By: Kimberly Ramkhalawan
April 15, 2022
JmAAA, the highest credit rating to be issued on the Jamaica National Scale has been awarded to Sagicor Life Jamaica Limited (SLJ or the Company).
Caribbean Information and Credit Rating Services Limited (CariCRIS) has reaffirmed the issuer/corporate credit rating and includes a credit uplift for implied support from SLJ’s ultimate parent company, Sagicor Financial Company Ltd (SFC), through its controlling interest in Sagicor Group Jamaica Limited (SGJ).
CariCris in issuing the report says the rating indicates that the level of creditworthiness, while it also maintained a stable outlook on the rating based on CariCRIS’ expectation that SLJ will likely realise modest revenue growth over the next 12 to 15 months.
In its report is says ‘we expect the Company to continue to perform well and maintain its overall leading market position in the insurance industry in Jamaica. We further expect the Company to remain adequately capitalised and meet all its debt obligations and policyholder liabilities as they come due over the period’.
However, CariCRIS expressed concern that as one of the largest creditors of the government, SLJ is unduly exposed to sharp declines in the value (principal) of its government bonds should there be a downturn in Jamaica’s economic performance, sustained in the medium to long term leading to a restructuring of the sovereign’s debt profile. For SLJ, CariCris says given its exposure to long-term annuity liabilities, this asset default will likely have a material impact on its overall profitability as a result of the realised losses likely to be incurred from such an event. However, CariCRIS notes management’s ongoing diversification efforts to reduce its exposure through its regional and international investment strategy, as well as its strategy to switch from lower quality USD corporate bonds to investment grade assets.
CariCris is listing its rating sensitivity Factors that could, individually or collectively, lead to an improvement in the rating and/ or outlook included improvements in the macroeconomic environment of Jamaica resulting in sustained higher levels of economic growth, such as real GDP growth of 2 percent to 3 percent sustained over the next 12 to 15 months, or significantly lower debt levels i.e., a debt to GDP ratio of below 75 percent by June 2023
While factors that could, individually or collectively, lead to a lowering of the rating and/ or outlook included restructuring of the sovereign (GoJ) debt profile leading to a haircut in the principal of government bonds or a more than 30 percent reduction in the value of these bonds, thereby adversely impacting SLJ’s concentrated long term annuity business. It also added deterioration in the financial performance and profitability of SLJ, with a greater than 10 percent fall in premium income.
In 2013, a holding company, Sagicor Group Jamaica Limited (SGJ) was established, and this entity owns 100 percent of SLJ. Sagicor Life Incorporated (SLI) is the majority shareholder of SGJ and the principal operating subsidiary of Sagicor Financial Company Limited (SFC)1, which itself owns 49.11percent of SGJ. SLJ is considered the main operating subsidiary of SGJ. Following the reorganisation of the Jamaican operations, SLJ was delisted from the Jamaica Stock Exchange and replaced by SGJ. The Company markets an extensive range of long-term and equity-linked Individual Life insurance products, Group Life, Group Health, Personal Accident plans and Group Pension plans. Some of the Company’s other services include residential and commercial mortgages, annuities, real estate development and management, investment management and lease financing.
The company continued to report healthy profitability in 2020 with a 13.4 percent y-o-y increase in Profit After Tax (PAT) to J $10.8bn from J $9.5bn in the prior year (Table 3). The increase in PAT was driven by a J $5bn release in actuarial reserves compared to a J $6.8bn charge in the prior year. The release in reserves reflected changes in mortality, morbidity and lapse assumptions in the individual life portfolio, adjusted in the third quarter of 2020. The assumptions were underpinned by a better-than-expected mortality experience.
Net benefits and claims for the period rose by 4.2 percent for the 9-month period to J $22.5bn from J $21.6bn previously, primarily due to higher death and health claims. For the period, the Company’s claims were impacted by high medical cost inflation particularly related to the increased cost of hospital stays and drug costs, which occurred up to April 2021 as a result of the Covid-19 pandemic.
SLJ also reported a J $2.2bn charge in actuarial reserves, compared to a J $5.6bn release in reserves for the same period in the prior year. The charge reflected a change in the sales mix towards underwritten products and from changes in lapse and mortality assumptions. Notwithstanding the rise in net benefits and claims, there was only a marginal deterioration in the loss ratio to 66 percent from 65.6 percent previously.
SLJ continues to be well capitalized as evidenced by its risk-based capital assessment measure, the Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio, which remained well above the regulatory minimum of 150 percent. As at December 2021, SLJ’s MCCSR deteriorated to 162 percent from 183.1 percent reported one year earlier. Notwithstanding this deterioration, the Company holds an adequate level of excess qualifying capital resources to effectively carry out its business development activities and to absorb any unexpected shocks, should these arise. In December 2020, SLJ paid a dividend of J $579.1m to its parent, SGJ.
Sagicor Life Jamaica Limited (SLJ or the Company), a member of the Sagicor Group of Companies, commenced operations in 1970 as the first Jamaican-owned life insurance company.