... guest today, Andre Mousseau, CEO, President and CEO of Sagicor. Welcome in Andre, Andre.
Thank you.
Hi. You can sit here. Thanks for joining us today. Maybe just to start, it is, you know, your first time at our conference. Just a high-level overview, everyone loves to hear from the CEO.
Yeah.
What is it about Sagicor that people should take an interest and, you know, take a closer look at your company and what you're doing today?
Right. Sure. Sagicor is really a life insurance holding company. We're domiciled in Bermuda, and tax headquartered in Barbados. But a lot of the folks in the engine room are right up here across the street. The business really came into its current form two years ago, when we put the last piece of the puzzle together. And so today we're an insurance holding company with a $24 billion balance sheet. Our biggest business is here in Canada, which is ivari, which used to be Transamerica Life Canada. A really exciting growth business in the States, in the annuity space.
And then the original Sagicor business, which goes all the way back to the Mutual of Barbados 185 years ago. Which is a fabulous business with really big market shares in some really small jurisdictions with not a lot of growth. But if you look at the overall piece, we've got a really interesting balance of profitability. Each of our segments has long histories. You know, Transamerica had been in Canada almost 100 years. Our US business, going back to American Founders, is about 70 years old. And you know, in the Caribbean, I talked about it.
So, you know, today what we are is a really profitable, inexpensive, steady life insurance company with a really interesting growth engine in the U.S.
All right. Thanks for that. So, so Andre, when you think about those different geographies, anything particularly exciting? I know the U.S. tends to be seen as your growth engine. How do you sort of see that strategy evolving? I'm guessing you're going to stick to those core markets and continue to improve in each of those core markets.
Yeah.
That's the approach?
That is the approach. You know, the framework that we're following is basically to improve the ROE of the entire company. And that comes down to the operations and then to capital allocation. And so in each of the markets, we have different strategies. You know, our US business is in this annuity space, which is having a kind of a generational growth opportunity around it, and we're one of the last of the independent platforms that's participating in that space. And that just has tremendous tailwinds behind it. And that's where I think most of the top-line growth of the business is going to come from.
If you look at our Canadian and our Caribbean businesses, they're great franchises, and I think there's a lot of opportunity for us to work on the asset side of the balance sheet, and to work on the SG&A piece of the income statement to drive earnings growth, so I really see that all three of the geographies that we operate in, we can drive double-digit earnings growth, but it's a margin expansion game in Canada and the Caribbean, and a capital top-line growth game in the US.
Great, thanks for that color. On your ROE target, you're reaffirming - you reaffirmed last quarter your 13-plus target. Obviously, it was a very good quarter. Your core number came in a lot higher than that.
Yep.
But you did sound a little bit cautious not to over-promise, and maybe, you know, a lot of things went well in the quarter that might not repeat. But ultimately, on a trailing 12-month basis, you're actually north of 13 now. How do you sort of think about the ROE target, and would you consider maybe, you know, taking a closer look at it, given how strong the numbers have come in?
We're going to look at it again in the annual cycle. So when, when we come back to you in end of February, early March next year, with the year-end, we'll say, "Okay, what does 2026 look like? What does 2027 and beyond look like?" We are playing a long game here. You know, we set out with a multi-year time horizon to take this collection of assets that was running at about a 10% ROE, and we have designs that's well north of, well north of 13. And, we think that it's great validation in the last couple of quarters that, that we're through the short-term targets. You know, we're conscious of putting targets out there that we're going to meet and exceed. But, you know, that 13% number is gonna be higher in a couple of years.
And when you think about the components of it, is it largely earnings driven, or is there a component of capital sort of optimization, if you will?
There, there's both. So within each of the three segments, there are initiatives that we have underway, and they're different for each three to improve the underlying ROE, and that's operational. Then you get into capital allocation, which is that we're able to in effect reinvest the profits from our more mature businesses into our growth business in the US, where the marginal returns on equity are quite high. And so just naturally over time, without changing the fundamental returns on equity by allocating more by allocating your growth capital to your highest marginal return, that will have an uplift as well.
