Afternoon, my name is John and I will be your conference operator today. At this time, I would like to welcome everyone to Sagicor Financial Company 2nd Quarter 2025 Earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the 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 2nd quarter 2025 results. Our disclosures are available under the Investor Relations tab on our website at sagicor.com, which includes a press release, financial statements, MD&A, and a supplemental information package containing core earnings, drivers of earnings, and additional disclosures. The link to our live webcast is also available on our website. 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 CDAR+ 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 U.S. dollars, consistent with our reporting practice. Joining me today are 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. Good afternoon, everyone. Thank you for taking the time to join us today. We're very pleased to report an outstanding quarter for the period end of June 2025. All of our operating segments generated excellent insurance results, resulting in record core earnings to shareholders. All four of our operating segments generated positive core insurance experience gains, and new production was solid across each of our segments. Our U.S. subsidiary continues to grow and surpass $6 billion of total assets. Our Canadian business continued to show strong profitability, and its contribution reflected the benefit of a recovery somewhat in the Canadian dollar. Both of our Caribbean segments showed robust profitability, reflecting the progress our teams have made in our initiatives to enhance our returns on equity.
We also continue to progress on our strategic initiatives to transform our businesses, which we expect will continue to bear fruit in 2026 and beyond. Now, I'm going to hand the call over to our CFO, Kathy Jenkins, to discuss our consolidated results and comment on the segment results in more detail. Kathy?
Thank you, Andre, and good afternoon, everyone. As Andre mentioned, we are reporting an outstanding second quarter of 2025. Our core earnings to shareholders were up 82% from Q2 2024 to $46 million. Revenues were $736 million for the quarter, compared to $606 million for the same quarter last year. New business CSM of $39 million for Q2 continues to reflect strong sales across all segments. Now, I will give you some more details on the segment financials. Sagicor Canada's sales production of $18 million of annualized new premium in Q2 was consistent with management expectations, resulting in new business CSM of $11 million for the quarter. Core earnings to shareholders of $25 million were strong and reflected strong investment earnings, a recovery in the Canadian dollar, and modest positive insurance experience. It decreased $1 million from Q2 2024 when we observed more significant positive insurance experience.
Net income to shareholders of $4 million for the quarter was lower than core earnings to shareholders due to negative mark-to-market experience from higher interest rates in Canada. Net CSM was $581 million, an increase of 7% quarter-over-quarter. Sagicor Life U.S.A. generated $283 million of new business production for the quarter, consistent with internal targets. That pushed the segment's assets to over $6 billion. Core earnings to shareholders for the quarter were $16 million, including $5 million of core insurance experience gains. This was more than double the core earnings in the same quarter of the prior year, driven primarily by that positive insurance experience and higher expected net investment result.
Net loss to shareholders of $1 million for the quarter was lower than core earnings to shareholders due to mark-to-market experience and $5 million of other one-time non-core adjustments to reserving methodologies, which subtracted from net income but increased CSM. Net income was $159 million, an increase of 3% quarter-over-quarter. For both of our North American segments, we expect this quarter's negative market experience to reverse over time. We have observed that pattern since implementing the current accounting standard in 2023. Sagicor Jamaica had strong net premium growth across most business lines and improved margins from repricing of short-term products. Sagicor's share of Sagicor Jamaica's core earnings and net income to shareholders of $15 million for the quarter increased over the same quarter in the prior year due to policy enhancement initiatives performed in Q2, favorable claims experience, and increased revenue from policy repricing.
Our share of the results included about $3 million of core insurance experience gains. Net CSM was $277 million, a decline of under 2% quarter-over-quarter. Sagicor Life's short-term business continued to benefit from price adjustments, while the long-term business had improved insurance experience, leading to the segment's best quarter under IFRS 17. Core earnings to shareholders of $16 million increased 89% from the same quarter in the previous year, reflecting improved profitability in the short-term business and favorable insurance experience in long-term business. Net income to shareholders of $21 million for the quarter was higher than core earnings to shareholders in the quarter, primarily due to positive market experience. This was our one segment with positive market experience gains, as asset prices in those markets follow different interest rate movements. Net CSM was $259 million, an increase of 4% quarter-over-quarter.
