by insurers to determine the persistency of the most recent period. Assumptions for lapse experience are generally based on moving averages. The ultimate rate of return is the assumed rate that will ultimately be earned on long-term government bonds. It is established for each geographic area and is summarised in the following table. Ultimate rate of return 2017 2016 Barbados Jamaica Trinidad & Tobago Other Caribbean USA 7.00% 6.0% 5.0% 6.75% 5.0% 5.0% 4.5% - 7.00% 4.5% - 6.75% 0.85% - 3.65% 0.85% - 3.65% (e) Assumptions for operating expenses and taxes Policy acquisition and policy maintenance expense costs for the long-term business of each insurer are measured and monitored using internal expense studies. Policy maintenance expense costs are reflected in the actuarial valuation after adjusting for expected inflation. Costs are updated annually and are applied on a per policy basis. Taxes reflect assumptions for future premium taxes and income taxes levied directly on investment income. For income taxes levied on net income, actuarial liabilities are adjusted for policy related recognised deferred tax assets and liabilities. 57    2017 ANNUAL REPORT 169 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 2016 Mortality and morbidity Lapse Investment yields and asset default Operating expenses and taxes Other 96,090 69,365 68,930 10,807 10,765 89,986 63,855 69,109 11,136 10,486 255,957 244,572 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. 170 SAGICOR FINANCIAL CORPORATION LIMITED 58  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 14 OTHER INSURANCE LIABILITIES 14.2 Policy benefits payable (continued) 14.1 Analysis of other insurance liabilities 2017 2016 Movement for the year: Gross liability Reinsurers’ share 2017 2016 2017 2016 Dividends on deposit and other policy balances 63,744 65,719 Policy benefits payable Provision for unearned premiums 14.2 Policy benefits payable 127,801 107,219 32,614 34,184 224,159 207,122 Balance, beginning of year 107,219 105,910 35,994 Policy benefits incurred 581,238 541,502 101,671 37,816 93,314 Policy benefits paid (559,981) (538,459) (94,673) (94,898) Effect of exchange rate changes (675) (1,734) (1,421) (238) Balance, end of year 127,801 107,219 41,571 35,994 Gross liability Reinsurers’ share 2017 2016 2017 2016 14.3 Provision for unearned premiums Analysis of policy benefits payable: Life insurance and annuity benefits 86,562 79,445 22,809 22,084 Health claims 4,280 4,284 2,122 1,686 Property and casualty claims 36,959 23,490 16,640 12,224 127,801 107,219 41,571 35,994 Gross liability Reinsurers’ share 2017 2016 2017 2016 Analysis of the provision: Property and casualty insurance 32,177 33,777 11,561 21,775 Health insurance 437 407 - - 32,614 34,184 11,561 21,775 The provision for unearned premiums is expected to mature within a year of the financial statements’ date. 59    2017 ANNUAL REPORT 171 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 2016 2017 2016 34,184 74,305 33,710 75,004 21,775 29,676 21,356 48,939 (74,619) (74,434) (38,388) (48,463) Effect of exchange rate changes (1,256) (96) (1,502) (57) Balance, end of year 32,614 34,184 11,561 21,775 15 INVESTMENT CONTRACT LIABILITIES 2017 2016 Carrying value Fair value Carrying value Fair value At amortised cost: Deposit administration liabilities Other investment contracts At fair value through income: Unit linked deposit administration liabilities 121,483 117,782 239,265 121,483 128,345 128,345 241,398 246,908 249,396 139,753 139,753 130,668 130,668 379,018 381,151 377,576 380,064 2017 2016 Carrying value Fair value Carrying value Fair value 8.875% senior notes due 2022 317,028 364,131 315,383 364,095 8.25% convertible redeemable preference shares due 2020 (b) 7.75% convertible redeemable preference shares due 2018 (b) 11,310 11,887 5,181 5,433 - - - - 4.85% / 5.0% notes due 2019 (a) 74,929 76,199 74,825 75,491 Bank loans & other funding instruments 5,357 5,357 5,005 5,005 413,805 463,007 395,213 444,591 (a) 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). i. ii. Cumulative redeemable preference shares with a tenor of three (3) years at 8.25% interest per annum. Cumulative redeemable preference shares with a tenor of eighteen (18) months at 7.75% interest per annum. 119,915 118,563 121,051 (b) On March 2, 2017, Sagicor Bank Jamaica Limited issued: 172 SAGICOR FINANCIAL CORPORATION LIMITED 60  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $00017 DEPOSIT AND SECURITY LIABILITIES 18 PROVISIONS 2017 2016 Carrying value Fair value Carrying value Fair value 279,874 750,948 476,034 2,568 284,980 749,834 473,771 2,568 349,514 915,155 320,574 1,939 346,216 915,419 320,574 1,939 1,509,424 1,511,153 1,587,182 1,584,148 Net defined benefit liabilities (note 31) Cash settled share based payment liabilities(1) Other provisions 2017 2016 77,110 2,823 94 101,235 - 57 80,027 101,292 (1) As of March 31, 2017, certain options are recorded using the cash-settled method of accounting. This resulted in a transfer of $4,873 from reserves to provisions at that date. At amortised cost: Other funding instruments Customer deposits Securities sold for re-purchase Bank overdrafts At fair value through income: Structured products 47,576 47,576 34,779 34,779 Derivative financial instruments (note 41.6) 2,232 2,232 1,364 1,364 49,808 49,808 36,143 36,143 1,559,232 1,560,961 1,623,325 1,620,291 Other funding instruments consist of loans from banks and other financial institutions and include balances of $148,583 (2016 - $134,321) 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.  61    2017 ANNUAL REPORT 173 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 19 INCOME TAX LIABILITIES Deferred income tax liabilities (note 33) Income taxes payable 2017 2016 25,092 3,185 28,277 36,238 14,403 50,641 Income taxes payable are expected to be settled within a year of the financial statements’ date. 20 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Amounts due to policyholders Amounts due to reinsurers Legal claim (i) Other accounts payable and accrued liabilities 2017 2016 22,385 22,590 70,946 131,055 246,976 20,525 17,179 52,720 114,551 204,975 ‐ On March 17, 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 Jamaica Limited). This claim pre dated the acquisition of the Bank by Sagicor Group Jamaica Limited, and also pre dated the acquisition of control of the Bank by RBTT 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 against any loss the bank may suffer in this matter. As the current owner of Sagicor Bank Jamaica Limited, Sagicor Group, is the current beneficiary of the Indemnity. The Indemnity from Finsac is further supported by a Government of Jamaica Guarantee on a full indemnity basis.The decision of the Supreme Court was appealed and is pending as at December 31, 2017. The amount previously awarded to the Claimant has been recorded as payable to the claimant with accrued interest and correspondingly receivable from Finsac/Government of Jamaica (note 12). 174 SAGICOR FINANCIAL CORPORATION LIMITED 62  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 21 COMMON AND PREFERENCE SHARES The Company is authorised to issue:   650,000,000 common shares, 320,000,000 convertible redeemable preference shares. In each case the shares have a par value of US$0.01. 21.1 Common shares 2017 2016 Number in 000’s Share capital Share premium Total Number in 000’s Share capital Share premium Total 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) Total 304,494 3,045 299,111 302,156 304,494 302,156 - 302,156 - 2,062 306,556 (673) 305,883 - 21 - - 2,021 2,042 - - (299,111) 299,111 - - - - 3,066 301,132 304,198 304,494 3,045 299,111 302,156 (7) 3,059 (662) (669) 300,470 303,529 (1,646) 302,848 (16) 3,029 (2,061) (2,077) 297,050 300,079 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. 21.2 Convertible redeemable preference shares 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:    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 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; the redemption date; 63    2017 ANNUAL REPORT 175 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 21.2 Convertible redeemable preference shares (continued) 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. 21.3 Dividends 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. 2017 2016 Per share Total Per share Total Dividends declared and paid: Preference shares Common shares - 5.0¢ - 15,216 15,216 4.38 ¢ 4.5 ¢ 5,256 13,624 18,880 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. 2017 2016 Per share Total Per share Total Dividends proposed: Common shares - final for current year 2.5 ¢ 21.4 Restrictions on common share dividends 7,664 7,664 2.5 ¢ 7,612 7,612 The Company’s Constitutive documents include the following limitations on the payment of common share dividends. (i) 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 preference shares were redeemed on July 18, 2016. (ii) 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. This requirement was repealed on June 16, 2017. 