Good morning. My name is Angeline, and I will be your conference operator today. At this time, I would like to welcome everyone to Sagicor Financial Company's third quarter 2026 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 star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. 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 2026 results. Before we begin, I'd like to remind everyone that our disclosures are available on our investor relations website at investors.sagicor.com, which includes a press release, financial statements, MD&A, and the supplemental information package, which contains 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 the Q&A period being reserved for financial research analysts. I'd like to refer 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. Discussion of the assumptions underlying our expectations is provided in our filings and earnings releases. Unless otherwise noted, all dollar amounts referenced will be in US dollars, consistent with our reporting practice. I'd like to take the opportunity to introduce the others joining me today, which 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 on to our President and CEO, Andre Mousseau.
Thank you, George. Good morning, everybody, and thank you for joining us. We're pleased to report a strong fundamental quarter for Q3 2026. We delivered our highest core earnings result of the year so far, reflecting solid performance across each of our operating segments, some modestly positive core insurance experience, and continuous improvements to our balance sheet deployment. At the same time, we're making solid progress on our ROE growth initiatives for 2027 and beyond, including having recently received shareholder approval to merge our Caribbean operating entities.
We do continue to see some asset price volatility, which translates into net income volatility in our North American segments, which hold the majority of our balance sheet. These are on assets that we primarily hold to maturity, and we're really focused on fundamental long-term sustainable value creation. As I said, we continue to make great progress. I'll talk a little bit more about that after Kathy goes through a more detailed financial review of the third quarter. Kathy?
Thank you, Andre, and good morning, everyone. Sagicor's Q3 2026 core earnings to shareholders were $39 million, an increase of 10% compared to Q3 2025, reflecting broad-based strong performance of our operating segments. Net loss to shareholders of $23 million was affected by mark-to-market experience on Canadian and US dollar-denominated fixed income assets, net of liability movements. New business CSM generated in the quarter increased 4% year-over-year to $42 million from solid new business production at Sagicor Life USA and our Caribbean operating segments. Annualized core ROE for Q3 was 15.1%. Now, I'll give you some more details on the performance of each operating segment. Sagicor Canada's net premium was $115 million for the quarter, an increase of 6% year-over-year.
Core earnings to shareholders of $25 million for the quarter decreased 5% year-over-year in U.S. dollars, reflecting especially strong core insurance experience gains in the same quarter last year. Net loss to shareholders of $15 million for the quarter was a loss due to negative mark-to-market movements on fixed income assets, driven by sharply higher Canadian interest rates across the yield curve. Net CSM decreased 12% quarter-over-quarter to $482 million due to annual actuarial assumption updates and model refinements, partially offset by new business CSM of $9 million. Sagicor Life USA's new business production of $247 million for Q3 was in line with management expectations as we focused on strong margin generation. Core earnings to shareholders of $14 million for the quarter increased 37% year-over-year, driven by higher expected insurance earnings and expected investment earnings from continued business growth.
Net income to shareholders was $3 million for the quarter, was lower than core earnings to shareholders due to negative mark-to-market experience from higher U.S. interest rates, albeit with a less significant impact than in our Canadian segment. Net CSM increased 3% quarter-over-quarter to $164 million, driven primarily by favorable actuarial assumption updates. Improved new business margins generated new business CSM of $9 million. Sagicor Jamaica's net premium was $106 million for the quarter, an increase of 13% year-over-year, bolstered by strong performance from the short-term life and health insurance business. Sagicor's share of Sagicor Jamaica's core earnings to shareholders of $10 million for the quarter decreased 11% year-over-year, as stronger expected investment earnings and fee-based income were offset by higher core expenses.
Our share of Sagicor Jamaica's net income to shareholders of $11 million for the quarter was slightly higher than core earnings to shareholders due to favorable annual actuarial assumption updates, partly offset by adverse market experience and costs related to the Caribbean reorganization. Net CSM increased 6% quarter-over-quarter to $326 million, driven by strong new business production, contributing $14 million of new business CSM, and favorable annual actuarial assumption updates. Sagicor Life generated $114 million of net premium during the quarter, supported by continued strong contributions from the segment's insurance businesses. Core earnings to shareholders of $13 million for the quarter increased 54% year-over-year, benefiting from core insurance experience gains from positive mortality experience.
Net income to shareholders of $8 million for the quarter was lower than core earnings to shareholders due to negative market experience from higher interest rates, as well as costs related to the Caribbean reorganization. Net CSM was $258 million, an increase of 4% quarter-over-quarter, driven by new business CSM of $11 million and positive impacts of actuarial assumption and model refinement updates. At our head office, other operating companies, and adjustment segment, core cost to shareholders were $24 million, and total reported cost to shareholders were $30 million for Q3. I will take a minute now to talk about the evolution of our insurance assumptions. We were pleased to see experience in Q3 mildly positive overall, with each segment within $1 million over their estimated experience. We also performed an annual basis review of several of our major actuarial assumptions.
