Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to Sagicor Financial Company's third quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by number two. Thank you. Mr. George Sipsis, EVP, Corporate Development and Capital Markets, you may begin your conference.
Great. Thank you, Operator. And hello, everyone. Thank you for joining us today to discuss Sagicor's third quarter 2024 results. Our disclosures, which include a press release, financial statements, MD&A, and the unaudited supplemental information package containing core earnings, drivers of earnings, and additional disclosures, are available under the Investor Relations tab on our website at sagicor.com. The link to our live webcast is also available on our website. A reminder that this conference call is open to the financial community, investors, the media, and the public, with a reminder that the Q&A period is reserved for financial research analysts. I will begin by referring you to the cautionary language and disclaimers in our materials and public filings regarding the use of forward-looking statements and the use of non-IFRS financial measures and ratios, which may be mentioned as part of our remarks today.
I would also like to remind the audience that actual results regarding forward-looking information could differ materially, and please note that a detailed discussion of Sagicor's risk factors is provided in our MD&A, which is available on SEDAR+ and on our website. A discussion of the assumptions underlying our expectations is provided in our previous filings and earnings releases. Unless otherwise noted, all dollar amounts referenced will be in USD , consistent with our reporting practice. Joining me today is our President and CEO, Andre Mousseau, our Chief Financial Officer, Kathy Jenkins, and Anthony Chandler, our Chief Controller. We'll begin with prepared remarks by Andre and Kathy, followed by a Q&A session. With that, I will pass the call to our President and CEO, Andre Mousseau.
Thank you, George. And good morning, everyone. We're pleased to announce another solid quarter in Q3 2024. Core earnings to shareholders was consistent with our expectations at $24 million, and positive market experience drove an extraordinary net income result. We remain on track with our growth initiatives, the integration of Sagicor Canada, and continue to optimize our balance sheet through debt refinancing and opportunistic share repurchases, all of which we believe will drive return on shareholders' equity in 2025 and beyond. I'll hand the call over to Kathy to discuss our segment's results, and then they will come back to me for some closing remarks. Kathy?
Thank you, Andre, and good morning, everyone. Sagicor's core earnings to shareholders was $24 million this quarter, consistent with our expectations and a material increase over the same period in 2023, due in large part to the acquisition of ivari, our Sagicor Canada segment. Revenues were $1.1 billion for Q3, compared to $291 million for Q3 last year. New business CSM of $45 million for Q3 was strong across all segments. Once again, we saw some divergence between reported net income and our view of the underlying profitability of our business or core earnings. In this quarter, reported net income was significantly higher, with net income attributable to common shareholders of $59 million. The largest reason for this was market experience, where we continue to see accounting mismatches between the movement of asset prices and liability calculations due to IFRS 17, the new accounting standard that was imposed in 2023.
We expect over longer periods of time that accumulated reported net income and core net income will add up to be very similar numbers, but in the near future, we anticipate reported net income will continue to fluctuate. Also, this quarter, we performed our annual actuarial review of non-financial insurance assumptions like mortality and policyholder experience. As we adjust our assumptions, some of that comes through the income statement, and others affect contractual service margin or CSM. In aggregate, the impact of the adjustments this quarter on our earnings was minimal, but it caused a bit of additional volatility at the segment level. With that context, I will give you some more detail on the segmented financials. Sagicor Canada's sales production in the quarter was consistent with the first half of the year, resulting in new business CSM of $11 million for the quarter.
Core earnings to shareholders of $20 million for the quarter was in line with expectations. Net income to shareholders of $63 million for the quarter was significantly higher than core earnings to shareholders, primarily as a result of market experience gains from the movement of equities, where we have a positive exposure, interest rates, where we have a negative exposure, with fixed income investments benefiting from falling rates, and by positive net income generated by changes in actuarial assumptions pursuant to our annual review. Net CSM was $583 million, which was a modest increase quarter-over-quarter, resulting from a favorable currency impact and positive changes in assumptions. Sagicor Life USA generated $292 million of new business production in the third quarter and was consistent with expectations for the quarter. Core earnings to shareholders for the segment was $14 million, which included insurance experience gains of $4 million.
