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Sagicor Financial Corporation

Audited financial results for the year ended December 31, 2008

Financial highlights

	2008	2007
Group net income	US $125.2m	US $108.7m
Net income attributable to shareholders	US $96.1m	US $86.3m
Return on shareholders’ equity	23.8%	22.1%
Total shareholders’ equity	US $447.8	US $455.2m
Total revenue	US $1,067.6m	US $773.0m

Chairman's statement

I am pleased to report that, despite a very challenging year, the Sagicor Group of Companies recorded a very commendable performance for the year ended December 31, 2008. Net income for the year amounted to US $125.2 million for the Group and US $96.1 million attributable to shareholders. This compares with US $108.7 million for the Group and US $86.3 million to shareholders for the same period last year.

2008 was a very difficult year for the financial services industry. The collapse of major international institutions and the need for extensive government support for others signaled to the global market that the financial world had changed, and changed dramatically. In the US, reduced or non-existent access to credit, together with widening credit spreads produced historic mark-to-market losses, which threatened to disrupt the operations of many otherwise viable institutions, as their capital came under strain. In the UK, the government made significant capital injections into its major financial institutions in order to ensure that they had the capital to withstand the ravages of the crisis. Similar approaches were adopted throughout Europe.

These events negatively impacted consumer confidence, and despite many efforts by world governments to shore up the already weak economies, the weight of the financial crisis eventually pushed the economies into recession. Late in the year, it was confirmed that the US and UK economies were in recession. The Caribbean economies have all shown evidence of a slow down and may already also be in recession.

The financial markets for debt securities, mortgage-backed securities, mortgage loans and equity securities in many places are experiencing adverse conditions. Internationally, many debt securities and mortgage-backed securities are trading at prices well below where they were on January 1, 2008. The equities markets around the world have all declined appreciably. In 2008, the Dow Jones Industrial Average declined by 34%, and the NASDAQ Composite Index declined by 41%. In the currency market, the UK pound sterling declined by 28% against the US dollar during 2008.

In the Caribbean region, we have also experienced significant declines in the equities markets. In 2008, the Barbados Stock Exchange Local Index declined by 12%, while the Jamaica Stock Exchange Market Index declined by 35%. The Trinidad and Tobago Stock Exchange Composite Index also declined by 14%. In Jamaica, interest and inflation rates have continued to rise and the Jamaica dollar has declined by 13% against the US dollar.

Sagicor, like most other financial institutions in the Caribbean and globally, has been impacted by these unusual financial and currency market developments. The impact manifests itself in two ways. The declines in asset values and foreign currency rates have reduced our equity reserves. However, the decline in asset values has been offset in part by a consequential reduction in long-term liabilities. Had the reduction in asset values been reflected through the income statement, the impact would have been a reduction in shareholder's net income of US $58.5 million. However, the quality of these assets is sound and we fully expect the values to return as some order of normalcy returns to the financial markets. Overall, the Sagicor Group has weathered these developments reasonably well. The Group's equity position remains strong at US $581.6 million. Sagicor continues to enjoy strong credit ratings of A (Excellent) from A.M. Best and BBB+ from Standard & Poor's.

Our operating businesses have continued to perform profitably during 2008. Net premium income grew by a considerable 65% to US $712.0 million. The UK operations, which are now, included for a full year, and the Jamaica operations were the major contributors to the growth in premium revenue. Net investment and other income remained steady and grew by 6.5% to reach US $336.8 million. Through favourably priced acquisitions for Barbados Farms Limited and for insurance acquisitions in the UK and Caribbean, we have recorded gains on acquisition totaling US $18.8 million. Net Benefits increased by 49% to US $573.4 million and expenses have also increased by 32% to US $343.3 million, both being as a result of the acquisitions and the increase in inforce business.

In relation to our recently acquired businesses, our UK operations, Sagicor at Lloyd's had a commendable year, recording steady growth in business and enjoying good name recognition in the Lloyds market. It recorded a net income of US $13.0 million for the year. Sagicor Life Insurance Company, our US insurance subsidiary made good progress in building out its new business operations and enjoyed solid new business growth particularly during the second half of the year. Sagicor US contributed US $9.7 million to Group net income. Barbados Farms Limited made a small operating profit for the year and combined with the earlier mentioned gain on acquisition made a positive contribution to shareholder net income and long-term shareholder value.

For the Sagicor Group, earnings per share for the year are US 34.7 cents, up from US 32.3 cents in 2007.

With the world economies now firmly in recession, and the fallout from the global financial crisis continuing, 2009 is shaping to be as challenging a year as was 2008. The Caribbean is not immune from the impact of the global financial crisis and the global recession. Sagicor is a well capitalized, diversified financial Group, and while we enjoy a strong capital position and modest debt to equity ratio, we continue to be vigilant and to manage our affairs with prudence. We have increased our emphasis on governance and risk management, and capital, liquidity and cost management are being given increased focus. In this regard, we continue to focus on streamlining our business operations to enhance efficiency and the Group's financial performance. We continue to be a strong Caribbean company with the capital strength and operating capability to compete internationally while delivering good value to our shareholders, customers, staff and communities.