The largest adjustment coming out of that analysis was in our Canadian segment, where experience updates and model refinements resulted in a reduction of CSM of $73 million. Approximately 40% of this change was a result of lapse assumption strengthening related to maturing cohorts of term life insurance. The remainder was due to assumption changes and modeling refinements related to components of future profitability of universal life policies. The impact on each of our other segments from our review was positive. In our U.S. segment, we saw $8 million improvement to CSM related to mortality on our more recent annuities, and a $6 million net income improvement as we continue to refine our liability assumptions to account for asset price volatility. In each of our Caribbean segments, we also saw modest CSM and net income improvements due to broad-based improvements in emergence.
As I mentioned in the operating segment reviews, we have started to see non-core costs related to our Caribbean integration project. In total, we had approximately $8 million of expenses in the quarter relating to transition of employee and technology costs to a combined operating model. We do expect to continue to see expenses related to the integration in the coming quarters. With the overall reduction in CSM and net loss driven by mark-to-market reduction of our assets backing capital, our group LICAT ratio was slightly lower at 133%, and our financial leverage ratio was higher at 28.5%. Our book value per share at September 30 was $7.36 , or CAD 10.44. We are also pleased to announce our regular quarterly dividend of US $0.075, or $0.30 annualized. On that note, I will hand back to Andre to close our prepared remarks.
Thank you, Kathy. As I mentioned at the start of the call, we are pleased with the progress we are making operationally, and especially towards our long-term strategic initiatives. Our Canadian business continues to deliver excellent core results, including expanding investment income as we make that a focus of our team. Our U.S. segment is also making solid strides under its new leadership.
At about $250 million of annuity production, we generated attractive gross margins as the economics for these annuities improve in higher rate environments. As we move into 2027, we expect product and distribution expansion to drive further growth in the U.S. And we are making excellent progress on our initiative to transform our Caribbean operations, enabled by their merger under a single publicly listed company, Sagicor Group Caribbean. We received shareholder approval for that transaction in October, and we now expect it to close in the first half of 2027.
As you heard Kathy discuss, we are already hard at work combining those operations, which we have conviction will result in a stronger, more nimble operation to the benefit of our customers, our team members, and our shareholders alike. Sagicor Financial shareholders will also benefit from a simplified, more transparent corporate structure, which we believe will improve our investors' ability to see the progress that we are making. I hear it time and time again from really smart investors that our current model is challenging to understand. Combining our Caribbean operations under a single public company will really make it easier to understanding where we are deploying capital, where we are harvesting capital, and how our businesses are growing. With that, operator, we are ready to open the line for questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the number one on your touchtone 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 the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Gabriel Dechaine with National Bank. Please go ahead.
Hey. Good morning. Quick question on the ROE targets. Looks like the language has changed a bit, and if I look at the 15% target, it now says medium-term as opposed to fiscal 2028. Is there a reason behind that change in language?
No, not in particular. I think that the targets that we're setting out should remain consistent. The exception to that is we'd like for 2027 for the guidance really to be post the consummation of the Caribbean merger. Given that we think that that's going to close either in Q1 or early in Q2, we just want the 2027 guidance, which remains at 14%, to start in Q2 or Q3 of next year because as we have the closing costs, we don't have perfect visibility of what goes into core and what doesn't. But in terms of 2028, I think the intention is to the extent there's language that said that that was medium-term, what we mean is 2028. We stand by 15%.
Okay.
If you look at the performance of the company and the underlying interest rate environment, we continue to have conviction around that.
Okay. That's helpful. The annuity sales in the U.S., is there I don't know, the market factors and competitive factors can often result in deviations from our expectations. I'm just wondering if, as market factors, considering September was pretty volatile for interest rates, that might have affected your appetite a bit, your pricing?
There was a little bit of that. If you look at the way that we manage our annuity production, it tends to be, when you look at short periods, pretty tactical in terms of where you see base rates, where you see where you can put the investments to work, and where you see competitors. The volatility as it pushes rates higher is net accretive to us. To the extent we ended up kind of at the lower end of our target range at about a billion-dollar run rate of production, the margins were very good. If you kind of do the math on the CSM on new business production compared to the face value production, you see that a little bit. Yeah, there was a little bit of volatility in it. But as I said, the economics are good.
I alluded to it in our prepared remarks. We brought on new leadership in our American business, and under Eric, the team is looking to expand product and distribution next year. While we harvest some pretty attractive gross margins in our existing fixed business, we think that that can get broader next year.