176 SAGICOR FINANCIAL CORPORATION LIMITED 64  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $00022 RESERVES 2017 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 Balance, end of year 2016 Balance, beginning of year Transfers to retained earnings and other movements 101 390 <<<<<< Fair value reserves >>>>>> Owner occupied property Available for sale assets Actuarial liabilities Currency translation reserves Preference share reserves Other reserves Total reserves 27,184 (2,132) (6,111) 35,458 (6,735) (114,480) (16,544) 4,650 - - - - - - - - - - 25,153 29,737 (23,279) (109,733) - - - - - - 35,347 (64,795) - 21,432 5,039 5,039 (11,309) (11,309) 1,660 30,737 2,151 (47,482) 25,047 (33,305) 8,773 (96,339) 4,219 31,917 (59,688) Other comprehensive income from continuing operations allocated to reserves 2,137 27,194 (15,509) (18,141) 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 - - - - - - - - 1 - - - Balance, end of year 27,184 (6,111) (6,735) (114,480) Other reserves comprise reserves for equity compensation benefits of $10,282 (2016 - $16,552) and statutory reserves of $20,455 (2016 - $18,795). - - - (4,219) - - (4,319) 5,280 (3,148) 1,298 35,347 5,280 (3,148) (2,920) (64,795) 65    2017 ANNUAL REPORT 177 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 23 PARTICIPATING ACCOUNTS 24 PREMIUM REVENUE The movements in the participating accounts during the year and the amounts in the financial statements relating to participating accounts were as follows: Closed participating account Open participating account 2017 2016 2017 2016 Life insurance Annuity Health insurance Gross premium Ceded to reinsurers 2017 2016 2017 2016 419,085 388,287 257,940 225,204 154,015 153,666 29,833 79,567 4,934 30,876 86,490 4,077 Property and casualty insurance 67,314 66,761 38,388 48,519 898,354 833,918 152,722 169,962 Movement for the year: Balance, beginning of year Total comprehensive income / (loss) Return of transfer to support profit distribution, to shareholders (1,281) (266) (607) (677) 2,572 56 1,990 809 - 3 (216) (227) Balance, end of year (1,547) (1,281) 2,412 2,572 Financial statement amounts: Assets Liabilities Revenues Benefits Expenses Income taxes 80,559 82,106 7,129 6,786 414 131 82,306 196,995 196,999 83,587 194,583 194,427 7,557 7,669 428 187 23,552 22,303 1,474 617 22,261 18,917 1,630 877 The Group has the ability to reduce future policy bonuses and dividends in order to eliminate a deficit in a participating account. 178 SAGICOR FINANCIAL CORPORATION LIMITED 66  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $00025 NET INVESTMENT INCOME 25 NET INVESTMENT INCOME (continued) 2017 2016 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 Net investment income 294,741 292,868 3,790 3,865 3,088 3,816 78,415 62,136 9,849 300 5,425 (57) 390,960 367,276 8,361 1,964 1,399 9,621 2,107 2,196 11,724 13,924 379,236 353,352 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 2017 2016 204,037 205,068 18,675 9,678 58,686 542 2,865 258 19,908 9,053 56,166 584 1,902 187 294,741 292,868 28,741 27,939 74 21,661 78,415 37,341 15,982 1,847 6,966 62,136 67    2017 ANNUAL REPORT 179 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 26 FEES AND OTHER REVENUE 28 INTEREST EXPENSE  2017 2016 2017 2016 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 (losses) / gains Other operating and miscellaneous income 29,179 2,000 9,530 33,558 (4,178) 23,651 93,740 25,470 1,739 29,375 28,288 12,564 19,403 116,839 Insurance contracts Investment contracts Other funding instruments Customer deposits Securities sold for re-purchase Other items 1,827 15,796 6,514 16,535 14,245 32 2,866 16,833 6,981 16,204 18,519 45 54,949 61,448 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 2017 2016 2017 2016 Life insurance benefits 215,472 199,946 Annuity benefits 203,072 199,037 Health insurance claims 118,848 119,499 Property and casualty claims 37,603 17,708 Total policy benefits 574,995 536,190 13,976 61,327 5,254 10,953 91,510 16,966 51,566 3,995 10,004 82,531 Change in actuarial liabilities (note 13.2) 145,656 156,983 23,329 111,731 Total policy benefits and change in actuarial liabilities 720,651 693,173 114,839 194,262 180 SAGICOR FINANCIAL CORPORATION LIMITED 68  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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) Cash-settled compensation benefits (note 30.1) Defined benefit expense (note 31 (b)) 30 EQUITY COMPENSATION BENEFITS 30.1 The Company 2017 2016 107,431 107,329 9,553 10,302 (1,182) 13,561 9,125 5,365 - 11,528 139,665 133,347 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. In 2017, the shareholders of the Company approved the increase in the number of the Company’s shares reserved for the LTI and ESOP from 26,555,274 common shares to 40,400,000 common shares. 2017 2016 Number of grants ‘000 Weighted average price Number of grants ‘000 Weighted Average price Balance, beginning of year Grants issued Grants vested 4,637 3,366 US$0.92 US$1.13 3,527 3,552 US$0.93 US$0.94 (3,054) US$1.00 (1,854) US$0.94 Grants lapsed/forfeited (230) US$0.96 (588) US$1.05 Balance, end of year 4,719 US$1.02 4,637 US$0.92 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/or distributed during the year were as follows: 2017 2016 Number in 000’s $000 Number in 000’s $000 Balance, beginning of year Shares acquired Balance, end of year 1 170 171 3 203 206 1 - 1 3 - 3 (a) LTI plan – restricted share grants During 2016 a cash settlement was made in lieu of share issue. 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. 69    2017 ANNUAL REPORT 181 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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: 2017 2016 Number of options ‘000 Weighted average exercise price Number of options ‘000 Weighted average exercise price Balance, beginning of year 19,800 US$1.30 16,397 US$1.48 Options granted Options exercised Options lapsed/forfeited Balance, end of year 4,873 US$1.00 4,927 US$0.86 (4,555) (1,431) US$1.04 - - US$1.81 (1,524) US$1.82 18,687 US$1.25 19,800 US$1.30 Exercisable at the end of the year 8,354 US$1.59 10,197 US$1.61 Share price at grant date US $0.86 – 2.50 US $0.86 – 2.50 Fair value of options at grant date Expected volatility Expected life Expected dividend yield Risk-free interest rate US$0.16 – 0.69 18.3% – 35.8% 7.0 years 2.6% - 4.7% 4.8% - 6.8% US$0.16 – 0.69 19.3% – 35.8% 7.0 years 2.6% - 4.7% 4.8% - 6.8% 30.1 The Company (continued) The expected volatility of options is based on statistical analysis of monthly share prices over the 7 years prior to grant date. As disclosed in Note 18, share options which were previously settled in the Company’s shares are now cash-settled. (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: 2017 2016 Number in 000’s $000 Number in 000’s $000 Balance, beginning of year 1,645 2,074 Shares acquired Shares distributed Balance, end of year - - (1,143) (1,611) 502 463 2,125 100 (580) 1,645 2,833 98 (857) 2,074 182 SAGICOR FINANCIAL CORPORATION LIMITED 70  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $00030.2 Sagicor Group Jamaica Limited (continued) Further details of share options and the assumptions used in determining their pricing are as follows: 2017 2016 Fair value of options outstanding J$30,963,000 J$31,770,000 Share price at grant date J$6.51 – 23.65 J$4.20 – 14.10 Exercise price J$6.51 – 23.65 J$4.20 – 14.10 Standard deviation of expected share price returns 25.0% 26.0% Remaining contractual term 0.25 - 7 years 0.25 - 7 years Risk-free interest rate 8.70% 9.19% The expected volatility is based on statistical analysis of daily share prices over seven years. (b) Employee share purchase plan Sagicor Group Jamaica Limited 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 $1,944 (2016 – $1,298). 30.2 Sagicor Group Jamaica Limited (a) Long-term incentive plan The Group offers stock grants and stock options to senior executives as part of its long-term incentive plan. The Group has set aside 150,000,000 of its authorised but un-issued shares at no par value for the stock grants and stock options. In January 2007, the Group introduced a new Long Term Incentive (LTI) plan which replaced the previous Stock Option plan. Under the LTI plan, executives are entitled but not obliged to purchase the Group stock at a pre-specified price at some future date. The options are granted each year on the date of the Board of Directors Human Resources Committee meeting following the performance year at which the stock option awards are approved. Stock options vest in 4 equal installments beginning the first December 31 following the grant date and for the next three December 31 dates thereafter (25% per year). Options are not exercisable after the expiration of 7 years from the date of grant. The number of stock options in each stock option award is calculated based on the LTI opportunity via stock options (percentage of applicable salary) divided by the Black-Scholes value of a stock option of Sagicor Group Jamaica Limited stock on 31 March of the measurement year. The exercise price of the options is the closing bid price on 31 March of the measurement year. Details of the share options outstanding are set out in the following table. J$ represents Jamaica dollars. 2017 2016 Number of options ‘000 Weighted average exercise price Number of options ‘000 Weighted average exercise price Balance, beginning of year Options granted Options exercised 44,945 4,580 J$8.83 J$23.65 53,644 12,463 (24,872) J$9.66 (18,924) Options lapsed/forfeited (2,772) J$11.41 (2,238) Balance, end of year Exercisable at the end of the year 21,881 13,820 J$10.61 J$9.72 44,945 26,509 J$8.63 J$10.52 J$8.56 J$9.09 J$8.83 J$9.47 71    2017 ANNUAL REPORT 183 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 benefit plans. 184 SAGICOR FINANCIAL CORPORATION LIMITED 31 EMPLOYEE RETIREMENT BENEFITS (continued) (a) Amounts recognised in the statement of financial position 2017 2016 Present value of funded pension obligations 249,357 239,330 Fair value of retirement plan assets (257,893) (214,502) (8,536) 24,828 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 51,656 27,931 71,051 48,921 28,189 77,110 (6,059) 71,051 45,975 29,099 99,902 44,382 56,853 101,235 (1,333) 99,902 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. 