Okay. Thanks for that color. And as far as any downside risks, risks that you'd like to maybe flag, obviously, different jurisdictions, different regulatory regimes-
Mm-hmm
... anything on that front that, not to say that maybe concerns you, but something that you're keeping an eye on?
We operate in a lot of different jurisdictions. You see common themes, you know, on the regulatory side. Regulators everywhere are taking a more active look at the business. You know, you hear about it in Canada, in OSFI, but we would see this across 20 different jurisdictions. Ultimately, I think that's something that we can manage, and it goes to margin a little bit. But at the same time, it's also a moat around the business. It makes it hard for other players to get into it.
You know, you and I have talked before. I think with any life insurer, any balance sheet business, period, you have to be cognizant of being deliberate about the risks that you're taking on your assets. And so, we pay a lot of attention to that.
Got it. Maybe delving into your business lines, I'd love to start with the US, just given that it's your growth engine. I think you've been very clear on that, and I think what a lot of investors might wonder is, how does a small insurance a relatively small insurance company play-
Mm-hmm
... effectively in such a big market? Obviously, the biggest potential is in the U.S. in terms of the size of the market, but how do you sort of differentiate yourself? And maybe talk a bit about that focused approach that you have.
Right. So you have to start with the market and the drivers behind this tremendous growth. And you have this, you know, generational confluence of, on the demand side, there's a tremendous need for retirees to have, you know, guaranteed return or fixed income products, or even products with some upside, but limited to no downside. And so there's, as the boomer generation, you know, moves into and through their 60s, there's hundreds of billions of dollars of new money that's coming into this space every year, and that's why you see the excitement of so many different players coming into it.
And then on the other side of the equation, in terms of how you make money, we've seen this evolution over the past decade or so that shows that insurance companies are really the right way to finance the economy, in a way that banks are not. And, to oversimplify slightly, if you're a bank and you have depositors with demand deposits, you need to keep an eye on the ability of your depositors to up and go very quickly, and that has made banks hold more capital. It's made banks price their loans to reflect that risk. Whereas with an insurer, because your liabilities are stickier, because when someone buys an annuity, the penalty for withdrawing that early is much higher.
So the insurance and annuities landscape is a better natural lender, and that's allowing the insurance and annuities sector in general to put the money to work and still receive the spreads that generate these really strong returns on equity. And this is the fundamental thesis behind every private capital player trying to get into this space because it's just that big. And so then the question becomes, as you say, "How do you compete?" And it really comes down to your distribution and your relationship with the companies that are selling. And so you know, you do have you know, Athene out there selling order of magnitude $100 billion a year. But a lot of this is sold through small, independent marketing organizations who are selling to people who aren't big enough for the Merrill Lynch account.
The channel cares about the service that they get from an insurance carrier. So if one of our better independent marketing organizations is selling $100 million worth of our product in a year, that's really meaningful to us in a way that it's not for one of the bigger carriers. And so we over-deliver on servicing the channel, and we're the one that they pick.
... Okay, thanks for that color. Maybe talk a bit more about those booming annuity sales in the U.S., and anything that could derail that potentially. Like, if you think about the different drivers, like interest rates, for example, any color on what might make it less robust in the coming years?
So the demand side is there and observable in terms of the demographics of the money that needs to be put to work. You know, the risk in these would be if rates went to zero. So if rates went to zero, our company, any annuities company, you'd get a brief sugar rush 'cause all your bonds would be worth more. But then it would be you have less of a sales pitch to the end customer when you say, "Okay, I'm going to take $100,000 of your saving and compound it at 2% over five years.