Okay. My last one is on the assumption review. Thanks for the breakdown, the 40% and the 60%. I guess the first one is they're not related, are they? Because I've seen in the past some companies, for term products, there's occasionally an assumption, occasionally or frequently, I guess, an assumption that near the end of the term, there'll be a conversion to a UL or a whole life policy, and sometimes the lapse rate is too high, and then that would have the ripple effect of lower future expected products of the profits on the UL block that isn't going to be as big, or are these completely unrelated, and the term is merely too high, too low kind of thing?
The two pieces for us are unrelated.
Okay.
The 40% is along the lines of what you are talking about, where you have these policies that were sold in 2005, 2006, and you had to make an estimate of what rolls over and into what, and it is hard to tell before that comes, and you adjust for that. The remaining 60% is calculations related to the business that is in our universal life book now. If you look at how our net income emergence has progressed over the last couple of years, it is pretty significantly higher now in 2026 than it was going back to 2024.
As there is a little bit of product mix shift, and even as you see assets for different asset classes growing differently, we got a little bit more granular with our assumption and ended up changing it. All of these cohorts are still significantly profitable and ahead of where we would have underwritten the acquisition back in 2022, 2023. It is just, these are the adjustments you do.
Is this the funds that are in the sidecars, the investment sidecar? They are just picking, I do not know, ETFs instead of a managed fund, so the fees are lower or something like that? Or is it entirely different on the overall?
It is a little bit of that, but if you look at the macro trends of asset management, you are seeing passive funds outperform active funds. What we see, even if you have sold kind of 50/50 passive versus active, now the passive funds are actually 55% of the assets instead of 50 because of the concentration effect in the passive funds, and those are lower fee, so it kind of cascades from there.
Got it. Can you quantify, for modeling purposes, the CSM unwind impact in coming quarters?
Our Q3 core results, if you look in the supplement, include the effect of the CSM change. If you look, I think there was a tick down in Canadian CSM from Q2 to Q3, and then there were modestly positive ones that came in the other three operating segments. On a total core net income basis, I think we see ourselves making up that difference narrowly in the Canadian segment through the investment earnings, which is a continuation of the trend that we've seen in the last couple of years.
Okay. Thank you, and that's it.
Thank you. The next question comes from Michelle Lee with RBC Capital Markets. Please go ahead.
Morning. Thanks for taking my question. Last quarter, you flagged a detailed review of the U.S. legacy life mortality for Q3 and possible reserve strengthening. This quarter, U.S. CSM was up on favorable assumption updates. I think there was a $8 million benefit from mortality from the newer annuities. Should we read it as the legacy block being now fully reserved in the U.S.?
Yeah. We did perform a review of all of our mortality assumptions, and we did not identify a basis for a significant change in our U.S. legacy life book. Since this isn't core to our business, we may do something in the short term to de-risk, but for the purposes of our review, we did not see a reason to strengthen.
Okay. Thank you.
Thank you. The next question comes from Mike Rizvanovic with Scotiabank. Please go ahead.
Hey, good morning, Andre. Just wanted to ask about the production target, the $1 billion target for the U.S. annuities. Obviously, the rate environment's a lot different from where it was three months ago. I am wondering how that rate change impacts your business. Maybe you can delve into the distribution, and are you looking to grow it? I am just trying to get a sense of if that $1 billion could potentially move up in a meaningful way in the next couple of years.
Yeah. Thanks, Mike. I think with respect to rates, over the long term, the rates being up is positive, is accretive to our margins. I think that we observed pretty solid gross margin from our business and from the business that was written in Q3, and so far in Q4 for that matter. I talked about it a little bit with Gabe's question. You do see volatility, and extreme volatility kind of week to week can freeze things up a little bit as people get whipsawed. But net-net, we see the current rate environment as positive. With respect to production targets, I do think that we see upside to the billion-dollar run rate that we are at now next year. Part of that distribution expansion comes around, we got upgraded earlier this year, given across the board.
You saw we've had it on our holding company bonds, but the important one commercially for the U.S. operating market is AM Best. Earlier this year, when we moved from A- on AM Best to just A, we saw that as an opportunity to expand distribution into some bank channels, for example, where they would typically have a minimum threshold of that A level. That's the sort of thing that takes a while to get in motion, but we think provides us with production upside going into next year.
Okay. I am not trying to pin you to a number, but it does sound like there's an opportunity there. If you think about it more like a three-year window, is it a meaningful opportunity to move from $1 billion to maybe something like $1.5 billion? Would that be within the realm of possibility?
That's within the realm of possibility. The short answer to that is yes. We're in the midst of our planning in terms of how quickly this is all going to ramp up, and are you scale versus margin on the business that you're getting right now. That sort of zip code of growth, and potentially even beyond that, is on the table.