72  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $00031 EMPLOYEE RETIREMENT BENEFITS (continued) (b) Movements in balances 2017 2016 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 29,099 285,305 (214,502) 99,902 26,053 253,443 (192,612) 86,884 Current service cost Interest expense / (income) Past service cost and gains / losses on settlements 1,581 2,598 - 6,680 20,581 - - (17,879) - 8,261 5,300 - Net expense recognised in income 4,179 27,261 (17,879) 13,561 (Gains) / losses from changes in assumptions 7,002 8,885 (Gains) / losses from changes in experience (12,479) (21,032) Return on plan assets excluding interest income - - (702) (14,928)  828 15,185 (48,439) 828 Net losses recognised in other comprehensive income (5,477) (12,147) (14,802) (32,426) Contributions made by the Group Contributions made by employees and retirees Benefits paid Other items Effect of exchange rate movements Other movements - - - 6,252 (612) (16,371) - 742 130 6,241 4,472 594 (9,971) (5,765) 14,896 (5,279) (4,591) (9,971) 487 (2,087) 962 623 (10,710) (9,986) 1,429 2,107 - 3,536 (2,593) 4,401 - 1,808 - - (547) - (1,751) (2,298) 6,278 17,333 (253) 23,358 (6,896) 26,332 - 19,436 - 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 1,875 (2,298) 310 (2,641) (1,743) (14,973) Net liability / (asset), end of year 27,931 301,013 (257,893) 71,051 29,099 285,305 (214,502) 99,902 73    2017 ANNUAL REPORT 185 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 31 EMPLOYEE RETIREMENT BENEFITS (continued) 31 EMPLOYEE RETIREMENT BENEFITS (continued) (c) Retirement plan assets (d) Significant actuarial assumptions 2017 2016 The significant actuarial assumptions for the principal geographic areas as of December 31, 2017 were as follows: Equity unit linked pension funds under Group management: Sagicor Equity Fund (Barbados) Sagicor Bonds Fund (Barbados) Sagicor Pooled Investment Funds (Jamaica): Equity Funds Mortgage & Real Estate Fund Fixed Income Fund Foreign Currency Funds Money Market Fund Other Funds Other assets Total plan assets (37,407) (27,028) (32,103) (23,189) (56,240) (29,969) (15,864) (23,576) (2,347) (35,820) (26,486) (15,526) (18,185) (2,258) (15,697) (17,307) (208,128) (170,874) (49,765) (43,628) (257,893) (214,502) The equity unit linked pension funds are funds domiciled in Barbados and Jamaica. Annual reports of these funds are available to the public. 186 SAGICOR FINANCIAL CORPORATION LIMITED Pension plans Barbados & Eastern Caribbean Jamaica Trinidad Discount rate - local currency benefits 7.75% Discount rate - US$ indexed benefits Expected return on plan assets n/a 7.75% Future promotional salary increases 0.00% – 2.50% Future inflationary salary increases Future pension increases Future increases in National Insurance Scheme Ceilings 2.00% 2.00% 3.50% 8.00% 5.00% 8.00% 7.50% 5.00% 1.00% n/a 5.00% n/a 5.00% 0.00% 2.00% 0.00% 0.00% Mortality table Termination of active members Early retirement GAM1994 with 5 year improvement 2% - 5.8% up to age 30, reducing to 3.8% - 5.8% at age 50, 2.7% - 3.8% at age 51 n/a UP94 with projection scale AA 3% - 8.40% up to age 30, reducing to 1 - 2.1% at age 50, 0% at age 51 100% at the earliest possible age to receive unreduced benefits UP94 with projection scale AA 3% up to age 30, reducing to 1% at age 50, 0% at age 51 100% at the earliest possible age to receive unreduced benefits 74  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $00031 EMPLOYEE RETIREMENT BENEFITS (continued) 31 EMPLOYEE RETIREMENT BENEFITS (continued) Group medical and life plans Long term increase in health costs Jamaica 7.00% 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 27,931 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 80,615 167,810 14,266 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 7,761 (5,635) (446) 809 1,511 Decrease average life expectancy by 1 year (1,946) 10,061 (7,672) (2,957) 3,403 795 (811) 1,421 (1,046) (265) 297 399 (162) 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 6,553  (4,927)  (239)  283  913  (910)  (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 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 2018 financial year, the total Group contributions to its defined benefits pension plans are estimated at $13,636. 75    2017 ANNUAL REPORT 187 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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: 2017 2016 Income before income tax expense 123,746 149,597 2017 2016 Income tax expense: Current tax Current tax on profits for the year 32,112 34,872 Adjustments to current tax of prior periods 152 232 Other current tax adjustments Total current tax expense 32,264 35,104 Adjustments for current tax of prior periods Taxation at the applicable rates on income subject to tax 42,071 46,090 Adjustments to current tax for items not subject to / allowed for tax (24,962) (23,996) 32 152 (221) 232 Deferred tax Decrease/(increase) in deferred tax assets (Decrease)/increase in deferred tax liabilities Total deferred tax expense Share of tax of associated companies 523 (14,401) (13,878) 498 5,696 6,194 191 402 18,577 41,700 Movement in unrecognised deferred tax asset 11,091 13,926 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 (91) (14,584) (86) 1,666 3,288 18,577 (18) (35) 296 670 4,756 41,700 In addition to the above, the income tax on items in other comprehensive income is set out in note 35.  188 SAGICOR FINANCIAL CORPORATION LIMITED 76  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 losses Potential deferred income tax assets Expiry period for unrecognised tax losses: 2017 2018 2019 2020 2021 2022 2023 2024 2025 After 2025 77    2017 7,100 (574) 13,541 410 20,477 2,516 302,051 75,517 - 23,551 27,571 24,863 20,165 37,441 30,579 33,727 49,116 55,038 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 - 302,051 265,699 2017 ANNUAL REPORT 189 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 33 DEFERRED INCOME TAXES (continued) Deferred income tax assets movements: 2017 Defined benefit liabilities Unrealised losses on financial investments Unused tax losses Other items Total Balance, beginning of year as previously reported 13,581 6,918 14,993 787 36,279 (Charged)/credited to: Profit or Loss Other comprehensive income Effects of exchange rate changes Balance, end of year 2016 1,769 (8,426) 176 7,100 (268) (7,203) (21) (574) (1,746) (31) 325 13,541 (278) (110) 11 410 Balance, beginning of year as previously reported 11,031 12,406 21,870 (4,284) (Charged)/credited to: Profit or Loss Other comprehensive income Effects of exchange rate changes Balance, end of year 689 2,608 (747) 13,581 297 (5,141) (644) 6,918 (5,756) - (1,121) 14,993 4,272 687 112 787 (523) (15,770) 491 20,477 41,023 (498) (1,846) (2,400) 36,279 190 SAGICOR FINANCIAL CORPORATION LIMITED 78  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 other items Total (note 19) 2017 2016 1,666 33,464 334 1,111 15,323 1,640 62,738 343 1,000 6,398 (27,205) (36,280) 399 399 25,092 36,238 Deferred income tax liabilities to be settled within one year 6,680 8,035 79    2017 ANNUAL REPORT 191 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 33 DEFERRED INCOME TAXES (continued) Deferred income tax liabilities movements: 2017 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 Balance, beginning of year as previously reported 1,640 62,738 343 1,000 6,398 (36,280) 399 36,238 Charged/(credited) to: Profit or Loss Other comprehensive income Effects of exchange rate changes Balance, end of year 2016 26 - - (23,536) (5,738) - 1,666 33,464 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 (167) - 1 11,034 (6,679) 6 1,640 62,738 (65) 56 - 334 133 189 21 - 343 109 2 - (10) 8,933 2 9,075 - - - - - (14,401) 3,253 2 1,111 15,323 (27,205) 399 25,092 944 (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 36,238 192 SAGICOR FINANCIAL CORPORATION LIMITED 80  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 2017 2016 Net income attributable to common shareholders 72,233 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 72,233 61,671 4,368 (149) (5,256) 60,634 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. 2017 2016 Earnings attributable to common shareholders 72,233 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 - - - - 72,233 60,634 5,256 149 (4,368) 4,104 65,775 Weighted average number of shares in issue in thousands 304,732 303,572 LTI restricted share grants ESOP shares 5,492 2,395 - 4,706 2,103 33,209 Weighted average number of shares in issue in thousands 304,732 303,572 Convertible redeemable preference shares Basic earnings per common share 23.7¢ 20.0¢ Adjusted weighted average number of shares in issue 312,619 343,590 Attributable to: Continuing operations Discontinued operation 20.4¢  3.3¢  19.5¢  0.5¢  The computation of diluted earnings per common share recognises the dilutive impact of LTI share grants and share options (note 30.1), ESOP shares grants (note 30.1), and the convertible redeemable preference shares. In computing diluted earnings per share, the income attributable to common shareholders is adjusted by the dilutive impact of the convertible preference shares and the weighted average number of common shares is adjusted by the dilutive impacts of the aforementioned share grants, options and preference shares.  Fully diluted earnings / (loss) per common share 23.1¢ 19.1¢ Attributable to: Continuing operations Discontinued operation 19.9¢  3.2¢  18.7¢  0.4¢  81    193   Sagicor Financial Corporation Limited  2017 ANNUAL REPORT Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 35 OTHER COMPREHENSIVE INCOME (OCI) Schedule to OCI from continuing operations Items that may be reclassified subsequently to income: Available for sale assets: 2017 2016 After tax OCI is attributable to After tax OCI is attributable to OCI tax impact Shareholders Participating policyholders Non- controlling interests Total OCI tax impact Shareholders Participating policyholders Non- controlling interests Total Gains / (losses) arising on revaluation (16,004) 44,239 380 13,281 57,900 (11,058) (Gains) / losses transferred to income Net change in actuarial liabilities Retranslation of foreign currency operations (141) 5,738 - (10,407) (8,781) (16,544) 4,650 23,564 - 456 (2) 834 (3,478) 2,613 5,073 17,489 (12,259) (13,475) 9,721 41,887 Items that will not be reclassified subsequently to income: Gains / (losses) arising on revaluation of owner-occupied property (248) (2,132) Defined benefit gains / (losses) (8,512) 12,586 Other items - - (8,760) 10,454 - - - - 373 (1,759) 11,328 23,914 - - 11,701 22,155 (1,491) 6,679 - (5,870) (939) 2,588 - 1,649 24,082 3,112 (15,509) (18,141) (6,456) 2,137 (10,001) (128) (7,992) (1,292) 16,393 - 1,293 21 22 (437) (2,874) (10,361) 2,721 - - - - 3,008 (3,874) - (866) 39,183 2,675 (17,090) (28,481) (3,713) 5,145 (13,875) (128) (8,858) Total OCI movements (19,167) 34,018 834 29,190 64,042 (4,221) (14,448) 22 1,855 (12,571) Allocated to equity reserves Allocated to retained earnings 21,432 12,586 34,018 194 SAGICOR FINANCIAL CORPORATION LIMITED (4,319) (10,129) (14,448) 82  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 arising on