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Mixed performances in insurance industry

Guardian Holdings Limited
For the nine months ended September 30th 2012, Guardian Holdings Limited (GHL) reported diluted Earnings per Share (EPS) from continuing operations of $1.29. This represents a 3 per cent decrease from the $1.33 reported in 2011. However, diluted EPS inclusive of discontinuing operations went up 22 per cent from $1.02 to $1.24, for the comparative period. Last year's EPS was impacted by a loss from discontinued operations.
GHL recorded a 5 per cent increase in Gross premiums written from $3.22B to $3.37B, while the Net premiums written remained basically flat, down less than 1 per cent. This is owing to a decrease in the Dutch Caribbean general insurance business. Net Income from Insurance Underwriting Activities improved 50 per cent from $243M to $364M. This improvement was driven primarily by better claims performance across the main segments.
During the period under review, Net Income from investing activities fell 14 per cent. Last year's figures included a $72M gain in the disposal of shares in Jubilee and this year's third quarter included a $20M non-cash provision made for the real estate development project in Martinique. Overall, the Net Income from all activities increased 1.5 per cent from $1.01B to $1.02B. However, excluding last year's $72M gain and this year's $20M non-cash provision, Net Income from investing activities fell 2.2 per cent whilst the Net Income from all activities increased 11.2 per cent.
Operating Profit fell 14 per cent from $429M to $371M for the comparative 9-month period. This resulted from an 11 per cent increase in Operating Expenses from $506M to $561M and a 24 per cent rise in Finance charges from $73M to $90M. The Share of Profit/Loss of associated companies increased from ($27M) to $14M. Profit for the period from continuing operations decreased 3.8 per cent, from $317M to $305M while Profit for the period inclusive of discontinuing operations increased 20 per cent from $244M to $293M. This was mainly attributable to the net loss on discontinued operations of $73M last year compared to $12M this year.
The Group has reported excellent results in most segments, more specifically in the Life, Health and Pensions segment which experienced a 26 per cent growth in Operating Profit. Despite the recent flooding in Trinidad, Guardian General Insurance Limited reported a 21 per cent improvement in Net Profit after Tax moving from $73M to $89M. Potential insurance claims from Hurricane Sandy are expected to have a minimal impact on year-end earnings.
GHL is on par with its strategy of focusing on its core operations in its core markets. On November 19th 2012, GHL received all the final approvals from the Financial Services Commission of Jamaica to close the acquisition of 100 per cent of the issued share capital of Globe Insurance Company of Jamaica Limited ("Globe") from Lascelles de Mercado & Co. Limited for $244M. GHL's general insurance company in Jamaica, West Indies Alliance, combined with Globe will make GHL the largest commercial general insurance company in Jamaica. This will position GHL in the leadership role in the Jamaican general insurance market. It is anticipated that this acquisition of Globe be accretive to GHL's earnings within the first full year of ownership. Given their previous good final quarter results and excluding any unforeseen and catastrophic events GHL should continue to deliver consistent and satisfactory earnings.
Presently, GHL's Jamaican businesses account for approximately 23 per cent of group profits and 17 per cent of total assets. As a result of the increased Jamaican exposure, GHL needs to be attentive to the many economic problems facing the Jamaican economy. With Jamaica's expenditure exceeding its income, further depreciation of the Jamaican Dollar could be forthcoming. Year to date the Jamaican dollar has depreciated approximately 6 per cent relative to the US dollar.
At a current price of $18.25, the trailing P/E from continuing operations is approximately 9.4 times. GHL has a fairly attractive Dividend Yield of 2.9 per cent (Exhibit 1). Year to date the stock has appreciated 25.8 per cent, therefore BOURSE maintains a BUY
Sagicor Financial Corporation
Sagicor Financial Corporation (SFC) reported diluted EPS of US5.7 cents (TT36.5 cents) for the period ended September 30th 2012. This compares favourably to the US0.3 cents reported in 2011.
The Group reported a 4.3 per cent decrease in Total revenue from US$1.02B to US$0.98B. Net premium revenue suffered an 8.6 per cent decline, which was expected because of the reduced Premium exposure to the International Property Insurance lines. The results revealed an 8.1 per cent increase in Net investment and other income from US$258M to US$279M which includes a gain of $2.4M from the acquisition of PEMCO Life Insurance Company.
For the period under review Benefits paid declined 8.94 per cent from US$645M to US$587M primarily attributable to the improved claims experience from the reduced premium exposure internationally. Additionally, Expenses fell from 3.4 per cent because of the reduction in insurance commissions' expense.
Income before taxes increased 86 per cent from US$29M to US$54M and Net income after taxes surged 90 per cent from US$20M to US$39M. Last year's figure included significant property insurance losses incurred on the international insurance portfolio. Of the US$39M Net income reported, Minority Interest received the largest portion, US$23.4M or 60 per cent, with Common Shareholders receiving US$18M and Participating Policyholders earning negative US$3M.
Year on year SFC's assets grew by 4.3 per cent to US$5.6B primarily attributable to a growth of US$344M in Financial Investments. Liabilities also grew by 3.5 per cent to US$4.7B stemming mainly from the rise in long-term insurance policy contracts. Shareholders Equity rose 2.1 per cent to US$632M.
In spite of the important fiscal and economic problems faced by many Caribbean countries Sagicor has managed to maintain its credit ratings this quarter. Through its major subsidiary Sagicor Life Inc., Sagicor's financial strength credit ratings were confirmed by A.M Best and Standard and Poor's (S&P) at A (Excellent) and BBB respectively. The external environment poses many challenges for the Group, namely inflationary pressures in the Caribbean, low interest rates in the USA, UK and Trinidad and Tobago, slow economic growth in North America, Europe and the Caribbean and above normal unemployment levels throughout.
Sagicor continues to write good volumes of new business premiums and achieve constant levels of retention on its life, health and annuity insurance business. The PEMCO Life acquisition resulted in approximately 10,000 term and whole life policies and 7,500 new clients. In order to maintain the improved profitability, Sagicor should continue to diligently monitor international developments and develop appropriate strategies to curb Expenses.
At a current price of $7.40, SFC is trading at a Market to Book of 0.56 times, one of the cheapest in the Non-Banking Finance sector. It is trading at a discount relative to its five year average Market to Book of 1 time (Exhibit 2). SFC has a relatively attractive dividend yield of 3.5 per cent which is above its average of 2.8 per cent (Exhibit 3). BOURSE recommends a BUY on this stock for the long term.
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