Dodridge Miller, chairman (left) and Richard Byles, president/CEO

A decade ago, in the midst of Jamaica's financial sector melt-down, Life of Jamaica, like the rest of Jamaica's insurance industry, was staggering on the ropes, in danger of being counted out for good.

It too had a mountain of assets, acquired with high-cost funds, whose values had slumped.

Faced with a liquidity crisis, LOJ was one of the several banks and insurance companies taken over by the government and placed on life support. None of the insurance companies emerged quite as they went in, having been carved and packaged and made ready for bidders. Only LOJ, though, came out as a recognisable entity, its name intact.

It, however, was ultimately acquired by the Barbados-based Sagicor Financial Corporation, formerly Barbados Mutual Life. That was in 2001.

Rebranded

Three months ago, Life of Jamaica was rebranded as Sagicor Life Jamaica (SLJ), adopting, like its previously fallen peers, the name of its parent. But 10 years on, led by chief executive Richard Byles, this is a company in robust health and based, on its performance in the StockTrack survey, the top performer among the three tightly matched insurance companies listed on the Kingston market, including its parent, Sagicor Financial.

Moreover, Byles who became SLJ boss when First Life Insurance Group, a Pan Jamaican Investment subsidiary was sold to LOJ earlier this decade, seems intent on using SLJ's strong fundamentals and leverage in the market to push for growth, including by acquisition.

Not long after its rebranding, for instance, SLJ announced that it would acquire the group health insurance portfolio of Blue Cross Jamaica, a deal that could bring an estimated $2.6 billion in premium income to Sagicor Jamaica's books. Both sides declined to say how much SLJ would pay for the acquisition.

Due diligence

"We have signed an agreement," Sagicor Jamaica president Richard Byles said at the time. "It is subject to regulatory approval and we have to do our due diligence."

Across the 10 key variables tested for this analysis, SLJ outperformed its peers in five and did creditably in most of the others. Based on its scores across the categories, SLJ accumulated 192 points, two points ahead Guardian Holdings, and four more than its parent, Sagicor Financial Corporation.

Sagicor Life, which reported net premium income of $11.8 billion for the past four quarters to June 2008 , had a 48% net benefit to net premium ratio, the lowest in the sector, that is, SLJ paid out less of the premium it collected as benefits to policyholders than either Guardian Holdings (74%) or Sagicor Financial Corporation.

The upshot is that a greater portion (18 per cent) of SLJ revenue flowed to the company's bottom line, better than either Guardian (12 per cent) or Sagicor Financial Corporation (11 per cent). The ratios for the latter companies, however, represent the consolidated performance of all their subsidiaries.

Indeed, Sagicor Jamaica and its 53 per cent majority owned brokerage Pan Caribbean Financial Services, contributes just under 40 per cent of Sagicor group revenues and about 45 per cent of operating profit.

Superior value

Sagicor Jamaica also provides superior value for all its shareholders, with a dividend payout of 69 per cent, and it had the highest price to book value ratio of 1.45 in the insurance sector. It was also the least leveraged in the sector, with total liabilities amount to 400% of capital, compared 534% for the next best performer, Guardian Holdings.

This performance was on the back of consolidated revenues of $9.2 billion for the first half of 2008, a 13 per cent increase compared to the corresponding period in 2007. Profit attributable to stockholders was $1.5 billion or 40 cents per share, a 22 per cent growth on the 2007 period. This performance reflected continued strong business growth, lower insurance costs, higher investment income and a larger share of earnings from its Cayman Islands subsidiary, Sagicor General Cayman, in which its stake increased to 75.2 per cent from the previous 51 per cent.

However, benefits to policyholders and beneficiaries increased by 18 per cent, against the same period in 2007, while inflation helped to drive up the company's expenses to 25 per cent of revenue, compared to 24 per cent for the corresponding period last year.

Sector Analysis - Insurance Services

According to the Planning Institute of Jamaica (PIOJ), the growth in the insurance sector last year reflected improvement in both the general and fife insurance segments.

For 2007, net premium income in the general insurance industry rose by 31 per cent to $11.3 billion.

This influenced a 53.3 per cent increase in net profits to $1.7 billion.

Meanwhile, the total number of policies sold in the life insurance industry, where Sagicor Life Jamaica dominates, was 120,261 - an 8.3 per cent increase over 2006.

Net premium income from life insurance contracts increased by 2.4 per cent to $17.3 billion consistent with the growth in membership.

Record growth

For the September quarter, PIOJ is projecting that the financial services sector, under which insurance is captured, will record growth in the 1.4 per cent to 1.8 per cent range.

This is predicated on increased volumes of activity. However, growth in the sector could be limited by the anticipated slowdown in economic activity and reduced consumer spending due to higher levels of inflation.

In April, the insurance industry in Jamaica launched a new umbrella group, the Insurance Association of Jamaica (IAJ) - the result of the merger between the former Jamaica Association of General Insurance Companies (JAGIC) and the Life Insurance Companies Association of Jamaica (LICA).

The IAJ's main objective is to provide stakeholders with united and proactive representation on issues affecting the industry.

The association offers two potential benefits for customers. Firstly, it will establish a dispute resolution mechanism that will deal with customer concerns that cannot be resolved at the company level. Secondly, the IAJ will promotes adherence to actuarial and accounting standards among its members as well as the timely dissemination of industry information.

Pan Caribbean's outlook for Sagicor Jamaica

Over the short-term, inflationary pressures will continue to adversely impact SLJ's operations. However, it is anticipated that the acquisition of Blue Cross of Jamaica's health portfolio will boost revenues. Accordingly, PCFS is projecting SLJ's profits will remain flat at 86 cents pr share for the next 12 months. In this regard, PCFS has placed a HOLD recommendation on this stock.