Net loss to shareholders was less than $1 million for the quarter, which was lower than core earnings to shareholders due to $7 million of market experience losses, together with $6 million of impacts from assumption changes and other non-core items and tax on the aforementioned of $3 million. Net CSM decreased by $47 million to $166 million quarter-over-quarter due to changes in assumptions and model refinement. Much of this change related to strengthening of reserves as we reflected a more conservative renewal rate on our MYGA product. Sagicor Jamaica saw a strong quarter for its short-term insurance business with higher sales and renewal rates for its group health products, while its long-term insurance business was weaker, largely due to unfavorable insurance experience.
The commercial banking division saw growth in profit year over year and a continued trend in improving profits, while the investment banking division saw softer trading gains in fee income. Sagicor's share of Sagicor Jamaica's core earnings to shareholders in the third quarter was $6 million and was impacted by experience losses. Our share of reported net income to shareholders was $8 million this quarter, primarily due to favorable market experience. Net CSM of $277 million decreased 1% quarter-over-quarter as strong new business CSM of $10 million was offset by changes in assumptions and currency impact. Sagicor Life continued to see improvements in insurance service results over the prior year from its long-term, short-term, group life, and P&C insurance businesses. Core earnings to shareholders of $7 million benefited from insurance service and investment results, which were partially offset by lower income on non-insurance businesses.
Net income to shareholders was $14 million for the quarter, which included market experience gains that reversed losses from Q2. Net CSM was $244 million, a slight increase quarter-over-quarter driven by new business CSM and a benefit resulting from an insurance experience gain, with organic CSM growing by $13 million. Returning to the consolidated picture, as Andre mentioned earlier, Sagicor remained well capitalized in Q3. The group LICAT ratio was 140%, which improved by 2 percentage points quarter-over-quarter. MCCSR ratio was 304%, and our financial leverage ratio was 26.8%, which was unchanged quarter-over-quarter. Our book value per share finished the quarter strong at $6.86 USD, or CAD 9.26. Our deployable capital, or shareholders' equity plus net CSM to shareholders, was $2.1 billion, or $14.99 per share USD, or CAD 20.24 per share. With that, I will hand it back to Andre.
Thank you very much, Kathy. Well, as Kathy described, our financial results were quite solid, and I think it's pretty well representative of how things are going overall. Many of our hypotheses are proving to come true, and we're quite pleased with this performance. We continue to get good traction in the debt capital market side, with Fitch upping our outlook to positive, and we believe that we can continue the momentum of reducing our cost of funding on our balance sheet, both in terms of interest costs as well as other costs such as reinsurance, as more of our pricing reflects our investment grade, and so we'll see that continue to improve our ROE little by little into 2025. All of our operations are going well.
We've now owned our Canadian business for four quarters, and its financial results have been very strong and came through the second reevaluation of actuarial assumptions very well. Our U.S. business continues to execute well, and we believe it's well positioned to add well over $1 billion of new business in 2025, continuing its growth. In the Caribbean, we're seeing some results from our repricing initiatives, and so it's good to see improving results in SLI in particular. Over the last few weeks, we've also enjoyed reengaging with the equity market. We've recently engaged both with some new investors in the Canadian market as well as some of our existing long-standing public investors in the Caribbean. We've been getting a great reception and have seen volumes of our shares significantly higher since we started the outreach in September.
It's quite exciting to see some shares transition to new shareholders who can get in at this attractive valuation. We've also been taking advantage of pricing in the market to accelerate the pace of our share buybacks in recent months, repurchasing about $10 million worth of shares at a significant discount to book value in the third quarter, and you're starting to see that accretion run through our book value per share. We continue to believe our shares offer the possibility of excellent risk-adjusted returns at these levels. We're also pleased to have announced our 20th consecutive quarterly dividend to shareholders of $0.06 USD per share or an annualized $0.24 USD per share. With that, I think we're ready to start the Q&A period. So, Operator, please go ahead.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Meny Grauman at Scotiabank. Please go ahead.
Hi, good morning. Two questions on the U.S. one, in terms of insurance experience. Again, this quarter after a tougher first half of the year. So I'm just wondering if you can give us an update in terms of your outlook here. Is the Q3 result more indicative of what you expect going forward? Any sort of clarity in terms of what's going on from an experience perspective in the U.S.? And if you'd comment on the outlook for Q4 and beyond, that'd be helpful.