You know, you're going to have 111,000. You know, it, it's much less compelling compared to where we are now in this really, not too hot, not too cold interest rate environment, where you can offer 5%. Where if you're compounding at five, or seven, or 10 years within an annuity policy, it starts to be something that's, that's pretty compelling and can be, you know, the backbone, the fixed income backbone of someone's retirement portfolio. So we wouldn't see interest rates going to zero again, but, but that would be, the, the biggest thing that, that we would see as potentially, you know, moving, having demand take a step back.
On the U.S., just to finish off on the U.S., how does your business evolve? Is it you're just going to stick to what you're obviously good at on the annuity space, not looking at maybe expanding into other areas, niche areas? And then secondly, can that success formula be brought into the Canadian annuities market?
In the short term, it's more of what we're doing. I think we'll look to expand our distribution a little bit. You know, like, you know, we're less than 1% of the market, but we're selling in less than 10% of the distribution channel, so to speak. So, by expanding our distribution relationships, we think we can continue to grow. And, you know, for the medium term, it would be more of the same, maybe some adjacent products, but still adjacencies, still things that are fundamentally spread accumulation businesses. The market's different here in Canada. You know, people have their GICs, and then they have everything else. So, we'll look at it, but it would be, it's not immediate.
Okay. Okay, thanks for that. Maybe switching to the Caribbean business. Obviously, as you mentioned, 180-plus years, you know, deep roots in the Caribbean. What's compelling about the region for Sagicor, outside of the fact that you've sort of, you know, got that history there?
The history is a big part of it. We have a tremendous brand name and a really significant market presence, and so that, you know, presents itself in really strong, stable margins. And it presents itself in terms of a pretty unassailable market position. And so, you know, I alluded to it right off the top. There's not going to be a tremendous amount of top-line growth there, because in the majority of our markets, we're already the majority of the market. It's hard to go and buy another insurance company when you're already 80% of a market somewhere.
But, in terms of a really reliable piece of ballast, of profitability to go and grow, you know, generate and compound capital, to feed into your growth businesses, it's an excellent fit, within the organization.
How about the macro side in the Caribbean? You know, we hear a lot about the U.S.-Canada trade issue.
Mm-hmm.
How does that sort of impact the Caribbean? I'm guessing probably differently, but love to get some color on that.
Differently. I'm going to resist the urge to talk policy. I think, you know, what you can observe is that the Caribbean economies were disproportionately affected by Covid, particularly in the travel, the hospitality-focused jurisdictions. And so because there was those couple of years of so much less travel, places like Barbados and Jamaica had a tough couple of years. You know, even for our business, because we're playing the very long game there, we're not going to be sharp-elbowed with our policyholders. We're going to allow people to work their way through. We're going to allow people to defer their premium payments and all that.
You saw that for a couple of years, where our Caribbean businesses in 2022, 2023, were still soft. We've seen great performance the last couple of quarters as we've got out of that. I think there's lots of green shoots in the Caribbean economies. There's lots of construction, Jamaica, Barbados, Bahamas, like, you name it. There's actually a good feeling down there right now, which is good to see, 'cause it was a tough couple of years.
... Okay, and then as far as improving the ROE in the Caribbean, obviously you're sort of using it to fund growth in higher growth areas like in the US in particular.
Mm-hmm.
What about the tech side? Is there an opportunity to maybe cut the cost base a little bit? Is it more of an expense story in the next couple of years for that segment?
There's tremendous opportunity in our legacy businesses to, over a period of a number of years, make investments in technology that will fundamentally alter the way we service our customers, that customers interact with us, and the way in which we administer their policies. And so, this is the sort of thing that takes a couple of years, but I think we'll look up in two, three, four years and have meaningful margin expansion from the investments that we're making today.
Got it. And then maybe switching over to Canada, maybe just refresh our memory on how the ivari acquisition came about. You mentioned the former Transamerica business. How did that sort of come up for sale, and how did that sort of all-
Right
... materialize?
