est. 2007

Barbados Underground

Bringing News and Opinions to the People

, ,

The SAGICOR Debate

US based Barbadian Actuary Walter Blackman shares his views on the decision by Sagicor to redomiciled from Barbados. Sagicor, formerly The Mutual Society, always evokes emotion in Barbados given its coloured past. There is the intervention by Minister of Housing Dennis Kellman  which provoked a caustic response by Sagicor Group Head Dowridge Miller.  The decision…

,

US based Barbadian Actuary Walter Blackman shares his views on the decision by Sagicor to redomiciled from Barbados. Sagicor, formerly The Mutual Society, always evokes emotion in Barbados given its coloured past. There is the intervention by Minister of Housing Dennis Kellman  which provoked a caustic response by Sagicor Group Head Dowridge Miller.  The decision by the Sagicor board for strategic reasons to sever its tie to Barbados as its domicile questions our capacity as a sovereign country to sustain successful indigenous companies.    How will Barbados challenge the hegemony of Trinidad and Jamaica as they cherrypick our best companies? Should it mater? How will our national pride suffer because of it.

Walter Blackman’s comment:

The difference between Sagicor and CLICO is as wide as the difference between night and day. You would have observed that Sagicor’s recent growth was achieved through the acquisition of companies, rather than through organic growth. From where I sit, it appears to me that Dodridge Miller’s focus was on the growth-through-acquisition process. Whilst he was “out” pursuing that objective, someone had to stay at home and manage the company’s operations. That responsibility seems to have fallen on the shoulders of Mrs. Pat Downes-Grant.

Pursuing a strategy of growth through acquisition can have a serious effect on a company’s income statement, balance sheet, and internal operations. Companies don’t naturally merge seamlessly so tremendous effort has to be made to rationalize computer systems, reallocate corporate talent, streamline operations, manage risks, and eradicate duplication and wastage. I believe Sagicor is still wrestling with some of these challenges today. Sagico Life USA has presented its fair share of problems. At one point, the outlook for the company was negative, but it was recently upgraded to stable after the statutory operating results of the company showed improvement. Acquiring Sagico Life Jamaica (SLJ) represented a bold but worrisome investment in the Jamaican economy. However, Sagicor has reaped sustained favourable results from its SLJ operations, and the overall financial situation in Jamaica seems to be improving. I believe the company has divested itself of its UK business.

Despite its challenges, Sagicor has a lot going for it as a company. It is adequately capitalized, has strong brand recognition, enjoys a strong competitive market position within the Caribbean, and seems destined to receive a stream of consistent earnings from diverse sources for years to come.
Not surprisingly, the last A.M. Best rating I saw gave Sagicor a Financial Strength Rating (FSR) of A- (Excellent), and an Issuer Credit Rating (ISR) of a-.

Sagicor’s history cannot escape the tale of colour and class that defines the history of Barbados. From the moment black persons assumed some positions of power and authority within Sagicor, predictions of the company’s imminent collapse became audible and frequent. The mere fact that Sagicor is still standing today, with an excellent Financial Strength Rating from A.M. Best, is enough for us to offer this Caribbean company some words of congratulations and encouragement.

75 responses to “The SAGICOR Debate”

  1. David Avatar
    David

    @Bushie

    Enuff may just be a Sir Cave protégée.

    On Wednesday, 14 January 2015, Barbados Underground wrote:

    >

  2. St George's Dragon Avatar
    St George’s Dragon

    Pachamama January 14, 2015 at 2:07 PM

    “If they did not know they should have known. When a company is being prepared for sale, part of the valuation involves a ‘re-doing’ of the books.”
    Not in my universe it doesn’t. There may be one or two cases where companies up for acquisition have tried to bend the figures and have got away with it but it is not difficult to do a proper due diligence and find out what is real.
    Have you come across different sets of accounts during a company acquisition Pachamama? I haven’t.

  3. Shareholder Avatar
    Shareholder

    • Too much fancy analysis
    • Collapse of market in the US and failed investment in European insurance risks
    • Significant pressure on earnings for number of years
    • Tentative investors
  4. SITH Avatar
    SITH

    Sagicor is a Barbados based business that reports their financial statements in US$. The Barbados dollar is fixed to the US$. If the fixed relationship of the Barbados dollar to the US$ changes with a downward revaluation, the financial consequences for Sagicors reporting could be quite serious. They are mitigating that risk.

  5. David Avatar
    David

    Like the CEO stated 85% of Sagicor’s business is done extra regional.

  6. Colonel Buggy Avatar
    Colonel Buggy

    And following closely, Massy has withdrawn trading its shares on the Barbados Stock Exchange.
    Who is next ? Where are the life jackets and bilge pumps Captain Prime Minister?

  7. David Avatar
    David

    @Colonel Buggy

    Barbados is now the ant between the two elephants.

  8. Pachamama Avatar
    Pachamama

    David

    Because Miller may make that comment and even that it may be right, what is to become of the nearly 200 years of development given by Barbados and this region. This distortion has not been always so. The purchase of the American subsidiary alone would have had a lot to do with that, but this is a less than 10 year reality.

    Before then, Trinidad, singularly, and other regional countries, collectively, were doing far more business than Barbados.

    Moreover, there are other relatively small countries that have some companies, raw materials, processes, etc which allow them to be bigger internationally than locally. One time Barbados was the largest sugar producer in the world.

    Are we not to have any of dominance at all, in anything? Are circumstances to be always in the reverse?

    Miller is talking shit! Trying to justify an act of treason.

    Sagicor could certainly off-shore its HQ, in say the Isle of Man, as a functional matter, and let business as usual continue in Barbados, no pun intended. Certainly, that would achieve its stated aims. The problem is that there is more in the mortar than the pestle.

  9. Crusoe Avatar
    Crusoe

    Stupse, and more will follow, particularly financial entities that rely on the ratings to do business internationally.

    And yet, Poochie and Magoo (can someone do a cartoon with that title, I waive copyright), can get up and talk chalk about the rating not mattering.

    Stupse, guh an run a sno-cone cart Poochie.

  10. David Avatar
    David

    @Pacha

    What has changed with the decision to redomiciled?

    Consider Sagicor an entity with interest and considerations an individual would also consider. Don’t individuals immigrate all the time?

  11. Colonel Buggy Avatar
    Colonel Buggy

    But hasn’t the Barbados Light and Power Holdings ,redomiciled to Canada? The profits certainly are.

  12. Pachamama Avatar
    Pachamama

    @ David

    Well you could re-domicile in at least two ways. One, as a tactical maneuver or secondly, as a strategic act.

  13. Pachamama Avatar
    Pachamama

    David, remember we are dealing with the second oldest life insurer in the western hemisphere. If that has no value we wonder what will.

    We were against selling out or moving companies like Agostura, Mount Gay and others.

  14. David Avatar
    David

    @Pacha

    What matters is dollars and cents, Sagicor domiciled in a country with junk credit rating places any international finance company at a disadvantage if it has to enter the capital market. Why can’t it just be about business? The fact Barbados cannot manage it’s affairs to maintain a competitive credit rating is our business and not Sagicor.

  15. Hants Avatar
    Hants

    http://www.captiveinsurancetimes.com/countryfocus/country.php?country_id=54#.VLmI4UfF-JY

  16. Pachamama Avatar
    Pachamama

    Well David, if the perceived problem is what you say it is, what Sagicor says it is, then we have presented a solution which serves that interest and also would not be seen as trowing Barbados overboard by one of its aged corporations. It leading aged corporation.

    That obvious solution would mean off-shoring Sagicor, as a tactical response, that’s all. Unless there are other forces, like we know there are, with other interests.

  17. Walter Blackman Avatar
    Walter Blackman

    Pachamama (plural) January 14, 2015 at 7:24 AM #

    “Blackman has avoided our central point of analysis – share price. There can be no better indicator of a firm’s performance than share price. And share price was at its highest around the time of demutualization. Since then it has steadily declined, in spite of over 50 acquisitions.

    This tells us that the company was merely acquiring for acquiring sake. Not to add value to shareholders. This represents the most egregious managerial malpractice known to man or mammon.”

    Pachamamum (singular),
    I sincerely hope that you are not involved in offering financial advice to any business or company.

    My ‘article’ above subtly hints at the need to pay attention to a company’s fundamentals (performance & health). A company that is fundamentally healthy will demonstrate an ability to sustain its current satisfactory performance and a vision aimed at building a profitable business platform for the future.
    Sagicor, like any company, has its challenges. No one knows for sure if it will overcome all of them, but everyone can see that it is making attempts to adapt to a changing world and changing global market conditions. For that, it deserves credit.

    Any successful student of accounting will tell you that the cash flow of any company, and thus its real worth, will be generated from two sources:
    1, Long-term growth in earnings and profits
    2. Returns on invested capital minus the cost of acquiring capital (borrowing costs)
    Here, we can see clearly that if Sagicor continues to be domiciled in Barbados, its relatively high borrowing costs resulting from the “junk” status of Barbados’ credit rating will drag down its net return on invested capital, and cash flow. Eventually, its market value will suffer.

    When forced to choose one single measure of a company’s performance, accountants generally opt for Return On Equity (ROE). When dealing with an insurance company, I prefer to use Return On Assets. In those assets, I would make sure that I include the depth of talent of the management team.
    The difference between the talent of the management team of Sagicor compared to the management team of CLICO is as wide as the difference between night and day. This difference alone explains why almost 1/2 billion dollars in policyholders’ premiums have been ‘spirited’ away from a poorly and unethically managed CLICO. Sagicor is still alive and kicking. CLICO, to all intents and purposes, is dead.

    You consider share price to be a central point of the analysis. l don’t. Admittedly, every CEO and investor of a company love to see rising share prices. However, the share price, by definition, doesn’ t always indicate whether or not the fundamentals of a company are in a healthy state.
    The accounting literature is replete with stories about companies whose share prices were continuously falling whilst, at the same time, these companies were creating unprecedented levels of value by increasing their ROE. On the other hand, the share price of a blacksmith shop could have been going through the roof in 1960. By 1965, the whole industry was virtually dead.

    Finally, I think I should warn you that share prices can be manipulated to serve vested interests and hidden agenda. In fact, in a rather curious way, Bush Tea has already warned you, via his remarks on the BL&P:

    Bush Tea January 14, 2015 at 8:29 AM #
    @ Pacha

    “Supporting your logic has been the recent case of BL&P. Until sold, it was considered to have been among the better managed companies in the region.

    Careful analysis of its share prices however would show a continuing undervaluation and very poor returns to shareholders.
    Eventually EMERA came along and got themselves a steal – buying the company for about 30% of its real worth.
    In the few years since, this company has generated more profits for its new owners than it did for previous shareholders in the last 20 years …while it’s quality of service has declined.”

  18. Pachamama Avatar
    Pachamama

    @ Walter Blackman

    We see you have relied almost exclusively on the theories and practices of accounting. This shows your limitations. The space in which we operate Accountants are hidden in the back office and only allowed to exit once we have taken care of more substantial matters.

    We are creators of value you are merely a numbers cruncher. A bookkeeper!

    This is the primary criticism of Dodridge Miller and the people at Sagicor that you now seem so anxious to lionize. More precisely your new found ‘good managers’ are not entrepreneurs. Especially Miller and that limited mind of the accountant avoid progress.

    Blackman! You are still at the infantile point where you assume that some academic qualification make good managers. We say no. Most times we would suggest the reverse is you. Compare Arthur Lok Jack to Miller and anybody on his team, for example.

    You have a company which has made over 50 acquisitions with share price remaining, in real terms, about the same or lower for 15 years and you as an actuary cum accountant could come here to justify this.

    We will continue this after soccer!

  19. Walter Blackman Avatar
    Walter Blackman

    Pachamama December 5, 2013 at 4:26 PM #
    “We believe this writer also neglected to calculate ‘interest’ for the period 2013 to 2018. We would expect better from one of our leading ‘numbers men’.”