Sure, happy to. Look, it was good to see the insurance experience reverse. Because of the chunky nature of these products and policies, be careful to extrapolate too much from any quarter, positive or negative. So I wouldn't necessarily take the $4 million of positive experience and extrapolate that forward. But it's good to see back to balance for the year. What we are aiming for actuarially is to come up as close to a zero on insurance experience as we can every quarter. But just the nature of quarterly reporting means it's going to move around. I think we've had a good year in general in terms of the business that we've put on the books. We came through and relooked at the actuarial assumptions and have put it at a place where we're comfortable with where we see the experience coming out.
I think in terms of Q4, a dynamic that we've seen in the market is that production's probably going to be a little bit softer across the board just because of the velocity at which interest rates moved, and so if you look at September and into early October when a lot of the production was being signed up, because there's kind of a one- to two-month lag between a sale and when it gets on the books, there was some really rapid change downwards in terms of medium-term rates that have retraced themselves in recent weeks, and so I think the entire industry saw a soft few weeks of sales, and so we wouldn't necessarily see Q4 as high as they were in Q3.
But I can tell you that being back and engaged in the market now as it's normalized, we continue to feel confident about being through a billion, significantly more than a billion of sales next year. So our outlook for 2025 remains positive. And I think as we continue to add assets to that business, the ROE will improve. And as we continue to explore potential synergies with our Canadian business under our North American platform, there's opportunities to improve ROE on that side as well. So we feel quite good about that going into 2025 and beyond.
Got it. Yeah, very helpful. I was going to ask about the outlook for new business production. I think you're pretty clear. But maybe just in terms of one follow-up on the outlook for 2025, I mean, you're talking $1 billion+ . How should we think about it from a quarterly perspective in terms of the patterns, even from a seasonality perspective? Any help there would be good.
I think we're going to continue to be opportunistic and pick our spots and so flex the returns or flex the production when we see moments with the best risk-adjusted returns in the market, which can be a function of spreads or even in which asset class are you seeing the best capital adjusted and risk-adjusted spreads. And so it's not so much seasonality necessarily as I think there could still be some quarters that are higher and lower than others. But we would be going in, all things being equal, being looking to have about $100 a month of production. But that may flex in and out.
Got it. Thanks so much.
Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star one at this time. The next question comes from Gabriel Dechaine at National Bank. Please go ahead.
Good morning. Just a quick one. That positive experience in the U.S. is lapse-related, correct?
It's not limited to lapse. It is related primarily to that, the big MYGA product base. But it's everything together, including lapse.
Okay. Then the, I guess the meat of the question is, when I see the CSM movement through the management actions down in the U.S., down $30 million or so this quarter, and it was down $30 million or so last quarter, I believe primarily related to policyholder behavior, a.k.a. lapse. Are you confident that you've got this issue addressed in your reserve updates? And then, yeah, I'll have a follow-up.
We are confident we have the issue addressed. I think that if you said we had done it prior, it would have been this time last year as opposed to last quarter. But.
Q3 last year, sorry.
Right. So most of the adjustment is coming through the CSM. And so it's a bit of a quirk of the accounting system where you're putting a portion of the future profits on renewable business for when it renews. And so we want to take a posture where we're getting nil or better experience coming off it going forward. We still think we'll be able to have the similar asset levels on our books, but as where we would have planned a year ago. But what we're seeing is sometimes that presents itself as a new policy. And so it's got to out of one CSM pocket and into another when new business is being written. So we've taken the adjustment to try and put it at a spot where we're comfortable that we've got that dealt with.
When we look through and look at the unit economics of the business that we're selling, we're still driving those kind of high-teens marginal returns on equity that we've been targeting. We'd like to see this as being done through this quarter.
Okay. Great. That's very helpful. Can you remind me again what the gist of the issue is? Is it you're assuming higher renewal commissions or a lower renewal rate when these policies or the fixed annuity policies mature?
Yeah, so we're assuming now higher lapse at the window, at the renewal window, which means lower renewal rates.
Yeah. Yeah. Okay. And then just a quick one on Jamaica, the tax rates moving around a fair bit there. What's the story there? Is it just a mix issue or something like that or a true-up of some sort?
There was a little bit of a true-up in the Jamaica earnings. And so if you look through to expected insurance earnings in Q3, it was a little lower than what it was in Q2. And so if you looked at that in retrospect, you might have wanted to flatten that out a little bit. So no major change in tax policy, just a little bit of quarterly noise.