In addition, your Board is recommending a final dividend of US 2 cents per share which brings the total dividend for the year to US 5 cents compared to US 7 cents for 2007. This reduction is considered prudent under the current market conditions, and your Board will continue to monitor the global financial and economic environment to assist in determining future dividend policy.

We at Sagicor appreciate that the global financial and economic environment gives much cause for concern. We have seen many institutions, large and small, fall under the current financial and economic pressure. Governments both internationally and here in the Caribbean are taking strong measures to cope with the full impact of this twin crises. However, we know that just like you, prudence and good stewardship of our resources will see us through these difficult times. We wish to assure you that Sagicor has a solid capital base and quality assets and while we are subject to the influences of the global and regional economic environment, we are well placed to withstand the current external difficulties. Our operations are diversified and profitable, managed by competent, professional management and staff and an engaged board of Directors. We are confident of our future.  

As 2009 unfolds, your Board and Management will continue to monitor developments closely and to take prompt action whenever necessary.

Terrence A. Martins

Chairman

March 31, 2009.

  Enquiries:

Sagicor Financial Corporation	+1 246 467 7500
Melba Smith, Vice President Corporate Communications
Numis	+ 44 (0)20 7260 1000
Charles Farquhar
College Hill Associates	+44 (0)20 7457 2020
Richard Pearson

  CONSOLIDATED BALANCE SHEET

As of December 31, 2008

			Amounts expressed in US$000
			2008		2007
ASSETS
	Investment property		107,390		97,522
	Property, plant and equipment		148,279		92,938
	Investment in associated companies		31,893		30,334
	Intangible assets		134,922		138,524
	Financial investments		2,879,466		2,683,007
	Reinsurance assets		307,713		320,155
	Income tax assets		31,757		23,622
	Miscellaneous assets and receivables		214,914		171,459
	Cash resources		122,982		92,140
	Total assets		3,979,316		3,649,701
LIABILITIES
	Actuarial liabilities		1,450,219		1,364,304
	Other insurance liabilities		385,554		313,915
	Investment contract liabilities		267,474		242,376
	Total policy liabilities		2,103,247		1,920,595
	Notes and loans payable		164,306		152,719
	Deposit and security liabilities		917,143		790,565
	Provisions		28,038		23,542
	Income tax liabilities		16,674		15,107
	Accounts payable and accrued liabilities		168,261		160,466
	Total liabilities		3,397,669		3,062,994
EQUITY
	Share capital		258,153		231,695
	Reserves		(85,272)		21,735
	Retained earnings		274,870		201,744
	Total shareholders' equity		447,751		455,174
	Participating accounts		12,499		9,396
	Minority interest in subsidiaries		121,397		122,137
	Total equity		581,647		586,707
	Total equity and liabilities		3,979,316		3,649,701

These financial statements have been approved for issue by the Board of Directors on March 31, 2009.

  

CONSOLIDATED INCOME STATEMENT

Year ended 31 December, 2008

 

			Amounts expressed in US $000
REVENUE			2008		2007
	Premium revenue		849,756		535,871
	Reinsurance premium expense		(137,710)		(105,485)
	Net premium revenue		712,046		430,386
	Net investment income		259,717		261,212
	Share of operating income of associated companies		2,304		4,224
	Fees and other revenue		74,756		50,734
	Gains arising on acquisitions		18,786		26,398
	Total revenue		1,067,609		772,954
BENEFITS
	Policy benefits and change in actuarial liabilities		542,022		333,601
	Policy benefits and change in actuarial liabilities reinsured		(61,353)		(33,028)
	Net policy benefits and change in actuarial liabilities		480,669		300,573
	Interest expense		92,711		84,063
	Total benefits		573,380		384,636
EXPENSES
	Administrative expenses		180,322		142,190
	Commissions and related compensation		124,661		77,932
	Premium taxes		7,652		7,269
	Finance costs		14,418		12,276
	Depreciation and amortisation		16,298		20,101
	Total expenses		343,351		259,768
INCOME FROM ORDINARY ACTIVITIES			150,878		128,550
	Income taxes		(25,635)		(19,824)
NET INCOME FOR THE YEAR			125,243		108,726
NET INCOME ATTRIBUTABLE TO:
	Shareholders		96,111		86,289
	Participating policyholders		3,565		(226)
	Minority interest		25,567		22,663
			125,243		108,726
Net income attributable to shareholders - EPS
Basic earnings per common share			34.7 cents		32.3 cents
Fully diluted earnings per common share			34.6 cents		32.3 cents