At our head office, other operating companies and adjustment segments, currency volatility generated some net income and comprehensive income movements. You will recall that we had CAD 510 million , or approximately $374 million of debt denominated in Canadian dollars as at Q2, which is an excellent natural hedge for our positive net asset position in Canadian dollars. This debt liability gets marked to market every quarter through the income statements. However, our larger $859 million , or roughly CAD 1.2 billion net asset position in our Canadian subsidiary, gets marked to market through other comprehensive income. There is a strong positive correlation between the valuation of the Canadian dollar to our other comprehensive income and an opposite effect, about half the size, through our income statement. This quarter, that resulted in an $18 million non-core income statement charge, but a $45 million gain through OCI.
This contributed to both the difference between our core earnings to shareholders and reported net income to shareholders, and also explains why our total comprehensive income to shareholders was so much higher than our reported net income. Having said all that, Sagicor remained well capitalized in Q2. The group LICAT ratio was 141%, which was an improvement of 4 percentage points over the prior quarter, Q1 2025, and our financial leverage ratio was 27.1%. Our book value per share increased in U.S. dollars to $7.29, or CAD 9.94 . Our deployable capital, or shareholders' equity plus net CSM to shareholders, was $2 billion, or $15.63 per share, or CAD 21.32 per share.
With this strong capital position, we are announcing our 23rd consecutive quarterly dividend to shareholders since we've been listed on the Toronto Exchange, and the third dividend at the higher level of $0.0675 per quarter, or annualized $0.27 per year. We are also updating our previous guidance on select key measures for 2025. Given strong performance through the first half of the year, we are now increasing our guidance on core earnings to shareholders for 2025 to be between $120 million and $130 million. At the same time, we are adjusting our guidance on new business CSM slightly lower to $155 million to $175 million for the year. We have made this adjustment as we have seen higher than anticipated profitability for our U.S. new business reflected in investment income rather than CSM amortization, compared to our previous forecast.
We expect that we will continue to refine our forecasting and reserving methodologies going forward as we continue to learn under the new IFRS 17 accounting standard. With that, I will hand it back to Andre.
Thank you very much, Kathy. We really are pleased with another solid quarter. It does reflect our continued progress on our strategic priorities. We do remain on track with our North American growth initiatives. It's particularly gratifying to see the strong insurance performance coming out of our Caribbean operating segments. Many of the initiatives there that have contributed to this turnaround have long cycle times around the analysis, product, redesign, repricing, often regulatory approval, and it can take a long time. A lot of what we're observing here in 2025 reflects the work that was done, the hard work that was done in 2023 and 2024. As we look ahead, we remain committed to building on this momentum to generate positive and disciplined growth for our shareholders.
We're confident in our continued focus on driving increased returns on equity through our strategic initiatives across all our segments that is going to position us for continued success well into the future. With that, we'd be pleased to start the Q&A period, Operator.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star, then the number one on your telephone keypad. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star, followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Gabriel Dechaine from National Bank. Your line is now open.
Hi, good afternoon. There were a lot of experience gains this quarter, all segments. That's great. I just want to get a sense, maybe not the Canadian doesn't sound like it was too material, but maybe a bit dumbed down explanation of what happened in the Caribbean and the U.S. Is the U.S. mostly mortality, or?
Kathy, you want to take this?
Sure. In the U.S., we had a $5 million gain, which was a reversal of the $7.5 million loss we had in Q1. This was primarily due to a reversal of the experience on our legacy block of business.
Okay.
You'll recall last quarter we spoke about the difference between statutory and IFRS accounting on our hedging of equity exposure on the FIA. We do that on a stat basis, but it provides a bit more volatility on an IFRS basis. It's primarily due to that, not really much in terms of policyholder behavior, that sort of thing. That was to expectation. Jamaica, we had a $5 million gain, and that was a reversal of the $2.4 million loss in Q1. We're really seeing the impact of policy repricing that we spoke about earlier. Similarly, we're seeing in SLI the $3 million gain. We're continuing to see the positive impact from our product repricing initiatives that we spoke about.
For Caribbean, it's all repricing?
Yes.
Okay. As far as the guidance goes, maybe you can correct me if I'm wrong, but my interpretation of the guidance period for this year is because this quarter was so strong, we should look at that increase as pretty much what happened this quarter in the second half. You're not really changing what you expected previously, or is that misinterpreting your message?