Got it. All right. Have a good day.
Thank you.
Thank you. The next question comes from Darko Mihelic at RBC Capital Markets. Please go ahead.
Hi. Thank you. Good morning. My first question is with respect to the market experience and the significant benefit you got from equities and rates in the quarter. Can you just remind me? I recall that when you had acquired ivari, that there was going to be some changes to the portfolio and there was going to be reduction to some of the sensitivity with respect to equities. Is there room for further reduction of that sensitivity, or is it really set the way it is and we could expect that in a bad equity market, this can completely reverse? Or maybe just frame it for me, Andre, and provide sort of an outlook on where the sensitivity can go longer term with respect to the Canadian business.
Okay. You do recall correctly in that when we acquired ivari, we backed off the equity long a little bit in that it used to have some equity exposure as kind of the barbell end of its assets backing liabilities to get returns up. And we've turned that off under our watch. What we have is for the equity proportion of the universal life portfolio where some of our businesses you could think of as an assets under management business, when markets go up by 10%, we have 10% more AUM. And so the present value of those anticipated fees run their way through the reserves. So the majority of the market experience in Canada in Q3 was related to interest rates, not to equities. But we still have a directional positive tie to equities.
We hedge some of that away, and we actually have increased the size of that hedge here in Q4 post the positive for equity markets political events, at least initially in the U.S. We did take the opportunity to lock a bit of that in and get a little closer to fully hedged. But it's expensive over the long term to be short equity markets. So it's still not completely down to zero. All that being said, the bigger piece in Canada is around interest rates. And so if you're looking at the market experience for the Canadian business, a good measure is going to be positive correlation to equity markets and positive correlation to bond prices. So a negative correlation to kind of medium and long-term rates.
Okay. That's helpful. Thank you. And my second question is with respect to Sagicor Life. And is the path, if you could just remind me the path to a higher ROE for this segment, is it just tied to repricing initiatives, or is there something else that you can do in the Sagicor Life business to improve that ROE?
The near term is going to come from the repricing, and so that's both in terms of our long-term new life insurance business, which takes a while to come on as you add each new cohort, but in particular, we have a short-term business, a group business where we're still on risk, where we've needed to reprice that business coming out of how that has emerged through the pandemic, and so we're seeing that come through now, which is good, and our view is that momentum will continue into 2025. Longer term, I think there's a significant opportunity to improve the cost of doing business with technology and working with other areas in the Sagicor Group and behind the scenes. That's where a lot of our team is spending time.
That is the sort of thing that will generate higher ROEs out into the far end of the three-year planning cycle, so not necessarily into 2025.
Okay. I think the follow-up question to that, I guess, is that you do have an NCIB. You are acquiring stock. Makes sense. I see where the stock price is, although you're fairly illiquid stock, right? And so the question is, is there opportunities to deploy capital, Sagicor Life, to improve the ROE there that might trump a buyback? I'm just curious on your perspective on that, Andre.
So that's a conversation that we have all the time, certainly every time we get together with the board. But it's always on management's mind. I mean, look, we sit here and we understand where the ROE from this business is going. And so with the share price where it is and where it was at some points in the third quarter below $6, we could say, "Look, we're buying with a pretty high conviction at a permanent 20% return on equity." And so what that does is it just sets an appropriately high bar in terms of what else you do with your excess capital.
That said, we think there are tremendous opportunities for our Caribbean business, potentially inorganic, but organically, our franchise in the Caribbean, both in the Southern Caribbean and SLI and our Jamaican franchise are so strong that we anticipate the return from modernizing that business and enabling our team there with technology could be very high. The only thing is that the returns are longer term than share buybacks where you're going to see the immediate accretion, so if you look at what we're doing this year, we're splitting the baby a little bit in terms of flexing up the share buyback while at the same time still allocating capital into the U.S. for growth and working on plans to deploy technology capital to technology in the Caribbean, which is things you'll see in the coming years.
Okay. Thank you for that. It's helpful.
Thank you. There are no further questions. I'll turn the call back over to the presenters for closing comments.
Great. Thank you, Operator. And thank you, everyone, for joining the call today. A reminder, a replay of this call will be available for one month on our website, and a transcript will be posted as soon as available. If you do have any additional questions, please do not hesitate to reach out to any one of us. And with that, thanks again for your participation and interest today. Have a great day, everyone.
Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines.