175 YEARS OUR JOURNEY • OUR SUCCESS • OUR FUTURE ANNUAL REPORT 2014 OUR VISION To be a great company, committed to improving the lives of people in the communities in which we operate. TABLE OF CONTENTS Trust About Sagicor 6 Chairman’s Statement 10 Stability Financial Highlights 12 Community Corporate & Social Responsibility 17 Service Human Capital Report 36 Innovative Operating & Financial Review 42 Vision Board of Directors 58 Responsibility Corporate Governance 64 Leadership Executive Management 78 Index of Financial Statements 84 Wisdom Financial Statements 88 Notes 93 Shareholder Information 198 Commitment Advisors & Bankers 205 Offices 206 175 years of trust We have 175 years of trust placed in us. Those who look to Sagicor for service, advice and help need to know that we will always honour that trust, and we will never let them down. Sagicor Financial Corporation ABOUT SAGICOR Sagicor is a dynamic, indigenous Group which has been redefining financial services in the Caribbean. Following a carefully crafted business strategy, the company transformed from a local single-line life insurance company to a financial services group with a solid regional base, before expanding into the international financial services market. After the company demutualised in 2002, Sagicor Financial Corporation was formed as a publicly-listed holding company. Sagicor, the company name, means “wise judgment”, and reflects the nature of the financial advice and services we offer. Sagicor now operates in 23 countries in the Caribbean, the USA, the UK and Latin America. For 175 years, Sagicor’s business has been based on long-term relationships with its employees, communities and customers, who entrust us with their future financial well-being. Our name and identity draw on the strength, stability and financial prudence that are our heritage, and this identity also defines the flexibility that wise financial thinking can bring to our customers throughout their lives. Local expertise and partnerships with world-class asset managers, reinsurers, and sound risk management, ensure that Sagicor is truly able to improve peoples’ lives through “wise judgment”, and will continue to meet their financial needs now and in the future. It is Sagicor’s view that the entire business of wealth-creation and protection is about social investment. For many decades, Sagicor has provided financial support and voluntary assistance, primarily in the areas of health, education, youth development and sports, to a number of organisations and institutions. Sagicor continues to provide significant support for the prevention of non-communicable diseases, by promoting healthy living, and improving access to and facilities for health-care in the region. Sagicor supports education at the primary, secondary and tertiary level, and sponsors a number of adult education and development activities. As we continue to move forward through these challenging times in the economic life of our region and the rest of the world, Sagicor’s core business strategies will continue to provide a wide range of financial products and services, while we continue to be committed to our vision, “To be a great company, committed to improving the lives of people in The Mutual Building, on Lower Broad Street in Barbados, the communities in which we operate.” was the first purpose-built Head Office constructed by the 6 2014 Annual Report Barbados Mutual Life Assurance Society in 1894/95. 175 years of stability 175 years is a long time. With every year, we get stronger, wiser and better. The base we have formed in the communities we serve can never be shaken, so long as we remember how it was built. Sagicor Financial Corporation CHAIRMAN’S STATEMENT translated premiums in US dollars in 2014. Net investment income closed the period at US $307.2 million, and was an improvement over the prior year amount, which stood at US $279.4 million. Fees and other revenue amounted to US $83.3 million, compared to US $103.1 million in 2013, and was impacted by the lower reinsurance commissions earned as a result of lower new annuity business written in the USA segment. On June 27, 2014, the Group completed the acquisition of RBC Royal Bank’s Jamaica banking operations, and rebranded the business as Sagicor Bank. After determining the fair value of acquired assets and liabilities of the business, the Group recorded negative goodwill on acquisition of US $29.1 million. At the same time, the Jamaica segment Stephen McNamara incurred US $10.5 million in integration, restructuring and re-branding costs associated with the acquisition. These non-recurring costs have Chairman been included in Administrative Expenses. I am pleased to report to you on the 2014 performance of the Sagicor Total benefits incurred from