Sagicor Financial Company Limited (SFC) has received all regulatory approvals to acquire Canadian life insurance company Ivari and expects to complete the transaction by October 3, subsequent to the end of its third quarter on September 30.
SFC had announced in August 2022 that it was seeking to acquire Ivari for CA$325 million (US$251.27 million) or J$37.88 billion which was to be funded 80 per cent by debt and 20 per cent with cash. The acquisition of Ivari not only serves to push SFC's net income up from $133 million to US$173 million under IFRS (International Financial Reporting Standards) 4, but also improves its balance sheet to consist of more investment grade assets and result in positive implications for its own credit rating.
"For a purchase price of just under US$300 million, we're nearly doubling our asset base, increasing our earnings and providing access to another area for growth. This is an exceptional use of our excess capital. Ivari is a leader in the Canadian middle market, which is a demographic that fits nicely, with that we serve here in the Caribbean. We believe this enhanced portfolio will help us unlock an investment grade rating for Sagicor Financial itself, as it improves our overall credit mix substantially," said SFC President and Chief Executive Officer Andre Mousseau at the June 16 annual general meeting.
SFC's prior presentation on Ivari noted that the Ivari acquisition would push the investment grade component of its combined US$16.4-billion investment portfolio from 69 to 83 per cent on a pro forma basis, result in a 25 per cent plus accretion to its earnings per share and double-digit accretion to its book value per share. Whereas 53 per cent of SFC's revenue comes from the Caribbean, its pro forma numbers show this number being cut to 42 per cent of US$3 billion in revenue. The 64 per cent contribution from the Caribbean to net profit would be reduced to 47 per cent with Ivari and Sagicor Life USA making up 27 and 26 per cent, respectively.
Although Ivari's 2022 revenue grew two per cent to CA$989.37 million (US$730.06 million), its net profit dropped 86 per cent to CA$10.51 million due to CA$1.28 billion in net investment expense on its investment portfolio. Ivari's total assets declined 13 per cent to CA$12.14 billion with equity closing 12 per cent higher at CA$1.61 billion due to a CA$350.05 million capital injection by Ivari Holdings ULC. Ivari Holdings is owned by Wilton Re Limited, which is controlled by the Canada Pension Plan Investment Board.
As part of the deal, SFC will pay back the seller for any capital that was injected into Ivari to meet minimum equity targets under IFRS 17 and LICAT (Life Insurance Capital Adequacy Test) 23 standards. This was noted by Mousseau in a prior investor call where he also noted that SFC may choose to further inject capital into Ivari to support higher capital levels for growth. SFC's 2024 forward guidance on net income with Ivari under its belt is US$91-US$116 million.
SFC's earnings under IFRS 17 showed an 11 per cent increase in insurance revenue of US$332.14 million for the first half of 2023, with net investment income coming in at US$335.58 million relative to the restated net investment expense of US$355.42 million. Net profit attributable to shareholders closed the period at US$50.25 million compared to a restated net loss of US$162.20 million. SFC's net profit under IFRS 4 for the first six months of 2022 was US$77.09 million.
Sagicor Group Jamaica Limited (SJ) contributed US$18.12 million to net profit attributable to shareholders for the first six months of 2023 with Sagicor Life Inc and Sagicor Life USA contributed US$13.74 million and US$59 million, respectively.
SFC's total assets under IFRS 17 are up four per cent in the first six months to US$11.04 billion with equity attributable to shareholders at US$462.51 million. SFC's book value was US$3.24 (CA$4.29) at the end of June. SFC declared a dividend of US$0.05625 which was paid on September 13 to shareholders on record as of August 23.
Its Jamaican subsidiary Sagicor Group Jamaica declared a dividend of J$0.505 to be paid on October 19 to shareholders on record as of October 2. This payment totals J$1.97 billion with J$968.66 million (US$6.23 million) being paid to direct parent company Sagicor Life Inc.
Apart from the syndicated financing from three Canadian banks to acquire Ivari, SFC also entered into a credit agreement on August 2 to establish a senior unsecured revolving credit facility for up to US$125 million. SFC is also selling its wholly owned subsidiary Sagicor Panama SA to Sagicor Costa Rica S.A.'s subsidiary, a 50 per cent joint venture between Sagicor Group Jamaica and Grupo Promerica. SFC is also disposing of its operations in Curacao and St Maarten.
Despite all of the positive news, SFC's stock price is down 11 per cent year to date to CA$4.90 with a new all-time low of CA$4.25 being achieved recently. The decline has left its market capitalisation at CA$694.58 million. SFC renewed its normal course issuer bid on June 24 which allows it to purchase up 8,840,727 ordinary shares under a stock buyback programme. It's cancelled 37,244 shares in the last two months which has pushed its issued shares down to 142,660,067 shares. This has also pushed up JMMB Group Limited's interest to 23.28 per cent. JMMB Group is 20.01 per cent owned by Proven Group Limited.
"Today, our shares are fundamentally undervalued on any reasonable metric. We listed on the TSX right before COVID and the market never had a chance to embrace us and continues not to recognise our strength here in the Caribbean, the growth of our US business and the value of our pending Canadian acquisition. With a strong and growing business, we will push forward on our market engagement, broaden our research coverage, and engage with new investors. As we do this, we benefit from the powerful alignment that we've created between our team, our board members and our shareholders," Mousseau closed.