Transamerica Canada was acquired about a dozen years ago by a private equity firm called Wilton Re. Almost by definition, that was always going to be a temporary fit for them. This was an asset that we knew relatively well because we had our eyes on deploying some of our excess capital in the Canadian market. You know, you can really count the assets that have scale and that we could afford on one hand. We knew them relatively well. They chose to sell at a particular time where I think it would be difficult for a non-Canadian buyer to understand what was happening, because it was put up for sale at the same time as we were transitioning from IFRS 4 to IFRS 17.
You think it's hard understanding the transition between IFRS 4 and 17? I'm projecting a little because it was learning for me. But it's even harder for folks in other jurisdictions who weren't going through that. I think that we were able to craft a fantastic outcome for all parties, especially us. You know, it's a backbone of our business now. It's the biggest piece of our business.
Yeah, and that was clearly meant for diversification, as part of your overall strategy. And how does ivari compete in the Canadian market? What's the sort of-
ivari's strategy has changed a lot over time. You know, going back a generation ago, you know, a bunch of people in the room here, you could look in your parents' or grandparents' drawers and find an old Transamerica policy. There are a few hundred thousand that are outstanding, and it used to be a pretty significant player in term life. That's a lot of what the big $10 billion back book is. Today, it's much more niche, and our strategy in Canada has basically been to go to the middle market, the place that the Big Three has kind of abandoned as Sun and Manulife and Canada try to go for the more opulent, affluent customers go into more asset management.
There's still a demand in the middle market. So, you know, if you look at the middle market niche that we're in, it's really us and iA are the major players. So that's probably the closest analog to our Canadian business.
If you measure market share for that niche part of the market, can you see a scenario where you're growing your share, or is it relatively stable?
In the niche that we have, we have a pretty robust market share, so you know, we're looking to keep it. We you know, we're still selling more policies than are running off, and so we're still growing the balance sheet month by month, quarter by quarter. But you know, we would see our Canadian business as you know, call it inflationary plus one or two growth, as opposed to the U.S., which is going to be double digits. Now, that's on the revenue side. I think we have a tremendous opportunity in our Canadian business to bring some of the asset management thinking that we've learned in the U.S. by investing against these spread products and accepting some illiquidity premium, bringing that to Canada. Our Canadian balance sheet is over $10 billion.
There's a lot of torque there for margin expansion.
What about on the cost side? You talked a bit about how cost opportunities do exist for the Caribbean. What about maybe even Canada and the US? Is that something that's... I know the US is more of a top-line growth story, but-
Uh
... are you, are you also becoming more focused on the cost? We hear iifecos talk about AI and tech initiatives-
Mm-hmm
... and how it's changing the industry, and digitization, and any thoughts from Sagicor's perspective?
There's all of those, plus now we have a mid-sized Canadian insurer, and we have a mid-sized American insurer. And you're always going to need local expertise in the market for facing pieces. But there's a lot of opportunity to consolidate groups between our Canadian and American business. And it's exciting for our teams, too, because all of a sudden, they're able to work across borders. So by combining those two organizations over time, I think there's opportunity out of that as well.
... Got it. Got it. Okay, maybe touch on capital a little bit. How should investors think about your deployable capital? That's something that's very topical for the life co space. What's your perspective there?
Deployable capital in terms of this is what you could spend to go-
Basically, yeah
... run around, right? 'Cause it, you know, there's also the, you know, the equity plus CSM piece w-
Yep
... which is another way. But I think if you looked at, you know, using the LICAT as a guide or, looking where we could be from a debt to equity point of view and be comfortable, you know, I would say we would have, you know, in the zip code of $300-$400 million of capital that was available to deploy for the right thing. You know, we view our shares as a buying opportunity, not something we're excited to issue. You know, you can observe us-
Yeah
... continuing to buy back shares. So, you know, it's really that $300 million or $400 million that I would see as something that we could use for the right growth initiative if it came around. And, really, any sort of growth initiative would have to pass the threshold of being generating a higher risk-adjusted return on equity than, you know, continuing to grow our own business, which we see on an organic basis, being into the 20% range, and so we would have a pretty high threshold around that.
