REGIONAL insurance giant Guardian Holdings has come storming back after a terrible two years which saw the group posting lacklustre financial performances.

Jeffrey Mack has been in place as Group CEO for about two-and-a-half years and he has played an instrumental role in putting the group back on a solid footing. He looked across the group’s subsidiaries and took the tough decision to cut its underperforming companies. Guardian had entered the market in the UK acquiring Zenith, which proved to be an albatross around its neck, and deciding to dispose of the company in 2009 taking a write-off of about TT$1 billion.

Divesting and sticking to core business

In Jamaica, it took a good look at Guardian Asset Management (GAM) and decided that while it liked the asset management business in Trinidad, Jamaica had a more trading type of business. From a risk perspective, it thought it better to get out and sold the business to the Peter Bunting- led Proven last year.

Speaking with Caribbean Business Report from Guardian Life Limited’s headquarters in Kingston, Mack said: “What we were then left with was our core group of companies in the Caribbean in addition to maintaining our position at Lloyds of London with our Jubilee company there.

In order to put the group on a solid footing we then set out to bolster the balance sheet; because obviously when we took the huge write-off with Zenith it left us with some work to do in order to improve our capital position. What we did was enter into a partnership agreement with the International Finance Corporation (IFC) where they now own 13 per cent of Guardian Holdings. This makes them the third largest individual shareholder. We had a US$50-million surbordinated loan with the IFC which we converted into common equity. What that did for us was improve our cash flow position and our debt/equity ratio to the point where we are at under 40 per cent.

“The second part of that transaction was that they injected US$25 million of fresh capital in exchange for common equity. At the time our share price was TT$13.00 a share on the Trinidad& Tobago Stock Exchange. The IFC bought our common equity at TT$16.00 a share which was a 22 per cent premium. That addressed the equity side of our balance sheet.”

Largest corporate bond in the history of the Caribbean

In January of 2011, Guardian Holdings addressed the liability side of its balamce sheet by issuing the largest TT dollar- denominated corporate bond in the history of the Caribbean at TT$1 billion. It used the proceeds of that to pay off about TT$850 million of other debt. Here Mack says Guardian took advantage of the low interest rate environment to reprofile its debt and extend out the tenor of the new bond to 12 years. It also had a three-and-a-half year moratorium on principal payments. This also helped the group’s cash flow position. Between the IFC money and the $100 million from the bond offering, this was used to support organic growth and give the group a bit of a war chest to look for future acquisitions.

“From an operational standpoint we were very focused on expense management and control. Our goal was to save TT$100 million using 2008 as our benchmark. By the end of 2010 we exceeded that goal. We are very focused across the group on cost savings. We are now positioned to really take off. I must say here that the subsidiaries we have are really excellent companies. We have Guardian Life in Trinidad which is the number one Life, Health and Pension company there. Trinidad is an investment grade-rated country with a high level of Life penetration. We sell more individual life insurance there than all our competitors combined.

In Jamaica, Guardian Life is a very strong franchise and is doing very well with its Life, Health and Pension products. It is number two in the marketplace behind Sagicor. In the Dutch Caribbean we have Fatum which is a composite insurance company that does Property, Casualty, Life, Health and Pension. It has about a 50 per cent market share there. We are well-positioned across the English-speaking Caribbean.

On the P&C (Property& Casualty) side, Guardian General is the parent company of West Indies Alliance. It is the largest indigenous Property and Casualty company in the Caribbean. Its combined ratiometric is most impressive. Last year was very active on the hurricane/storm front with fifteen named storms. Fortunately for us it didn’t severely affect the areas where we operate. Tomas affected our bottom line to the tune of about TT$32 million. Despite this we ended up with a combined ratio of 77 per cent. West Indies Alliance had the highest underwriting profit of any company in Jamaica last year. Our businesses in Jamaica have been very good to us,” said Mack.

Has Guardian benefited from the demise of Clico and how so? Mack believes it has in many different respects, but points out that Clico was primarily selling a non-insurance product which was more a banking/deposit-type product which Mack says ultimately got them into a lot of difficulty. He drew attention to the fact that on the Individual Life side, Clico was not that big a competitor. However, they did compete very successfully on the group side.

“In the very beginning when it was announced that Clico needed a government bailout, a lot of people responsible for placing these group-style businesses perhaps thought that the government would stand behind Clico’s liabilities. There wasn’t a lot of business moving around the marketplace but we took the opportunity to recruit some of Clico’s best sales agents.

Since 2009 we have recruited about 60 of their Life sales people and “Guardianised” them and got them selling more traditional insurance products. With the demise of Clico and more information about what was going on coming out in the press, a lot of those group contracts have started to move around.We then saw the flight to quality but over the last six to nine months it has really picked up.”

Part II next week.