I think that that's closer to right than not. I do think that we're ahead of plan in terms of many of our strategic initiatives to increase the margins across the business. That said, this quarter benefited from three out of four positive emergence out of insurance experience and one that was neutral to mildly positive. We do budget for those numbers to be flat over time. We don't want to, you know, you look at a core earnings to shareholders of $45 million or $46 million. We don't want to just multiply that by four.
Yeah, yeah.
If you look through and you take out the insurance experience and adjust for the minority interest and stuff, the last couple of quarters, excluding minority interest, have been running at about $35 million, kind of unadjusted core net earnings, which is a good number. It's a little earlier in the business plan than we thought we would hit those numbers. I mean, we have aspirations of getting there and further in our two to three-year planning cycle, call it. Even that unadjusted core number of $35 million for two quarters in a row includes some better than expected emergence in the short-term business that we're going to wait to see whether it's repeatable or not. We don't want to adjust our guidance way, way up just to stub our toe and miss it. We're putting something in place that we think we can meet or exceed.
At the same time, I think we'd be more comfortable today saying that with nil insurance experience, we're probably at that run rate in the low $30 million, which would come out to run rate core earnings somewhere in the $120 million.
Got it. That's fair enough. I guess something we saw in Q4, you had given guidance on 2026 that you'd be up 10% versus your expected 2025 range. Now that range is higher, or that the guidance range is higher, is that still applicable, or should we be adjusting our expectations that 10% is not really, maybe less than 10% now or not?
We're still comfortable with a long-term core earnings generation run rate, growth run rate of well into the double digits for this business between just the compounding of retained earnings and the initiatives that we have to expand ROE. When you look through any quarterly noise, we're still comfortable that we are increasing the profitability of this company by more than 10% a year. Now, depending on insurance experience in the last couple of quarters of this year, it's possible that our core earnings come in higher than our guidance.
If our core earnings come in higher than our guidance, we will have to go back and really study where that's coming from before seeing whether we chin up to a short-term target of 10%+ , because right now, because of the net positive experience, our reported core net income is a little bit ahead of where we see the core core profitability.
Yeah, that's fair. Last question, the sales, I mean, we're down versus Q1, the fixed annuity sales I'm talking about, but still a good number. You're, you know, is there any reason why we shouldn't expect you to exceed your sales target for the year based on what you've achieved in the first half? Maybe touch upon some of the market conditions that, you know, from that perspective?
Sure. I think the market conditions right now are pretty good, notwithstanding the monthly, weekly, daily news cycle.
Yeah, yeah.
It's been a relatively gentle period of volatility in the markets where we're investing. Both ourselves and our competitors have seen relative stability in the crediting rates in the marketplace. We seem to be in a good spot of not too hot, not too cold on production. We could produce more than the kind of $100 million a month that we're running at right now. What we're conscious of is making sure that we're able to get the risk-adjusted and capital-adjusted spreads on that business. I'd rather us write $1.3 billion this year in the U.S. at great spreads than to stretch out to $1.5 billion and accept a lower return on equity because we can hold our capital and deploy it in future periods.
Right now, I would look at Q2 production as great production, still growing the balance sheet, and look to be in that $1.3 billion zip code for total annual production for the U.S.
Okay, great. Enjoy the rest of your summer.
Thank you.
As a reminder, if you have any questions, please press star one on your telephone keypad. Your next question comes from the line of Darko Mihelic from RBC Capital Markets. Your line is now open.
Hi, thank you. Just a couple of really quick follow-ups. I just think the first question for me is to sort of solidify the difference between core earnings and reported. I think in your prepared remarks, you talked about an $18 million difference, but that still leaves like a $34 million difference that's unaccounted for for me. Can you just describe what the other big driver was of the difference between core and reported earnings?
The big thing is market experience. In both North American segments, we saw a bit of mark-to-market experience losses. No actual credit losses, but just rising rates in Canada and shifting curve in the U.S.
Okay, great. Just a couple of other smaller follow-ups as well. The first one is, we've seen in some of the segments a little bit of what I would call like a flip-flop of experience, so to speak. One quarter being down, the other quarter being up. The question is, many of the other life insurers are coming up to this sort of assumption reviews. Can you just remind me of the timing of your assumption review and if there's anything here that's building towards a trend of some sort?