disposal 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 83    2017 2016 (298,531) (295,956) (78,415) (2,261) 122,327 89,695 21,871 8,644 26,152 (62,136) - 45,252 99,781 21,283 59 3,619 (110,518) (188,098) - 7,272 4,324 (11,538) (4,386) (34,822) 13 (93,917) (24,548) 818 30,495 1,037 (1,989) (6,115) (99,130) 1,913 10,236 (37,627) (157,602) (100,362) Investment property: Disbursements Disposal proceeds Debt securities: Disbursements Disposal proceeds Equity securities: Disbursements Disposal proceeds Net increase in operating liabilities: Insurance liabilities Investment contract liabilities Other funding instruments Deposits Securities sold for re-purchase Other liabilities and payables 2017 2016 - - - (7) 825 818 (1,789,622) (1,931,861) 1,796,894 1,962,356 7,272 30,495 (36,335) 40,659 4,324 13,544 (8) (59,173) (169,229) 203,160 29,758 18,052 (118,139) 119,176 1,037 6,486 20,012 (29,788) 286,658 (200,610) 1,035 83,793 2017 ANNUAL REPORT 195 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 2016 37 SUBSIDIARY ACQUISITION AND OWNERSHIP CHANGES (18,853) 5,468 (20,336) 2,340 (13,385) (17,996) 2017 2016 18,146 (1,964) 16,182 2017 268,402 72,515 (2,568) (12,623) 325,726 78,050 (44,042) 34,008 2016 279,070 110,652 (1,939) (75,677) 312,106 In May 2017, the Group acquired an additional 74,100,770 shares in Sagicor Real Estate X Fund Limited, a 3.3% interest. In August 2017, a further 2,500,000 shares, 0.11% holdings, were obtained on settlement of an annuity contact. These acquisitions increased the Sagicor Group Jamaica Limited’s holdings to 32.72%. In October 2017, the Sagicor Group Jamaica Limited reduced its holdings in Sagicor Real Estate X Fund Limited by 3.41% to 29.31% when it sold 76,470,770 shares. This resulted in a $2,261 gain on disposal. 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. 196 SAGICOR FINANCIAL CORPORATION LIMITED 84  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $00038 DISCONTINUED OPERATION (continued) 38 DISCONTINUED OPERATION (continued) As of December 31, 2017, 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 and total comprehensive gain 2017 2016 - - 10,110 10,110 1,827 (884) 469 1,412 March 31, 2019 2017 (10,110) (10,110) 2016 - - After accounting for its status as a discontinued operation and for the details of the sale agreement the net gain 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) / loss Net currency movements (Receivable) / payable, end of year 2017 - - (10,110) - (10,110) 2016 46,026 (44,614) 415 (1,827) - The price adjustments are subject to a limit based on the terms of the agreement. These results are subject to further underwriting, investment and foreign currency adjustments constrained by the limit as the experience develops. 85    2017 ANNUAL REPORT 197 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 39 CONTINGENT LIABILITIES 39 CONTINGENT LIABILITIES (continued) 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: (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 2017 2016 Customer guarantees and letters of credit (1) 31,235 22,513 (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. 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 assessment by the Group of a probable favorable outcome. (a) Legal proceedings (a) 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. The Group is 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 are outlined below: (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 outcome of this matter cannot be properly assessed until it has been heard. 198 SAGICOR FINANCIAL CORPORATION LIMITED 86  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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, 2017 follows: are as Investment property Owner-occupied lands Owner-occupied land and buildings Level 1 Level 2 Level 3 Total - - - - - - - - 80,816 35,232 78,465 80,816 35,232 78,465 194,513 194,513 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 80,662 37,185 77,855 195,702 Additions Transfers in / (out) Fair value changes recorded in net investment income Fair value changes recorded in other comprehensive income Depreciation Effect of exchange rate changes - - 74 - - 80 - - - 3,175 3,175 (1,696) (1,696) - 74 (1,953) (274) (2,227) - - (1,098) (1,098) 503 583 Balance, end of year 80,816 35,232 78,465 194,513 87    2017 ANNUAL REPORT 199 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 41 FINANCIAL RISK 41.1 Credit risk The Group’s activities of issuing insurance contracts, of accepting funds from depositors, of investing insurance premium and deposit receipts in a variety of financial and other assets, banking and dealing in securities, exposes the Group to various insurance and financial risks. Financial risks include credit default, liquidity and market risks. Market risks arise from changes in interest rates, equity prices, currency exchange rates or other market factors. The principal insurance risks are identified in notes 42 and 43. The overriding objective of the Group’s risk management framework is to enhance its capital base through competitive earnings growth and to protect capital against inherent business risks. This means that the Group accepts certain levels of risk in order to generate returns, and the Group manages the levels of risk assumed through enterprise wide risk management policies and procedures. Identified risks are assessed as to their potential financial impact and as to their likelihood of occurrence. The amounts disclosed in this note and in notes 42 and 43, exclude amounts in the statement of financial position classified as liabilities of discontinued operation. Credit risk is the exposure that the counterparty to a financial instrument is unable to meet an obligation, thereby causing a financial loss to the Group. Credit risks are primarily associated with financial investments and reinsurance contracts held. Credit risk from financial investments is minimised through holding a diversified portfolio of investments, purchasing securities and advancing loans only after careful assessment of the borrower, obtaining collateral before advancing loans, and placing deposits with financial institutions with a strong capital base. Limits may be placed on the amount of risk accepted in relation to one borrower. The Group has developed an internal credit rating standard. The internal rating is a 10 point scale which allows for distinctions in risk characteristics and is referenced to the rating scales of international credit rating agencies. The scale is set out in the following table. Category Sagicor Risk Rating Investment grade t l u a f e d - n o N Non- investment grade Watch Default 1 2 3 4 5 6 7 8 9 Classification S&P Moody’s Fitch AM Best Minimal risk AAA, AA Aaa, Aa AAA, AA aaa, aa Low risk A Moderate risk BBB Acceptable risk Average risk BB B A Baa Ba B A BBB BB B a bbb bb b Higher risk CCC, CC Caa, Ca CCC, CC ccc, cc Special mention Substandard Doubtful C D C C c d C DDD DD D 88  200 SAGICOR FINANCIAL CORPORATION LIMITED 10 Loss Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 2016 $000 % $000 3,986,428 64.6 3,864,949 1,048,917 17.0 785,830 12.7 219,090 3.5 978,681 755,569 179,456 % 65.5 16.6 12.8 3.0 Total financial statement exposures 6,040,265 97.8 5,778,655 97.9 Loan commitments Customer guarantees and letters of credit Other 78,985 31,235 24,902 Total off financial statement exposures 135,122 1.3 0.5 0.4 2.2 82,088 22,513 15,262 119,863 1.4 0.4 0.3 2.1 Total 6,175,387 100.0% 5,898,518 100.0% 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, 2017 and 2016 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 2017 Sagicor Risk Rating 2016 5 3 6 2 5 1 1 4 3 861,252 265,174 280,407 56,357 71,617 106,882 61,574 29,085 531,310 5 2 5 2 3 1 1 4 3 804,051 226,094 303,973 29,457 80,965 106,341 63,664 28,704 585,561 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 $574,135 (2016 - $596,785). 89    2017 ANNUAL REPORT 201 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 2016 Exposure $000 Exposure % Exposure $000 Exposure % 329,099 459,919 1,445,870 172,175 1,242,095 298,546 3,335 485 8% 12% 36% 4% 31% 8% 0% 0% 337,503 657,285 1,018,985 250,267 1,497,421 58,447 15 707 9% 17% 26% 6% 39% 2% 0% 0% TOTAL RATED EXPOSURES 3,951,524 99% 3,820,630 99% Lending portfolios Risk Rating Classification 1 2 3 4 5 6 7 8 9 Minimal risk Low risk Moderate risk Acceptable risk Average risk Higher risk Special mention Substandard Doubtful UN-RATED EXPOSURES 34,904 1% 44,319 1% 10 Loss 2017 2016 Exposure $000 Exposure $000 Exposure $000 Exposure % 514,455 121,435 267,220 57,670 41,651 12,800 11,307 4,205 7,043 11,048 49% 12% 25% 5% 4% 1% 1% 1% 1% 1% 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% TOTAL 3,986,428 100% 3,864,949 100% TOTAL RATED EXPOSURES 1,048,834 100% 978,607 100% Investment portfolio assets are mostly unsecured except for securities purchased under agreement to resell for which title to the securities is transferred to the Group for the duration of each agreement. UN-RATED EXPOSURES 83 0% 74 0% TOTAL 1,048,917 100% 978,681 100% 202 SAGICOR FINANCIAL CORPORATION LIMITED 90  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 $4,900. 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 to 180 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 2017 2016 2017 Barbados Jamaica Trinidad & Tobago Other Caribbean USA 202,098 519,770 154,660 106,805 65,584 1,048,917 195,597 463,675 145,409 113,301 60,699 978,681 (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 3,490,549 291,123 521,860 Past due up to 3 months, but not impaired 7,010 23,255 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 - - - 3,487 4,005 2,257 34,195 1,598 - - Total past due but not impaired 7,010 33,004 35,793 Impaired assets (net of impairment) 883 18,259 6,746 Total carrying value 3,498,442 342,386 564,399 Accumulated allowances on impaired assets Accrued interest on impaired assets 619 8 7,390 392 14,414 - 91    2017 ANNUAL REPORT 203 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 41.1 Credit risk (continued) Debt securities Mortgage loans Finance loans & leases 2016 Neither past due nor impaired 3,429,408 270,089 429,066 Past due up to 3 months, but not impaired 9,568 25,312 72,947 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 - - - 3,580 10,206 3,051 679 - - Total past due but not impaired 9,568 42,149 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 - 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. 