So the M&A appetite is still there. ivari closing not too long ago, does that sort of make it a bit more of a medium-term dynamic?
It would still be possible, but if you look at where we were three or four years ago, we were, you know, radically overcapitalized, and you know, it was our job to put that capital to work. Now we are conservatively capitalized. We have, you know, our debt to equity, or our debt to total cap is lower than optimal, and that's a drag on ROE, and so that tells you that either we have to spend it or we should return that to shareholders over time.
Okay, thanks for that. And then I'd like to ask about core versus reported, just obviously because of the big divergence in-
Mm-hmm
... the most recent quarter, and I know it's accounting noise, but I do have to ask because investors do look at core versus reported.
Yep.
And so when you have that big differential, it does start to, you know, make its way into the conversation. Any thoughts on that? And is there, is there any sort of line of sight where that could maybe diminish over time, or is it just a feature that's always going to be there?
I think that that is a feature of IFRS 17, not a bug. And so, as they were putting it together, there was the intention. And, you know, it looks, you know, for a company like ours, where we're $24 billion of assets, you know, $10 or $20 million of mismatch of asset liability, asset movement versus liability movement is tiny, but it's a significant change in the income statement. So I think that that divergence is here to stay. I think that investors should keep all of their companies honest by checking over the long term.
Yeah
... are these things consistent? And so, you know, if you looked at 2024 for us, we had massive volatility quarter to quarter. You know, we had net income losses, we had quarters that had more than $50 million of net income, but when the dust settled on the entire year, we had $91 million of core, and we had $96 million or $97 million-
Right
... of reported. So you look at that and you say, "Okay, over that period, does it feel right?" If I were an investor, I'd be looking through and saying, you know, taking these kind of four quarters, six quarters, eight quarters and saying: Are you starting to see a systematic divergence?
Right
... between the accumulated earnings on a core basis and an adjusted basis? If that persists, then there's something wrong. You know, for us, we measure both because our shareholders have to eat both. I think you have to add in the further wrinkle of looking at total comprehensive income both on a core basis and on a reported basis, 'cause that's where you're really seeing the full movement of the balance sheet. But if you're only gonna pick one metric, core net income is still the right one to look at.
Got it. Got it. So we've got about a minute left. Maybe just some closing remarks, any key messages, and I'm guessing you might want to touch on valuation. Obviously, there's always a liquidity discount for smaller companies, but-
Mm-hmm
... at the same time, you know, the relative valuation looks very outsized, and I would argue it's a very cheap stock today, which I'm sure you'd agree with. But, any final thoughts on investors and how they should-
Yeah. Well, look, it's my job-
Yeah
... like the other 19 CEOs who are up here, to say the same thing on valuation. You know, we're, we're not particularly well known, and so, you know, this is progress for us, frankly, even being able to be here on this stage. Last year, you know, we're a customer of Scotia on the wholesale side, and we got meetings set up, but we didn't make it onto the stage. But, you know, the flip side of not being that well known is the people who did take meetings at last year took meetings when our stock was at $5.50 or $6.
Right.
Today, we're up around $8. You say fair value is $11. You know, I think there's a group-
With upside potential.
There's an intellectual basis, I'd say, for 11, there's an intellectual basis for 15, and beauty's in the eye of the beholder. But I see how you get there. You know, what I'd leave you with is this team has executed already on a tremendous transformation of what we have. And what I think you can extrapolate from that is that it's our job to narrow the gap in the public market between where we are today and fundamental value, but really, it's our job to change fundamental value. And if you look at what we think we can do on moving ROE in the next two or three or four years, that 11-15 is gonna meaningfully shift to the right.
Well said. Thank you, Andre, for your very insightful commentary today, and thank you for joining us today. And congrats on, you know, just being here for the first time, and I'm looking forward to hosting again and having you back next year as well.
Good stuff.
Thank you very much, Andre.
All right. Thank you.
Appreciate it.