We split our assumption reviews between Q3 and Q4. We try and do the big ones in Q3, like the mortality and loss and persistency in Q3, and then sometimes we get to expense and others in Q4. It is coming up. I would agree with you that we have seen it flip-flop down at the operating segment level, which, you know, you don't love volatility, but you like to see it going both ways. We had had a concern going back in 2023 and 2024 with a number of quarters in a row of negative experience in SLI , for example. We did end up strengthening reserves last year, and the combination of that and the initiatives that Kathy talked about have pushed them forward in this year. I don't see, we don't see anything on the horizon that would be material.
I think if we did, we'd be signaling it. We'd be signaling it now. If you looked rolling on a last four quarters basis, our core insurance experience is just about flat, which would give you an indication that in aggregate, all in all, we're closer rather than far.
Okay, thank you. I just wanted to revisit the one segment that I want to better understand because you've done some work and we've seen an improvement in results. I'm just trying to understand where it can go in terms of the repricing initiatives that we're seeing in Sagicor Life. I guess, ultimately, if the repricing is sort of working, should we see some shifting in the way that it comes through? Should we see maybe a reserve, a change in reserves and have it flow in differently? Ultimately, what I'm looking for is some sort of guidance on the net insurance service result and what should I focus on and where can it ultimately go here? My sense is it's not done.
I don't want to overestimate it, but I want to understand if there, you know, how much more room is left in this and where should I see it showing up?
Yeah, it's a great question. You look at SLI , you know, on the one hand, I agree with you, the initiatives broadly to improve ROE are not finished. We do think it has room to run. On the other hand, some of the core insurance gains and losses, and even a little further up on the drivers of earnings in the short-term business, the short-term business in effect includes experience in that line. We have a small P&C business. It's never going to get to overall materiality, but to the extent you're going to take losses in a P&C business operating in Barbados and Trinidad, we would expect that to come in Q3 and Q4 with weather. There could be a couple million dollars a quarter there of seasonality that would favor the first half and not favor the second half.
It's all a way of saying I wouldn't want to take that $15 million of core earnings from SLI and multiply that by four either. We feel more and more confident that if you take out those core insurance gains and look at profitability that way, it's significantly above, it's a much better picture than we would have talked about because I'm just looking at the drivers of earnings I have in front of me where we had four negative, it was never huge, but we had four or we had seven quarters in a row of negative insurance experience gains. One of our goals for 2026 is to provide more detailed segment guidance as well as opposed to doing it in aggregate.
Okay, great. That's very helpful. Thank you.
If you have any questions, please press star one. Your next question comes from the line of Trevor Reynolds from Acumen Capital. Your line is now open.
Good morning guys, or afternoon I guess, just curious, you guys revised two of your guidance metrics. The other metrics that you guys had out there previously from Q4, are those all intact from where they were at or just kind of wondering how we should look at that?
I think we had this 13% + as a medium-term target. We're definitely not backing off of that. If you look at what we achieved this quarter, it gives us more confidence that that is on the table and more. I'm being cautious in my comments in terms of near-term guidance, but we still definitely have conviction around getting to 13% + core return on equity over the next couple of years. We're not revisiting that, reconfirming it, I guess, and we'll revisit whether it should still be that number when we report the full-year results. In terms of, sorry, remind me what was the other one that we didn't talk about? It was the 10% earnings growth, right?
That one, I think we want to see where, I kind of refer you to the comments to the earlier question where we want to see, we want to see where the full year settles out because if we end up with, if we do multiply this first half by two and end up at a number that is through $130 million of core net income, there may be some one-time stuff in there, in which case we might back off next year's earnings guidance. That one we need to see.
Okay. I think most of my other questions have been answered. I guess just maybe on those repricing initiatives, are those in line with your expectations or have they occurred quicker than anticipated? I just kind of want to get a sense of your thoughts on those.
The real answer is the difference between public guidance and internal expectations. We're pleased with the progress, I'd put it that way.
Got it. Thanks.
If you have any questions or any follow-up, please press star one. There are no further questions at this time. I will now turn the call back to George Sipsis. Please continue.
Great. Thank you, Operator, and thank you everyone for joining the call today. 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 have any additional questions, please do not hesitate to reach out to any one of us. With that, thanks again for your participation and interest today. Have a great day, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.