204 SAGICOR FINANCIAL CORPORATION LIMITED 92  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 2017 Actuarial liabilities Other insurance liabilities Total 2016 Actuarial liabilities Other insurance liabilities Total Maturing within 1 year 208,151 118,584 326,735 224,827 104,860 329,687 Expected discounted cash flows Maturing 1 to 5 years 696,530 20,875 717,405 678,161 15,297 693,458 Maturing after 5 years 2,046,139 52,086 2,098,225 1,873,374 52,781 1,926,155 Total 2,950,820 191,545 3,142,365 2,776,362 172,938 2,949,300 93    2017 ANNUAL REPORT 205 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 - Contractual un-discounted cash flows 2016 - 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 320,760 41,034 222,353 687,085 35,009 477,940 2,008 2,568 173,720 1,962,477 76,192 4,977 17,765 17,831 116,765 53,878 526,404 64,701 71,037 15,356 - 224 - 91,742 823,342 981 8,300 - 1,846 11,127 11,154 - 17,959 8,706 - - - - 385,792 567,438 305,013 766,828 50,365 477,940 2,232 2,568 354,549 34,158 335,928 905,685 19,391 325,495 355 1,939 1,000 266,462 151,436 38,819 2,824,638 2,128,936 1,812 - - 11,558 13,370 78,985 13,277 17,765 31,235 82,088 4,839 7,500 15,476 141,262 109,903 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 2,447 207,319 373,720 2,849,490 - 977 - 4,583 5,560 82,088 15,344 7,500 22,513 127,445 Total 2,079,242 834,469 52,189 2,965,900 2,238,839 358,816 379,280 2,976,935 206 SAGICOR FINANCIAL CORPORATION LIMITED 94  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 – Contractual or expected discounted cash flows 2016 – 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 402,939 536,581 2,558,922 3,498,442 471,274 622,930 2,347,690 3,441,894 16,521 3,495 125,568 16,518 103,248 32,253 95,109 49,082 53,446 61,269 31,886 14,127 159,581 - 6,086 224 293,979 124,510 279,250 - 2,070 - 284,649 356,789 - - 71,081 201 - 817 351,967 - 8,097 342,386 142,132 564,399 16,518 111,404 32,477 736,547 49,283 53,446 133,167 360,064 15,883 5,010 39,082 21,085 133,440 152,738 - 159 1,010 276,801 111,845 222,797 - 1,279 - 285,264 331,766 5,149 - 55,447 - 205 - 7,015 15,879 5,227 137,860 27,970 96,222 36,963 46,530 41,484 263,191 331,766 137,940 508,975 5,227 139,298 28,980 713,252 42,317 46,530 103,946 279,070 1,311,415 1,104,215 3,624,635 6,040,265 1,281,054 1,182,864 3,315,277 5,779,195 95    2017 ANNUAL REPORT 207 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 208 SAGICOR FINANCIAL CORPORATION LIMITED 96  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 Exposure after 5 years Not exposed to interest Total Exposure within 1 year Exposure 1 to 5 years 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 7,920 319,503 4,756 50,194 7,604 406,148 52,086 126,783 191,545 9,321 - - 53 379,018 413,805 211,648 679,555 40,578 474,579 - 2,568 1,917 49,773 69,462 6,670 - - - 70,946 18,043 410 279,874 750,948 47,576 476,034 2,232 2,568 1,931 328 1,455 2,232 - - - - - - - 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 2016 Exposure after 5 years 52,781 9,089 Not exposed to interest Total 83,746 172,938 - 316,895 (1,402) 5,184 473 138 125,170 172 1,192 1,364 - - - - - - 377,576 395,213 349,514 915,155 34,779 320,574 1,364 1,939 174,113 246,976 147,037 204,975 Total 1,745,872 657,949 79,450 307,305 2,790,576 1,776,673 255,515 384,087 357,752 2,774,027 97    2017 ANNUAL REPORT 209 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 Exposure after 5 years Not exposed to interest Total Exposure within 1 year Exposure 1 to 5 years 2016 Exposure after 5 years Not exposed to interest Total 626,248 472,660 2,350,813 48,721 3,498,442 647,158 557,849 2,186,167 50,180 3,441,354 - 19,996 2,591 486,854 16,435 108,940 - 47 184 - 36,452 13,855 37,773 - 340 - - - - 245,483 245,483 1,235 4,787 1,581 83 424 32,477 49,036 53,262 342,386 142,132 564,399 16,518 111,404 32,477 49,283 53,446 57,825 133,167 284,703 120,899 38,191 - 1,700 - 200 - - - - 19,295 4,110 463,487 5,178 137,123 - 1,043 2,302 3,632 - 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 44,228 331,766 137,940 508,975 5,227 139,298 28,980 42,317 46,530 47,270 103,946 57,690 279,070 270,267 - 89,797 360,064 221,380 1,535,734 632,250 2,796,506 584,711 5,549,201 1,504,708 706,941 2,575,029 498,933 5,285,611 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 Cash resources Total Other assets and accounts receivable 4,172 71,170 210 SAGICOR FINANCIAL CORPORATION LIMITED 98  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 2016 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 6.1% 5.7% 7.2% 11.6% 5.1% 2.3% 5.6% 9.5% 2.1% 2.0% 3.6% 6.2% 6.1% 6.9% 12.6% 9.2% 1.0% 6.1% 9.4% 1.9% 2.1% 4.5% 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 2017 Effect on net income Effect on TCI Change in interest rate JMD USD 2016 Effect on net income Effect on TCI - 1% -0.5% 8,525 21,297 - 1% -0.5% 1,057 13,141 +1% +0.5% (8,856) (19,691) +2.5% + 2% (3,690) (46,516) 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. 99    2017 ANNUAL REPORT 211 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 41.4 Foreign exchange risk (continued) 2017 US$ 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) 444,488 942,730 430,696 140,655 2,598,363 150,826 4,707,758 5,037 16,335 30,474 496,334 203,652 699,986 312 124,204 103,260 1,170,506 360,583 1,531,089 401,388 351,912 69,223 34,252 - 82,293 29,424 43,000 23,065 71,648 16,491 547,756 28,364 133,292 659,580 1,172,528 14,828 1,195 7,564 7,858 28,523 474,641 72,786 547,427 337,729 30,411 149,381 - 1,348 12,894 16,855 548,618 15,732 564,350 (16,923) 8,476 16,947 16,004 762,719 15,291 122,939 182,082 3,499,312 20,247 108,991 202,329 3,608,303 54,441 19,796 44,735 - 15,674 710 4,578 1,710,151 38,595 70,084 397,314 895,363 1,814 42,880 139,934 3,156,201 4,099 22,794 144,033 3,178,995 58,296 429,308 1,722 6,003 58,864 217,415 (2,017) 215,398 95,199 10,455 8,918 - 16,798 6,821 6,371 144,562 2,243 146,805 68,593 785,830 186,638 360,064 6,040,290 764,242 6,804,532 2,950,820 191,545 379,018 413,805 1,559,232 80,027 246,976 5,821,423 60,891 5,882,314 922,218 Total liabilities of continuing operations 674,408 1,173,723 Net position 25,578 357,366 (1) Monetary balances only (2) Non-monetary balances, income tax balances and retirement plan assets 212 SAGICOR FINANCIAL CORPORATION LIMITED 100  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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) 452,914 817,968 384,175 148,864 2,619,819 169,800 4,593,540 5,758 20,613 15,064 494,349 207,993 702,342 336 86,232 43,379 947,915 337,791 1,285,706 386,276 302,777 65,787 33,733 - 86,251 31,160 42,710 20,504 66,482 - 483,291 48,198 89,992 645,917 1,011,244 13,848 12,794 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 15,430 736,067 13,939 135,180 179,340 3,505,005 28,264 99,446 207,604 3,604,451 61,905 10,105 52,451 1,605,596 37,273 76,301 - 395,213 14,414 1,021,431 844 2,831 1,784 50,073 142,550 3,187,671 3,492 33,751 146,042 3,221,422 61,562 383,029 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 Total liabilities of continuing operations 659,765 1,024,038 Net position 42,577 261,668 (1) Monetary balances only (2) Non-monetary balances, income tax balances and retirement plan assets 101    2017 ANNUAL REPORT 213 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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, 2017 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: 1,566,473 1,112,196 2,678,669 1,121,819 988,958 2,110,777 444,654 123,238 567,892  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: 483,662 71,483 555,145 (36,381) (226,671) (46,464) (273,135) (157,339) (14,856) (172,195) (22,826) 76,826 - 10,163 (22,826) 86,989 Currency risk relating to the future cash flows of monetary balances Currency risk of reported results of foreign operations (156,647) (112,182) (44,465) (44,465) 22,667 15,734 2,283 4,303 11,985 (7,682) 4,303 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. 214 SAGICOR FINANCIAL CORPORATION LIMITED 102  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 used in determining the fair value of Level 3 instruments. 103    2017 ANNUAL REPORT 215 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 41.5 Fair value of financial instruments (continued) (a) Financial instruments carried at fair value Available for sale securities: Debt securities Equity securities Investments at fair value through income: Debt securities Equity securities Derivative financial instruments Mortgage loans Total assets 2017 2016 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 653,516 1,610,263 2,496 2,266,275 604,786 1,663,306 23,314 53,167 676,830 1,663,430 10,381 12,877 86,862 2,353,137 35,350 51,732 2,928 9,602 2,271,020 96,684 640,136 1,715,038 12,530 2,367,704 19,185 14,269 - - 62,542 144,352 2,232 - 33,454 209,126 710,284 1,872,556 98,757 - 30,245 45,447 174,449 187,326 180,484 158,621 32,477 45,447 417,029 35,720 3,992 - - 32,436 119,532 1,364 - 39,712 153,332 2,770,166 679,848 1,868,370 95,849 - 27,616 40,347 163,812 176,342 164,005 123,524 28,980 40,347 356,856 2,724,560 Total assets by percentage 26% 68% 6% 100% 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% - - 2,232 2,232 2,232 1% 139,753 139,753 47,576 - 47,576 187,329 99% 47,576 2,232 49,808 189,561 100% - - - - - 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% 216 SAGICOR FINANCIAL CORPORATION LIMITED 104  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $00041.5 Fair value of financial instruments (continued) Transfers from Level 1 to Level 2 in 2017 - Nil (2016 - $59,752). Transfers from Level 2 to Level 1 in 2017 – $19,819 (2016 - 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. 2017 Available for sale securities Investments at fair value through income Derivative instruments Total assets 2016 Total assets 2017 2016 Policy liabilities Structured products Total liabilities Total liabilities Disposals (5,133) (45,229) (37,452) (87,814) (58,148) 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 - - - - - (98) Transfers (out of) Level 3 classification 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 (6) - (265) 12,877 - - 105    12,530 5,849 136,196 53,820 27,616 19,213 176,342 189,936 130,668 34,779 165,447 160,289 78,882 44,262 - - - 76 - - - - - - - - - - 15,467 28,718 44,185 35,664 (8,242) (20,014) (28,256) (22,751) - - - - - - 176 20,868 21,044 8,135 - - - - - (98) - (308) - 125 - - - - - - - - - - 125 - - - - 188 - - - 3,682 411 3,682 2,146 (252) (7,691) (10) - (749) - - - (16) - - - (1,014) (7,611) 1,735 144,204 30,245 187,326 176,342 139,753 47,576 187,329 165,447 176 11,411 11,587 10,067 - - - - - 125 - - - - 125 188 2017 ANNUAL REPORT 217 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 41.5 Fair value of financial instruments (continued) 41.5 Fair value of financial instruments (continued) (b) Financial instruments carried at amortised cost Level 1 Level 2 Level 3 Total The carrying values of the Group’s non-traded financial assets and financial liabilities carried at amortised cost approximate their fair value in notes 10, 12, and 20. The fair value hierarchy of other financial instruments carried at amortised cost as of December 31, 2017 is set out in the following tables. Level 1 Level 2 Level 3 Total Held to maturity securities: Debt securities Loans and receivables: Debt securities Mortgage loans Policy loans Finance loans and finance leases Securities purchased for resale -  - - - - - - - - - 445,543 709,788 1,155,331 - - - - 296,867 296,867 149,995 149,995 551,922 551,922 16,518 16,518 445,543 1,725,090 2,170,633 - 445,543 1,725,090 2,170,633 Investment contracts: Deposit administration liabilities Other investment contracts Notes and loans payable: Convertible redeemable preference shares Notes and lease payables Deposit and security liabilities Other funding instruments Customer deposits Securities sold for repurchase -  -  -  - - - -  - - - - - - - - 364,131 364,131 121,483 121,483 119,915 119,915 241,398 241,398 17,320 81,556 17,320 445,687 98,876 463,007 - 284,980 284,980 1,396 748,438 749,834 - 473,771 473,771 1,396 1,507,189 1,508,585 365,527 1,847,463 2,212,990 218 SAGICOR FINANCIAL CORPORATION LIMITED 106  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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, 2017 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 17,003 45,528 24,331 86,862 20% change on TCIBT 3,401 9,106 4,866 17,373 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. 2017 Derivatives held for trading: Equity indexed options 2016 Derivatives held for trading: Equity indexed options Contract / notional amount Fair value Assets Liabilities 713,452 713,452 32,477 32,477 2,232 2,232 673,264 673,264 28,980 28,980 1,364 1,364 107    2017 ANNUAL REPORT 219 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 220 SAGICOR FINANCIAL CORPORATION LIMITED 108  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 2017 ASSETS Financial investments Securities purchases under resale agreement Derivative financial instruments LIABILITIES Security liabilities Derivative financial instruments 2016 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 4,904,246 16,518 32,477 4,953,241 1,557,000 2,232 1,559,232 4,779,541 5,227 28,980 4,813,748 1,621,961 1,364 1,623,325 - - - - - - - - - - - - - - 4,904,246 16,518 32,477 4,953,241 1,557,000 2,232 1,559,232 4,779,541 5,227 28,980 4,813,748 1,621,961 1,364 1,623,325 (1,211,913) (206,987) - (2,232) - - (1,214,145) (206,987) (1,191,066) (2,232) (1,193,298) (821,168) - (1,364) (822,532) (415,910) (1,364) (417,274) (188,722) - (188,722) (260,443) - - (260,443) (220,100) - (220,100) 3,485,346 16,518 30,245 3,532,109 177,212 - 177,212 3,697,930 5,227 27,616 3,730,773 985,951 - 985,951 109    2017 ANNUAL REPORT 221 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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: • attritional losses, which are expected to be of reasonable frequency and are less than established threshold amounts; • • large losses, which are expected to be relatively infrequent 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. 222 SAGICOR FINANCIAL CORPORATION LIMITED 110  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $00042.2 Claims risk (continued) 42.3 Reinsurance risk (continued) Total insurance coverage 2017 2016 Property Motor Accident and liability Total Gross Net Gross Net Gross Net Gross Net 8,348,729 1,410,917 433,491 433,491 7,673,403 1,083,282 385,978 192,989 2,769,682 2,275,771 2,253,850 1,086,198 11,551,902 10,335,152 4,098,258 2,362,469 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 2017 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 208,285 7,500 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 $7,500 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. 111    2017 ANNUAL REPORT 223 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 42.3 Reinsurance risk (continued) 43.1 Contracts without investment returns (continued) In order to assess the potential reinsurance recoveries on the occurrence of a catastrophic insurance event, the Sagicor credit risk ratings of the reinsurance recoverable are assessed using the following realistic disaster scenario:  Hurricane with a 200 year return period affecting Barbados and St. Lucia and an earthquake with a 250 year return period affecting Trinidad within a 24 hour period. The reinsurance recoveries derived from the foregoing are assigned internal credit ratings as follows: Risk Rating Classification Exposure $000 Exposure % 1 2 3 4 5 6 7 8 Minimal risk Low risk Moderate risk Acceptable risk Average risk Higher risk Special mention Substandard 294,515 405,985 - - - - - - 42% 58% 0% 0% 0% 0% 0% 0% TOTAL 700,500 100% 43 INSURANCE RISK – LIFE, ANNUITY & HEALTH CONTRACTS (a) Product design and pricing risk Product design and pricing risk arises from poorly designed or inadequately priced contracts and can lead to both financial loss and reputational damage to the insurer. Risks are priced to achieve an adequate return on capital on the insurer’s business as a whole. In determining the pricing of an insurance contract, the insurer considers the nature and amount of the risk assumed, and recent experience and industry statistics of the benefits payable. Pricing inadequacy may arise either from the use of inadequate experience and statistical data in deriving pricing factors or from market softening conditions. The underwriting process has established pricing guidelines, and may include specific medical tests and enquiries which determine the insurer’s assessment of the risk. Insurers may also establish deductibles and coverage limits for health risks which will limit the potential claims incurred. Term life and critical illness risks have limitations of insured amounts. The pricing of a contract therefore consists of establishing appropriate premium rates, deductibles and coverage limits. (b) Mortality and morbidity risk Mortality risk is the risk that worsening mortality rates will result in an increase of death claims. Morbidity is the incidence of disease or illness and the associated risk is that of increased disability and medical claims. Insurance claims are triggered by the incurrence of a medical claim, the diagnosis of a critical illness or by death of the person insured. Insurers are exposed to insurance risks such as product design and pricing, mortality and morbidity, lapse, expense, reinsurance, and actuarial liability estimation in respect of life, annuity and health contracts. Disclosure of these risks is set out in the following sections. For contracts providing death benefits, higher mortality rates would result in an increase in death claims. The Group annually reviews its mortality experience and compares it to industry mortality tables. This review may result in future adjustments to the pricing or re-pricing of these contracts. 43.1 Contracts without investment returns These contracts are principally term life, critical illness and health insurance. Individual term life and critical illness products are generally long-term contracts while group term life and health insurance products are generally one year renewable. The principal insurance risks associated with these contracts are product design and pricing and mortality and morbidity. Critical illness claims arise from the diagnosis of a specific illness incurred by the policy beneficiary. The Group annually reviews its critical illness claims experience and compares it to industry statistics. This review may result in future adjustments to the pricing or re-pricing of these contracts. The concentration risks of term life and critical illness contracts are included in the related disclosure on other long-term contracts in note 43.2(b). 224 SAGICOR FINANCIAL CORPORATION LIMITED 112  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 2017 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 23,821 77,597 26,642 25,902 53 1,223 1,991 647 1,027 46 22,598 75,606 25,995 24,875 7 154,015 4,934 149,081 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. 2017 2016 Liability 5% increase in liability Liability 5% increase in liability 47,261 4,280 51,541 2,363 214 2,577 48,373 4,284 52,657 2,419 214 2,633 Actuarial liability Claims payable 113    (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. 2017 ANNUAL REPORT 225 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 2016 Barbados Gross 3,973,661 1,299,463 3,855,798 1,338,221 Net 3,680,227 1,247,768 3,546,641 1,286,564 Jamaica Gross 8,045,374 5,935,234 7,107,905 4,901,489 Net 7,934,866 5,882,949 6,961,507 4,869,094 Trinidad & Tobago Gross 3,491,638 2,225,487 3,322,781 2,379,773 Net 2,900,602 2,115,756 2,741,682 2,262,405 Other Caribbean Gross 7,936,174 1,443,434 7,702,307 1,824,971 USA Total Net Gross Net 6,939,861 1,282,782 6,616,723 1,647,151 6,291,352 2,106,362 38,824 37,318 5,935,908 2,018,213 43,463 41,422 Gross 29,738,199 10,942,442 27,924,699 10,487,917 Net 23,561,918 10,566,573 21,884,766 10,106,636 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 2017 2016 Barbados Jamaica Gross Net Gross Net Trinidad & Tobago Gross Net Other Caribbean Gross Net 116,587 116,587 608 608 120,342 120,342 30,721 30,721 45,417 45,417 341,872 341,872 - - 28 28 110,544 110,544 575 575 115,254 115,254 26,827 26,827 USA Total Gross 1,183,959 23,942 1,150,170 Net 408,531 7,524 390,478 Gross 1,452,217 411,259 1,403,370 Net 676,789 394,841 643,678 43,674 43,674 293,596 293,596 - - 27 27 25,684 8,024 362,981 345,321 226 SAGICOR FINANCIAL CORPORATION LIMITED 114  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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)). 