Okay. That's very helpful. I wanted to ask a high-level question on the Caribbean. I think you did mention in your prepared remarks about clarity for investors, and I think when I speak to investors, for the most part, it's seen as a bit of a cost-takeout story. Post this closing, which you're expecting will happen early next year, I guess, outside of the cost, how does it change maybe the outlook for the business? I'm not sure if there's something operationally that improves, but can this become a scenario where you just get better top-line growth, and then maybe you do allocate capital to grow it beyond its current size on a go-forward basis? Any high-level thoughts there?
Right. There is opportunity. There's absolutely a cost opportunity, and that's probably the thing that comes in, and beauty's in the eye of the beholder in terms of what investors are going to focus on. There's some near-term opportunity, as Kathy talked about, in terms of bringing systems together, decommissioning legacy systems, bringing the organizational charts together, and then that's the sort of stuff that we'll start observing pretty soon in the coming quarters. Then there's probably a bigger opportunity a year or two out as we re-engineer processes and have the chance to put in place new technology across the system. This is something where, on the cost side, we would anticipate seeing progress as soon as next quarter, but certainly into 2027, excuse me, and 2028.
Now, that's a positive offshoot of going through the transaction, but it's not actually the main driver. I think with the combined scale, the combined clarity, the unified organization under a single listing, that company can move and start I use the offense and defense analogy around here a lot. Really go out and start playing offense in a way that has not been the focus over the last seven or eight years between COVID and IFRS 17 and all of the other uncertainty. You look at our combined organization in the Caribbean is going to have a lot more substantial scale. It's going to have pretty positive access to capital. We continue to tell the story up at the SFC level and can gradually get traction with investors.
In the Caribbean, our listed entity trades at a healthy premium to book value because it should, because it has really big market shares, huge moats around the business. We are a top five brand in all of our major markets. I think that company, where we will definitively have a public currency to go out and pursue inorganic growth in addition to organic growth. Then give ourselves the opportunity at the SFC level to decide whether we pursue that, whether we tag along with that with new capital, or simply allow the public company to finance itself. It really brings a lot of optionality to us in terms of ways that we can grow the business in the Caribbean.
Okay. That is a very thoughtful answer. I appreciate that. Thanks for the color.
Thank you. The next question comes from Trevor Reynolds with Acumen Capital. Please go ahead.
Morning, guys. You guys provided some insight into the costs related to integration in the quarter. Just wondering if you have or can give any sense of what that overall cost is going to look like before things close?
I think we're not providing guidance around that. I think, Kathy, you noted that we expect them to continue.
Yeah.
We expect them to continue. There'll be some of these costs. We're hoping that they get adjudged to be non-core so that we can provide visibility to our investors in how the underlying business is going. Then in the quarter that it closes, there are going to be balance sheet adjustments because we're moving a whole bunch of shareholders' equity around. So, we're not providing guidance around it. I can tell you that from a real cash economics point of view, the resources and the money we're putting into this, we see as very high return, high IRR, whatever you want to put into it. So, the accounting world will fall out where it falls out.
Okay, great. Then with shareholder approval now inside Sagicor Jamaica, what are the major hurdles remaining to get this transaction closed?
With shareholder approval, what's left really is the final regulatory approval, and we've been doing engagement with each of our major regulators. That's a process that appropriately takes time. It's not unique to those markets. Trevor, you weren't covering us at the time, I don't think, but it took us 14 months to close our Canadian transaction. So, this isn't unique to the Caribbean. So, there's regulatory approval, and then mechanically, the process is similar in the Canadian context to a scheme of arrangement where you bring it in front of a judge, and they bless it, and it all gets done. So, I think we can do that on a relatively expedited basis once we have shareholder approval.
Then, just because we control the whole thing, we're going to be kind to ourselves and close it on the first day of the quarter so that it's a little easier on the hardworking people in the finance department. So, if that moves into January or February for final approval, we'd probably choose to close on April 1st, which would move it into Q2.
Got it. Then last one, just on the very strong quarter for core earnings in the U.S., but there's been quite a bit of variability quarter to quarter. Is this something that we should be looking at more on an annual basis? Obviously, the mortality impacted earlier in the year, but just trying to get a sense of kind of what the run rate we should be looking for in that U.S. business looks like.
Looking at these businesses on a quarterly basis is probably a little more granular than would be optimal, because the size of the numbers on the balance sheet in terms of the assets and the reserves are so many orders of magnitude bigger than the actual net income at the end of the day. So, there was a little bit of positive kind of updraft in Q3 that was reciprocal of some downdraft in Q2. I think we'd look at it and say, the Q2 run rate was too low, and the Q3 run rate's probably a little bit higher than the true run rate of where we are at right now.
That's helpful. Thanks.
Thank you. There are no further questions at this time. I will now turn the call back to Mr. George Sipsis for closing remarks. Please go ahead.
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.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.