    Pachamama December 6, 2013 at 7:22 AM #
    @ Walter Blackman
    ” Unlike most we have little regard for the likes of you. You boys who went to some backward school somewhere and have been indoctrinated with foolishness to receive some irrelevant credential, ignorantly continue to brag about an eleven plus exam or a misplaced record of academic achievement but still can do no better than work for White people, can never help Barbados by transforming an industry or the world with this backward ‘brightness’. Blackman, we are not afraid of you or your ilk. We are guided that you are a fucking idiot and will never recognize that there is anybody in this world who has a better brain than anybody else. So the fundamental basis of your existence is irrelevant to this writer.”

    Pachamama January 14, 2015 at 7:24 AM #

    “We were surprised at the Walter Blackman estimate for Sagicor. It seems not unlike the kinds of statements the company itself would make. In our business we call these part of a dog and pony show.

    We guess it’s better to avoid critical analysis by blaming the government or resting on a short stint with the company or by being a member of some actuarial association/society. With Bajans it’s always about being able to add or subtract or regurgitate better that the boy on the other desk.”

    Pachamamum(singular),
    Any adequate response to the above comments which you have written about me would require the expertise of a very experienced professional who holds a “relevant credential” in both psychoanalysis and psychotherapy.

    What business are you in?
    What is your nationality?
    Which forward school did you attend?

  20. Pachamama Avatar
    Pachamama

    We remember you well as always an arrogant cunt hole. Who pretends to know something, but you know too little about too much

  21. MoneyBrain Avatar
    MoneyBrain

    Gents
    The reality is that the Stock market involved sets the price of said Stock. In Bdos and the Cbean we do NOT have a LIQUID market, we do NOT have up to date Qtly EPS and other critical info. This is the crux of the share pricing for Sagicor and any other Stock in illiquid markets.

    Psychology in Liquid markets is FAR MORE important than most appreciate. It is proven that ridiculous optimism leads to falling prices and vice versa for pessimism. US EPS can be easily 82% out of kilter with reality (and has been at least 25% over inflated on average for the last 40yrs+). We have the US Govt and Corps trying to CON investors in order that the public will spend $$$ and believe that everything is fine economically.

    Today’s price for a Stock or the Mkt Index is very seldom reflective of a reasonable valuation multiple of Earnings, Assets, Revenue or any other measure. This is why some investors like Warren Buffet are very rich and others lose $$$, simply appreciating when there are quality bargains and when Corps are way overvalued and should be sold to GREATER FOOLS!

    Having a PhD does not help when investing in Stocks or other markets. Common sense, knowledge of MarketS history, knowledge that the majority are very probably wrong at key turning points and the guts NOT to follow the crowd is what counts.

  22. Walter Blackman Avatar
    Walter Blackman

    Pachamama January 17, 2015 at 12:13 PM #
    We remember you well as always an arrogant cunt hole.

    Pachamamum,
    Maybe I came across one of those in my lifetime and didn’t recognize it. What are the distinguishing features? How deep is it? If anything goes in, can it climb back out?

  23. Walter Blackman Avatar
    Walter Blackman

    millertheanunnaki January 14, 2015 at 8:32 AM #
    @ Pachamama January 14, 2015 at 7:24 AM

    “There is much more in the Sagicor mortar than a pestle of its falling share price.

    Have Sagicor’s profits been increasing or declining over the last 4 years?

    Can it really carry such large and growing administration costs without affecting the long-term bottom line resulting in the lowering of shareholder value?

    What have been Sagicor cash flow positions for the last 5 years.”

    millertheanunnaki,
    Your interest in Sagicor’s profits and cash flow position is a good place to start if you want to get an idea of the company’s financial health. You can get the answers to your questions by researching the company’s annual financial statements. However, that exercise will give you an insight into the nature of the company’s historical growth or lack thereof.

    To get an idea of the company’s future performance and viability, someone would have to make assumptions and projections related to its future operations and then discount the expected future cash flows back to the present. An untrained mind might contemptuously view the process as “numbers crunching” and “bookkeeping” but accountants and financial analysts make part of their living by doing this routinely. This stuff can become quite esoteric and BU has a general audience, so I have left issues like debt leveraging and its problems completely out of the discussion.