115    2017 ANNUAL REPORT 227 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 43.4 Sensitivity arising from the valuation of actuarial liabilities (continued) 43.4 Sensitivity arising from the valuation of actuarial liabilities (continued) Under Canadian accepted actuarial standards, the AA is required to test the actuarial liability under economic scenarios. The scenarios developed and tested by insurers were as follows. Sensitivity Scenario The following table represents the estimated sensitivity of each of the above scenarios to net actuarial liabilities for insurers by segment. Correlations that may exist between scenario assumptions were not explicitly taken into account. Sagicor Life Inc segment Sagicor Jamaica Segment Sagicor USA segment Worsening rate of lapse Lapse rates were either doubled or halved, and the more adverse result was selected. High interest rate Low interest rate Assumed increases in the 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 0.25% per year for 5 years, with the rates remaining constant thereafter. Assumed decreases in investment portfolio yield rates of 0.5% per year for 10 years. Worsening mortality and morbidity 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. Lapse rates were increased or reduced by 30%, and the more adverse result was selected. A 1% increase was applied to the investment portfolio rate. A 1% decrease was applied to the investment portfolio rate. rates For life insurance and deferred annuity products, the base were assumed increased annually by 3% cumulatively over the next 5 years. For payout annuity products only, the mortality rates were decreased by 3% cumulatively over the next 5 years. Higher expenses Policy unit maintenance expense rates were increased by 5% per year for 5 years above those reflected in the base scenario. Sagicor Life segment Sagicor Jamaica segment Sagicor Life USA segment 2017 2016 2017 2016 2017 2016 Base net actuarial liability 956,305 936,049 374,483 327,183 623,269 580,784 Scenario increase in liability increase in liability increase in liability Worsening rate of lapse 144,892 135,728 53,868 47,635 11,432 9,330 High interest rate (89,289) (84,334) (111,058) (98,734) (37,115) (34,545) Low interest rate 161,474 156,127 102,183 124,400 42,637 39,771 Worsening mortality/ morbidity 37,528 35,808 42,776 37,209 16,783 12,842 Higher expenses 19,053 20,715 17,530 14,939 5,255 4,418 228 SAGICOR FINANCIAL CORPORATION LIMITED 116  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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. 2017 2016 Pension and insurance fund assets 2,072,232 1,726,467 Mutual fund, unit trust and other investment fund assets 1,132,928 890,235 3,205,160 2,616,702 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 $1,253,052 (2016 - $1,436,232) 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. 117    2017 ANNUAL REPORT 229 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 2017 2016 623,374 308,089 413,805 536,149 257,974 395,213 Total financial statement capital resources 1,345,268 1,189,336 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 life insurers of the Sagicor Group as of December 31 has been estimated as 258% (2016 – 249%). The 2016 MCCSR which was disclosed as 291% in 2016 has been revised and restated to 249% this year. This is the principal standard of capital adequacy used to assess the overall strength of the life insurers 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 life insurers of 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 regulatory capital requirements. 230 SAGICOR FINANCIAL CORPORATION LIMITED 118  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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, 2017 and 2016, this ratio was 186.0% and 156.5% 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, 2017 and 2016 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 2017 and 2016, all applicable externally imposed capital requirements were complied with. Sagicor Investments Jamaica Sagicor Bank Jamaica 2017 2016 2017 2016 16% 10% 13% 10% 15% 10% 14% 10% Actual capital base to risk weighted assets Required capital base to risk weighted assets 119    2017 ANNUAL REPORT 231 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 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 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, 2017, and 2016, the Group satisfied these requirements. The Group is in compliance with all covenants. Limitation on sale of assets of subsidiary stock This covenant restricts from selling material the Group 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. 232 SAGICOR FINANCIAL CORPORATION LIMITED 120  Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $00047 RELATED PARTY TRANSACTIONS 48 BREACH OF INSURANCE REGULATIONS – RELATED PARTY BALANCES Other than as disclosed in notes 5, 9, 12, 26, 30, 31 and 44, there are no material related party transactions except as disclosed below. Key management transactions and balances Key management comprises directors and senior management of the Company and of Group subsidiaries. Key management includes those persons at or above the level of Vice President or its equivalent. Compensation of and loans to these individuals are summarised in the following tables: Compensation 2017 2016 Salaries, directors’ fees and other short-term benefits Equity-settled compensation benefits Pension and other retirement benefits 19,884 6,969 1,475 28,328 20,548 4,047 1,235 25,830 Balance, beginning of year Advances Repayments Effects of exchange rate changes Balance, end of year Mortgage loans Other loans Total loans 4,937 582 (735) - 4,784 992 951 (892) 23 1,074 5,929 1,533 (1,627) 23 5,858 Interest rates prevailing during the year 3.75% - 7.00% 0.00% - 9.75% As at December 31, 2017, one of the Group’s subsidiaries, Sagicor Life Jamaica Limited exceeded the regulated 5% maximum of related party balances to total assets of the company. Management is in discussions with the Regulator, Financial Services Commission, in relation to this matter. The regulator has not imposed any penalty. 49 EVENTS AFTER DECEMBER 31, 2017 Subsequent to the year-end, certain affiliates of Sagicor Group Jamaica Limited (SGJ), including Sagicor Real Estate X Fund Limited, entered into an agreement for a business combination with Playa Hotels & Resorts N.V. “Playa”, an entity listed on the NASDAQ. Under the terms of the agreement, SGJ’s affiliated entities will receive 20 million shares of Playa and US$100 million in cash in return for certain owned and managed hotels in Jamaica. The properties subject to the agreement comprise properties owned by the Sagicor Sigma Real Estate Fund, the Sagicor Pooled Investment Funds and Sagicor X Fund Property Limited. The properties include 4 existing resorts, being the 489-room Hilton Rose Hall, the 268-room Jewel Runaway Bay, the 250-room Jewel Dunn’s River and the 225-room Jewel Paradise Cove, as well as a newly-built 88-room Sentry Palm hotel tower and spa at Jewel Grande and 2 developable land sites with a potential density of up to 700 rooms. A hotel management contract for the Jewel Grande Sabal Palm Towers is also included in the agreement. 121    2017 ANNUAL REPORT 233 Notes to the Financial Statements Sagicor Financial Corporation Limited Year ended December 31, 2017 Amounts expressed in US $000 SHAREHOLDER INFORMATION We are creating the building blocks of a better future for our clients upon the foundation of strength, stability and trust. SHAREHOLDER INFORMATION DIVIDENDS An interim dividend of US 2.5 cents per common share, approved for the half-year ended June 30, 2017, was paid on November 15, 2017 to the holders of common shares, including depositary interest holders, whose names were registered on the books of the Company at the close of business on October 18, 2017. A final common dividend of US 2.5 cents per common share, payable on May 15, 2018, was approved for the financial year ended December 31, 2017 to the holders of common shares, including depositary interest holders, whose names were registered on the books of the Company at the close of business on April 17, 2018. SHARES The following Shareholders own 4% or more of the capital of the Company as at December 31, 2017: Common Shares Number of Shares Percentage National Insurance Board International Finance Corporation 18,950,000 12,269,938 6.18 4.00 The total number of issued shares as at December 31, 2017 and as at December 31, 2016 is set out below Common Shares As at 31-Dec-17 As at 31-Dec-16 306,555,644 304,494,131 236 SAGICOR FINANCIAL CORPORATION LIMITED LONG TERM INCENTIVE PLAN (LTI) The Tables below show grants of restricted stock and stock options as at December 31, 2017 under the LTI for Executives. Restricted Stock As of December 31, 2017 Award Year Value attributable to Stock Grant Awards Made and in Effect Vested Forfeited Not Yet Vested Vested in 2017 2006 – 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1.98, 2.01, 2.50 1,302,161 1,302,161 1.58, 2.50 1,033,058 1,033,058 1.60 1.48 1.53 1.15 1.075 1.05 0.86 1.00 760,026 625,787 760,026 625,787 1,024,879 1,024,879 1,507,918 1,507,918 2,601,230 2,044,281 2,802,877 2,094,099 3,566,169 1,675,704 3,405,383 1,101,331 12,759 53,581 263,108 493,017 459,998 686,175 791,937 171,243 91,088 38,948 0 0 0 0 0 0 0 655,154 1,799,377 2,265,104 0 0 0 0 0 0 425,452 572,462 954,735 1,101,331 18,629,488 13,169,244 3,061,854 4,719,635 3,053,980 Allocated for settlement of taxes (959,544) Total converted to shares 2,094,436 2017 ANNUAL