Sagicor Financial Company Limited (SFC) has highlighted that its preliminary estimations have it recording a US$434.73-million (J$66.98-billion) gain for its bargain purchase of Ivari on October 3.

This was announced in SFC’s business acquisition report which was filed on December 14 to provide an update on the key details surrounding the transaction. SFC acquired Proj Fox Acquisition Inc. and its wholly owned subsidiaries Wilton Re (Canada) Limited, Ivari Holdings ULC and Ivari for US$273.14 million (CA$369.29 million), which was below the total net identifiable assets of US$707.87 million. SFC will be reporting on Ivari in its fourth quarter financials as an operating segment with SFC to publish its audited financials in March 2024.

“We are particularly pleased to have been able to close the acquisition of Ivari in the beginning of the fourth quarter. This is a transformational acquisition for Sagicor. It’s doubled our asset base, increased our book value per share, enhanced our earnings generation today, and provides another avenue for future growth. At Ivari and in our growing US business, the higher interest rate environment makes the fundamental economics of our new business more attractive than they have been in years,” said SFC President and CEO Andre Mousseau in the third-quarter (Q3) earnings call.

In an August 2022 earnings call, Mousseau mentioned that the original acquisition value of CA$325 million represented CA$125 million as the purchase price, with the remaining difference as the amount that the seller would have to inject into Ivari to meet the minimum equity targets under IFRS 17 and LICAT 23. SFC might then decide to inject additional capital into Ivari to support higher levels of capital growth.

SFC’s total assets as at September 30, prior to the acquisition, was US$11.03 billion with total liabilities of US$10.27 billion, and total equity of US$762.25 million, of which US$442.51 million was attributable to shareholders. On a pro-forma basis assuming the acquisition was completed on September 30, SFC’s total assets would be US$20.84 billion, have total liabilities of US$19.66 billion and total equity of US$1.18 billion, US$856.97 million being attributable to shareholders.

With insurance companies now reporting under IFRS 17, companies have a section under their liabilities called the contractual service margin (CSM) which will be released onto their income statement over time as the service is rendered. In the case of SFC, the net CSM to shareholders was US$559 million in Q3 with the sum of this figure and shareholders’ equity being US$1 billion. The pro-forma figures reveal that shareholders’ equity would be US$857 million and net CSM to shareholders of US$1.13 billion. Also, the debt to capital ratio would decrease from 31 per cent to 28.2 per cent.

However, the same couldn’t be said for consolidated net profit for the nine months which would have declined from US$80.72 million to US$52.22 million which is largely a function of the loan used to acquire Proj Fox. This is against the backdrop of the net insurance and investment result moving up from US$342.61 million to US$391.86 million. For 2024, SFC projects that its core shareholder earnings will range between US$90 and US$110 million with return on equity from 14 to 16 per cent.

SFC accessed US$320 million in the form of a five-year syndicated senior term loan facility with a range of international and Canadian banks. The facility is currently priced at 10.33 per cent based on the SOFR (secured overnight financing rate) of 5.33 per cent as at October 3 plus the five per cent spread. Mousseau noted that SFC would look to save between 200 to 300 basis points (two to three per cent) when they decide to refinance this loan facility possibly in 2024. This is based on SFC gaining investment grade credit ratings from S&P Global Ratings and Fitch Ratings following the acquisition.

While JMMB Group Limited (JMMBGL) doesn’t report SFC’s Q4 figures in its Q3 report, it will be included in the 2024 audited financials. JMMBGL owned 23.44 per cent of SFC up to September 30 and is currently its largest shareholder.

Since the acquisition, SFC’s stock price is up 14 per cent year to date at CA$6.23 on Thursday, which is also the 52-week high for the Toronto Stock Exchange listed firm. SFC’s pro-forma book value to shareholders is US$6.04 or CA$8.16 with the net CSM addition bringing it to US$13.97 or CA$18.88. SFC paid its final US$0.05625 dividend on December 13 which brings in the annual figure to US$0.225.