  24. Walter Blackman Avatar
    Walter Blackman

    millertheanunnaki January 14, 2015 at 8:32 AM #
    @ Pachamama January 14, 2015 at 7:24 AM

    “The life insurance business is the ‘food basket’ for savings to fund long-term investments like mortgages and commercial loans.
    After the recent financial meltdown and the CLICO debacle is the life insurance and pensions markets really growing in the Caribbean especially among the young, many of them unemployed with little or no long-term prospects of reliable sources of income to even think about saving?”

    millertheanunnaki,
    Excellent observation and question. Insurance is all about trust and confidence.

    Sagicor and Guardian Life would have lost thousands of potential Caribbean policyholders to CLICO Barbados. Those policyholders who were ‘burnt’ would have passed on an insurance horror story to their children, family, friends, and neighbours. Given a reduced, contaminated, wary life insurance market in the Caribbean which is riddled with ineffective regulation, one can easily understand why Sagicor would be seeking entry into markets further afield (e,g, USA). Success is not guaranteed, but we can understand what they are trying to do and should give them credit for making the effort.
    Maybe down the road, Sagicor might be interested in seeking out qualified bi-lingual (English/Spanish) employees with a view to setting up operations in Latin America, the Dominican Republic, and Cuba.

  25. Walter Blackman Avatar
    Walter Blackman

    millertheanunnaki January 14, 2015 at 8:32 AM #
    @ Pachamama January 14, 2015 at 7:24 AM

    “Is Sagicor, like many National Insurance schemes, about to face a massive spike in demand for settlement of pension plans and matured insurance contracts taken out by the hardworking savers and baby boomers of the 50’s and 60’s?”

    millertheanunnaki,
    Sagicor administers pension plans which have been sponsored by private sector employers. Traditionally, when a participant reaches normal retirement age (usually age 65), the plan sponsor would purchase an annuity from an insurance company.

    For example, let us assume that you worked for ABC company and your pension benefit amounted to $4,000 per month. Let us also assume that Sagicor charges $560,000 for a $4,000 monthly life annuity payable from age 65. ABC’s pension trust would pay Sagicor $560,000 and you would no longer be a participant of ABC’s pension plan. You would now become an annuitant of Sagicor and your future monthly pension receipts would now be tied up with the fortunes of Sagicor. If Sagicor goes bust, your retirement income goes down the drain. (That is precisely what happened to CLICO annuitants. Can you pause for a moment and imagine the agony and mental anguish of these CLICO annuitants who worked a lifetime only to be robbed of their pensions by management and government officials?)

    Under this traditional approach, Sagicor would continue to collect admin fees from the pension plan (there would still be active ABC workers in the pension plan who haven’t reached age 65) and its annuity business would grow each time a plan participant retires.

    Given the CLICO debacle, I would recommend to Barbadian employers who are really interested in their workers’ post-retirement welfare that they now use a cheaper option to safeguard their workers’ pension: pay the retired workers’ monthly pensions directly out of the pension trust and keep the insurance company out of the pension payment picture.

    In your case, you would now receive a $4,000 monthly cheque straight from the ABC pension trust. There would be no need to take out $560,000 to pay Sagicor. Under this scenario, Sagicor’s annuity business would suffer. All whoever is responsible for investing the pension funds would benefit because the $560,000 would practically remain invested. The pension trust would also benefit because the $560,000 that stayed in the trust would earn investment income for the trust.

    Matured insurance contracts are a different matter. Technically speaking, there are only 3 types of matured insurance contracts that I can think of: Endowment policies, whole life policies under which the insured person reaches age 100, and term insurance policies which have a ‘return of premium’ feature. With these policies, if death does not intervene, there is a known precise date in the future that Sagicor must pay out a benefit. For other insurance policies, the precise time of death is unknown so Sagicor would not know when a death benefit is to be paid. This problem is handled by setting aside statutory reserves, and by using the services of professionals trained in asset/liability matching.
    The ages of the Barbadian Baby Boomers now range between 49 and 67. Within the next 35 years, about 90% of this group will be dead. Hopefully, the investment portfolio of Sagicor is structured to reflect this fact.

Older Comments
1 2

The blogmaster invites you to join the discussion.

Trending

Discover more from Barbados Underground

Subscribe now to keep reading and get access to the full archive.

Continue reading