REPORT 237 Award Year Exercise Price of Stock Option Awards Made Vested Exercised Forfeited &/or Expired Not Exercised Not Vested Vested in 2017 Stock Options As of December 31, 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 120,443 72,839 818,009 973,711 120,443 798,372 72,839 1,976,759 596,749 640,272 US$ 1.98 918,815 US$ 2.01 2,049,598 US$ 2.5 US$ 2.5 US$ 1.6 1,414,758 1,613,983 2,060,619 1,295,616 US$ 1.48 2,569,572 1,644,170 US$ 1.53 1,458,559 1,043,968 0 0 0 0 0 US$ 1.15 2,279,818 1,742,489 990,896 537,329 US$ 1.075 3,275,787 2,214,589 1,249,377 US$ 1.05 3,401,743 1,689,017 1,023,317 US$ 0.86 4,946,649 1,462,249 936,112 US$ 1.00 4,853,069 380,979 356,004 387,571 233,417 65,690 66,490 0 0 818,009 973,711 751,593 965,212 0 0 0 0 0 0 0 0 673,627 0 0 0 0 0 0 0 435,636 769,066 665,700 1,479,309 893,909 526,137 3,418,710 1,462,249 24,975 4,405,600 380,979 765,003 1,295,616 925,402 1,644,170 414,591 1,043,968 30,842,970 13,458,079 4,748,988 7,407,645 8,709,091 9,977,246 3,941,839 238 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, 2017 (with 2016 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 2017 2016 2017 2016 2017 2016 2017 2016 6,534 14,922 6,960 3,916 2,777 661 217 32 6,476 14,962 6,932 3,922 ,2,829 644 222 31 18.14 41.43 19.32 10.87 7.71 1.84 0.60 0.09 17.98 3,879,557 3,816,930 41.53 24,732,936 24,843,507 19.25 24,146,139 24,040,879 10.89 27,904,352 27,991,237 7.85 1.79 0.62 0.09 39,948,479 40,753,105 31,075,736 29,974,552 61,386,472 62,695,447 93,481,973 90,378,474 1.27 8.07 7.88 9.10 13.03 10.14 20.02 30.49 1.25 8.16 7.90 9.19 13.38 9.84 20.59 29.69 Total 36,019 36,018 100.00 100.00 306,555,644 304,494,131 100.00 100.00 2017 ANNUAL REPORT 239 Common Shareholders by Country of Residence Number of Common Shareholders by Country of Residence and by Type as at December 31, 2017 Country Directors, Management, Staff, Advisors Shareholders Trinidad and Tobago Barbados Eastern Caribbean Other Caribbean Other Total 100 582 109 34 64 889 % 0.28 1.62 0.30 0.09 0.18 2.47 Common Shares held by Country of Residence Companies Individuals Total Shareholders 573 243 36 36 5 893 % 1.59 0.67 0.10 0.10 0.01 2.48 Shareholders 14,828 10,999 6,933 178 1,299 34,237 % 41.17 30.54 19.25 0.49 3.61 95.05 Shareholders % 15,501 11,824 7,078 248 1,368 43.04 32.83 19.65 0.69 3.80 36,019 100.00 Number of Common Shares Held by Country of Residence and by Type as at December 31, 2017 Country Directors, Management, Staff, Advisors Companies Individuals Total Shares Trinidad and Tobago 2,406,607 Barbados 5,983,529 Eastern Caribbean 292,423 Other Caribbean 1,556,534 Other Total 4,796,834 15,035,927 % 0.79 1.95 0.10 0.51 1.56 4.90 Shares 70,227,920 38,801,990 3,580,097 3,849,269 12,931,249 % 22.91 12.66 1.17 1.26 4.22 Shares 79,368,786 56,200,655 19,477,209 1,315,156 5,767,386 % 25.89 18.33 6.35 0.43 1.88 Shares 152,003,313 100,986,174 23,349,729 6,720,959 23,495,469 % 49.58 32.94 7.62 2.19 7.66 129,390,525 42.21 162,129,192 52.89 306,555,644 100.00 240 SAGICOR FINANCIAL CORPORATION LIMITED ADVISORS AND BANKERS APPOINTED ACTUARY Sylvain Goulet, FCIA, FSA, MAAA, Affiliate Member of the (British) Institute of Actuaries and Affiliate Member of the Caribbean Actuarial Association AUDITOR PricewaterhouseCoopers SRL LEGAL ADVISORS 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 Paul Hastings (Europe) LLP 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 2017 ANNUAL REPORT 241 OFFICES Sagicor Registered Office SAGICOR FINANCIAL CORPORATION LIMITED Clarendon House 2 Church Street Hamilton HM11 Bermuda Tel: (441) 295-1422 Fax: (441) 292-4720 Sagicor Corporate Head Office SAGICOR FINANCIAL CORPORATION LIMITED 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 Sagicor Life Inc Branch Offices Barbados Sagicor Life Inc. Sagicor Financial Centre 1st Avenue Belleville, St Michael Tel: (246) 467-7500 Fax: (246) 436-8829 Sagicor Life Inc. Sagicor Financial Centre Collymore Rock St Michael Tel: (246) 467-7500 Fax: (246) 436-8829 Antigua Sagicor Financial Centre #9 Sir Sydney Walling Highway St John’s Tel: (268) 480-5550 Fax: (268) 480-5520 Email: info_antigua@sagicor.com Belize Coney Drive Business Plaza 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 Email: info_curacao@sagicor.com Grenada TransNemwil Complex The Villa St George’s Tel: (473) 440-1223 Fax: (473) 440-4169 Email: info_grenada@sagicor.com St Lucia Sagicor Financial Centre Choc Estate, Castries Tel: (758) 452-3169 Fax: (758) 450-3787 Email: info_stlucia@sagicor.com Trinidad and Tobago Sagicor Financial Centre 16 Queen’s Park West, Port of Spain Tel: (868) 628-1636/7/8 Fax: (868) 628-1639 Email: info_trinidad@sagicor.com Sagicor Life Inc Agencies Anguilla Malliouhana Anico Insurance Co Ltd 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 242 SAGICOR FINANCIAL CORPORATION LIMITED Dominica WillCher Services Inc 44 Hillsborough Street Corner Hillsborough & Independence Streets Roseau Tel: (767) 440-2562 Fax: (767) 440-2563 St Vincent Sagicor Life Inc. C/o Incorporated Agencies Limited Frenches Kingstown Tel: (784) 456-1159 Fax: (784) 456-2232 Haiti Cabinet d’Assurance Fritz de Catalogne Angles Rues de Peuple et des Miracles Port-au-Prince Tel: (509) 3701 1737 SAGICOR LIFE (EASTERN CARIBBEAN) INC. Sagicor Financial Centre Choc Estate Castries, St Lucia Tel: (758) 456-1700 Tel: (758) 450-3787 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 C/o The St Kitts Nevis Anguilla Trading and Development Co. Ltd Central Street, Basseterre Tel: (869) 465-9476 Fax: (869) 465 6437 SAGICOR GENERAL INSURANCE INC. City Cetre Mall Bridgetown, Barbados Tel: (246) 413-2886 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 Email: sgi-info@sagicorgeneral.com 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 St Lucia Sagicor Life Inc Sagicor Financial Centre Choc Estate Castries St Lucia Tel: (758) 452-0994 Fax: (758) 450-4870 Trinidad and Tobago 122 St Vincent Street Port of Spain Tel: (868) 623-4744 Fax: (868) 628-1639 or (868) 625-1927 Sagicor General Insurance Agencies HHV Whitchurch & Company Limited Old Street 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 2017 ANNUAL REPORT 243 Orry J Sands & Co. Ltd. 300 east Shirley Street Nassau, NP Bahamas Tel: (242) 393-4300 Fax: (242) 393 6258 SAGICOR FUNDS INCORPORATED Cecil F de Caires Building, Wildey, St Michael Barbados Tel: (246) 467-7500 Fax: (246) 436-8829 Email: info@sagicor.com SAGICOR ASSET MANAGEMENT INC Cecil F de Caires Building Wildey, St Michael Barbados Tel: (246) 467-7500 Fax: (246) 426-1153 Email: info@sagicor.com SAGICOR FINANCE INC Sagicor Financial Centre Choc Estate Castries St Lucia Tel: (758) 452-4272 Fax: (758) 452-4279 SAGICOR ASSET MANAGEMENT (TRINIDAD AND TOBAGO) LIMITED Sagicor Financial Centre 16 Queen’s Park West, Port of Spain Trinidad Tel: (868) 628-1636/7/8 Fax: (868) 628-1639 NATIONWIDE INSURANCE COMPANY LIMITED Sagicor Financial Centre 16 Queen’s Park West Port of Spain, Trinidad Tel: (868) 628-1636 Fax: (868) 628-1639 Email: comments@sagicor.com BARBADOS FARMS LIMITED Bulkeley St George Barbados Tel: (246) 427-5299 Fax: (246) 437-8873 SAGICOR PANAMA SA Ave Samuel Lewis y Calle Santa Rita Edificio Plaza Obarrio 3er Piso Oficina 201 Panama City, Panama Tel: (507) 223-1511 CAPITAL LIFE INSURANCE COMPANY BAHAMAS 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 Email: info@familyguardian.com SAGICOR LIFE ARUBA NV Fergusonstraat #106 AHMO Plaza Building, Suites 1 and 2 Oranjestad, Aruba Tel: (297) 582-3967 Fax: (297) 582-6004 Email: calico@setarnet.aw Lyder Insurance Consultants Seroe Blanco 56A Tel: (297) 582-6133 GLOBE FINANCE INC Shirley House Hastings Main Road Christ Church Tel: (246) 426-4755 Fax: (246) 426-4772 Website: www.globefinanceinc.com LOJ HOLDINGS LIMITED 28-48 Barbados Avenue Kingston 5, Jamaica Tel: (876) 929-8920(-9) Fax: (876) 960-1927 SAGICOR GROUP JAMAICA LIMITED 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 Website: www.sagicorjamaica.com 244 SAGICOR FINANCIAL CORPORATION LIMITED SAGICOR FINANCE LIMITED Maples Corporate Services Limited Ugland House South Church Street George Town, Grand Cayman Cayman Islands Associated Companies FAMGUARD CORPORATION LIMITED No.1 Shirley Street & Village Road 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 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 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 INSURANCE BROKERS LIMITED 28-48 Barbados Avenue Fax: (507) 264-1949 Email: capital1@sinfo.net Website: www.sagicorjamaica.com EMPLOYEE BENEFITS ADMINISTRATORS LIMITED 28-48 Barbados Avenue Kingston 5, Jamaica Tel: (876) 929-8920(-9) Fax: (876) 960-1927 Website: www.sagicorjamaica.com SAGICOR INVESTMENTS JAMAICA LIMITED 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 SAGICOR BANK JAMAICA LIMITED 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 SAGICOR LIFE INSURANCE COMPANY 4010 W. Boy Scout Blvd, Suite 800 Tampa, Florida 33607, USA Tel: (813) 287-1602 Fax: (813) 287-7420 4343 N. Scottsdale Road, Suite 300 Scottsdale, Arizona, 85251, USA Tel: 1-800-531-5067 Fax: (480) 425-5150 Website: www.sagicorlifeusa.com 2017 ANNUAL REPORT 245 Connect with us! Sagicor Financial Corporation Limited welcomes your feedback regarding any aspect of our business, or of any member of the Sagicor Group of companies. We are very happy for you to contact us through any of the channels listed below. Shareholders Contact us for: • Dividends • Change in share registration and address • Lost share certificates • Estate transfer • General shareholder requests Connect with us! Sagicor Financial Corporation Limited Cecil F De Caires Building Wildey St. Michael Barbados, BB15096 Phone: (246) 467-7500 Fax: (246) 426-7907 Email: info@sagicor.com To obtain additional printed copies of the Annual Report or make enquiries regarding company news and initiatives Phone: (246) 467-7500 Fax: (246) 426-7907 Email: info@sagicor.com Don’t forget to: Like us on Facebook www.facebook.com/sagicorFinancialCorporationLimited Follow us on Twitter http://twitter.com/Sagicorgroup Follow us on Instagram http://instagram.com/sagicorgroup (246) 467 7500 | www.sagicor.com 

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