continuing operations totalled Group. The Group’s financial statements in 2014, consistent with US $542.2 million, and is a reduction from the comparative amount 2013 and 2012, have been presented with continuing operations being in 2013 of US $592.8 million. This reduction is the result of the lower separated from the discontinued Sagicor Europe run-off operations. annuity business written in the USA segment, together with the impact of the deterioration of the Jamaica dollar to the US dollar on the Jamaica The Sagicor Group had a solid year’s performance, recording net income segment. for the year of US $73.9 million, compared to US $4.1 million for 2013. Expenses (including agents’ and brokers’ commissions) closed the year at The continuing operations, comprising our businesses in the Caribbean US $385.9 million, compared to US $348.1 million for the prior year. The and in the USA, continued to perform well, recording net income of increase of US $37.8 million included restructuring and rebranding costs, US $100.3 million for 2014, compared to US $79.6 million for 2013, an along with operating expenses now incurred within the banking division, increase of US $20.7 million. following the acquisition of RBC Royal Bank’s Jamaica banking operations. Net income from continuing operations attributable to shareholders was Total comprehensive income was significantly improved when compared US $53.7 million, compared to the prior year result of US $39.1 million, to the prior year. Other comprehensive income showed a positive an improvement of US $14.6 million. Earnings per common share from result of US $6.7 million, compared to a loss of US $54.6 million for continuing operations was US 17.3 cents, and represented an annualised 2013. Included in comprehensive income were net gains on financial return on common shareholders’ equity of 11.2%. assets of US $15.6 million and net gains on defined benefit plans of US $13.2 million. A decline in the Jamaica dollar against the US dollar Total revenue closed the year at US $1,045.2 million, compared to the contributed to currency retranslation losses of US $22.0 million. The prior year amount of US $1,039.5 million. Net premium revenue stood Jamaica dollar depreciated against the US dollar by 7.8% during 2014, at US $625.6 million, compared to US $657.0 million for the prior year. compared to 14% during 2013. With the continued improvement in the When compared to 2013, the lower premium income resulted from Jamaican economy, we expect the currency to stabilise against the US lower new annuity business written in our USA segment, together with dollar and further depreciation to be lower than previous years. 10 2014 Annual Report the impact of the deterioration of the Jamaica dollar to the US dollar on Sagicor Financial Corporation The discontinued operation represents our UK business, which was sold on December 23, 2013. The terms of the sale required the Sagicor Group to retain an interest in the 2011, 2012 and 2013 underwriting years of account. Although actuarial reserves are established to cover best estimates of this liability, exposure to any fluctuations in experience continues until 2018. During 2014, the discontinued business experienced a net loss of US $26.4 million, resulting from adverse movements in our claims provisioning for 2013 and prior years. As part of the 2014 review of the discontinued business, we have decided to explore the purchase of reinsurance to cover this residual exposure. This would effectively transfer any retained risk to the reinsurer, and would effectively close this discontinued operation at the end of 2014. Subsequent to year-end, management completed the negotiation of the reinsurance, at a cost of US $12.2 million. The cost of this reinsurance will be accounted for during the 2015 financial year. In the statement of financial position as at December 31, 2014, assets amounted to US $6.2 billion, an increase of US $0.9 billion over the amount of US $5.3 billion at December 2013. Similarly, liabilities closed at US $5.4 billion, compared to US $4.6 billion, an increase of US $0.8 billion. The increase in assets and liabilities largely reflects the acquisition of RBC Royal Bank’s Jamaica banking operations. Sagicor’s Group equity totalled US $773.5 million (2013, US$725.2 million). The Group’s debt, which is included in other liabilities, totalled US $298.9 million (2013, US $290.2 million). The resulting debt to equity ratio was 38.7% compared to 40.0% for the prior year. The Board has declared dividends of US 3.25 cents per preference share and US 2.0 cents per common share, payable on May 15. On behalf of the Board of Sagicor, I wish to thank our Shareholders and Customers for their continued support. Stephen McNamara Chairman March 27,