  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended December 31, 2008 

	Amounts expressed in US $000
	Share capital	Reserves	Retained earnings	Par (1) accounts	Minority interest	Total
Balance, beginning of year	231,695	21,735	201,744	9,396	122,137	586,707
Net income for the year	-	-	96,111	3,565	25,567	125,243
Net unrealised losses on available for sale investments	-	(58,536)	(198)	(200)	(13,458)	(72,392)
Other losses recognised directly in equity	-	(53,585)	-	-	(14,668)	(68,253)
Total recognised gains and income for the year	-	(112,121)	95,913	3,365	(2,559)	(15,402)
Issue of shares	27,625	-	-	-	(334)	27,291
Value of employee services rendered (net)	-	1,628	-	-	112	1,740
Net purchase of treasury shares	(1,167)	-	-	-	-	(1,167)
Dividends declared	-	-	(19,416)	-	(10,946)	(30,362)
Acquisition of subsidiaries and insurance businesses	-	-	-	-	12,859	12,859
Other movements	-	3,486	(3,371)	(262)	128	(19)
	26,458	(107,007)	73,126	3,103	(740)	(5,060)
Balance, end of year	258,153	(85,272)	274,870	12,499	121,397	581,647

(1)Participating

  

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended December 31, 2007 

	Amounts expressed in US $000
	Share capital	Reserves	Retained earnings	Par (1) accounts	Minority interest	Total
Balance, beginning of year	230,235	48,106	135,509	9,902	118,553	542,305
Net income / (loss) for the year	-	-	86,289	(226)	22,663	108,726
Net unrealised (gains) / losses on available for sale investments	-	(10,847)	(78)	(20)	2,367	(8,578)
Other losses recognised directly in equity	-	(19,930)	-	-	(12,538)	(32,468)
Total recognised gains and income for the year	-	(30,777)	86,211	(246)	12,492	67,680
Issue of shares	484	-	-	-	2,675	3,159
Value of employee services rendered (net)	-	1,705	-	-	87	1,792
Net purchase of treasury shares	976	-	-	-	-	976
Disposal of equity interest	-	-	-	-	(3,593)	(3,593)
Dividends declared	-	-	(17,321)	-	(8,167)	(25,488)
Other movements	-	2,701	(2,655)	(260)	90	(124)
	1,460	(26,371)	66,235	(506)	3,584	44,402
Balance, end of year	231,695	21,735	201,744	9,396	122,137	586,707

(1) Participating

  CONSOLIDATED CASH FLOW STATEMENT 

Year ended December 31, 2008

			Amounts expressed in US $000
CASH FLOWS FROM OPERATING ACTIVITIES			2008		2007
	Income from ordinary activities		150,878		128,550
	Adjustments for non-cash items, interest and dividends		45,335		(138,815)
	Interest and dividends received		228,702		207,016
	Interest paid		(106,280)		(95,857)
	Income taxes paid		(18,022)		(17,023)
	Changes in operating assets		(347,576)		(275,300)
	Changes in operating liabilities		249,076		119,673
	Net cash from / (used in) operating activities		202,113		(71,756)
CASH FLOWS FROM INVESTING ACTIVITIES
	Property, plant and equipment, net		(13,018)		(10,532)
	Investment in associated companies, net		1,139		(1,315)
	Intangible assets, net		(4,264)		(4,120)
	Acquisition of subsidiaries and insurance businesses, net of cash and cash equivalents		(31,902)		(2,289)
	Net cash used in investing activities		(48,045)		(18,256)
CASH FLOWS FROM FINANCING ACTIVITIES
	Common shares issued		357		27
	Net (purchase) / disposal of treasury shares		(1,167)		898
	Dividends paid to shareholders		(19,234)		(17,137)
	Shares issued to minority interest		1,654		2,348
	Dividends paid to minority interest		(10,889)		(8,157)
	Notes and loans payable, net		12,776		(7,952)
	Net cash used in financing activities		(16,503)		(29,973)
	Effects of exchange rate changes		(24,205)		8,803
NET CHANGE IN CASH AND CASH EQUIVALENTS			113,360		(111,182)
	Cash and cash equivalents, beginning of year		113,492		224,674
CASH AND CASH EQUIVALENTS, END OF YEAR			226,852		113,492

  

AUDITORS' REPORT

To the Shareholders of Sagicor Financial Corporation

The accompanying summarised financial statements have been derived from the consolidated financial statements of Sagicor Financial Corporation and its subsidiaries (the Group) for the year ended December 31, 2008.

These summarised financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on whether these summarised financial statements are consistent, in all material respects, with the consolidated financial statement from which they were derived.

We have audited the consolidated financial statements of the Group for the year ended December 31, 2008, from which these summarised financial statements were derived in accordance with International Standards on Auditing. In our report dated March 31, 2009, we express an unqualified opinion on the consolidated financial statements from which the summarised financial statements were derived.

In our opinion, the accompanying summarised financial statements are consistent, in all material respects, with the consolidated financial statements from which they were derived.

For a better understanding of the Group's financial position and the results of its operations for the year, and of the scope of our audit, the summarised financial statements should be read in conjunction with the consolidated financial statements from which the summarised financial statements were derived and our audit report thereon.

PricewaterhouseCoopers

Chartered Accountants

March 31, 2009

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