Mar 2013 Financial News

Guardian has plan to offset NDX impact - Reports 35% rise in profit

Mar 27, 2013

Guardian Holdings Limited (GHL) expects to lose as much as TT$35 million from participation in Jamaica's National Debt Exchange (NDX), but has a strategy to offset J$25 million of those losses.

The Trinidadian financial conglomerate is parent to Kingston-based Guardian Life Limited, and general insurers West Indies Alliance Limited and newly acquired Globe Insurance.

"We have already identified a number of mitigation strategies which we anticipate will reduce the overall impact on our 2013 earnings to around TT$10 million," said GHL in its newly released year-end financial report.

GHL Chief Executive Officer Jeffrey Mack declined to provide details.

"These measures are proprietary in nature and we are not willing to divulge how we will mitigate the NDX impacts," Mack told Wednesday Business.

"We have been operating in a low-interest rate environment now for a number of years, as have, of course, other insurance companies. Our response to this low-interest rate environment, which affects the amount of interest we earn on our investments, has been to focus on increasing our underwriting margins through a combination of cost containment and increasing rates," he said.

Mack said that NDX would force all insurance companies, not just the GHL entities, to increase insurance rates.

"The NDX, in my opinion, will now force other insurance companies to refocus their attention on underwriting margins and, therefore, I believe that the industry as a whole will begin moving towards increasing rates as a means to maintain their bottom line," he said.

In its financial statement, GHL disclosed that under the NDX, it swapped J$31 billion, or roughly US$328 million worth of GOJ bonds held by its subsidiaries.

The NDX programme, overall, swapped about J$860 billion of GOJ debt for bonds of lower coupon rates and longer tenure in February. It is designed to save Jamaica J$17 billion per year in debt-servicing costs to year 2020.

GHL said that while the swap will affect its interest income, the balance sheet impact will not be material. However, one of its subsidiaries, Guardian Life, is reportedly one of eight financial companies being asked to participate in another swap, NDX 2, to cover an estimated shortfall of J$10 billion.

GHL expects at least 20 per cent of its revenue and profits will emanate from its Jamaican business interests this year, coming off an investment totalling US$53 million in Jamaica through its acquisition of Globe and an upgrade to one of its real estate holdings, Beaches Ocho Rios Hotel, which is operated by the Sandals Group.

GREAT PERFORMANCE

The company said all its business segments performed well at financial year ending December 2012 in spite of weak economic conditions.

GHL grew it gross premiums from TT$4 billion to TT$4.4 billion, from which it earned net profit of TT$353 million. Profits rose 35 per cent relative to the TT$261 million earned in 2011.

Its life, health and pensions or LHP segment grew operating profits by 32 per cent to TT$506 million, compared to TT$382 million in 2011; while LHP revenue rose 10 per cent.

However, operating profit in the Caribbean property and casualty or CPC segment fell 12.5 per cent from TT$184 million to TT$161 million in 2012, which GHL attributed to to flood claims in Trinidad, claims in Jamaica from Hurricane Sandy, and poor performance from its branch in Barbados.

The asset management segment showed good results, with operating profits doubling from TT$27 million to TT$58 million. Assets under management grew seven per cent to TT$9.2 billion.

The company also reported a non-cash charge of TT$150 million for Pointe Simon, a property development in Martinique comprising office and retail spaces, condominiums, and a hotel. Construction is scheduled for completion this year, and GHL said it will begin its commercialisation phase, and anticipates cash proceeds flowing fully back to the group.

The insurance conglomerate remains open to new purchases in its continued push for growth.

GHL's acquisitions last year included a US$38-million deal with Lascelles deMercado for Globe Insurance; and Royal and Sun Alliance (Antilles) NV, a general insurance company operating across the Dutch Caribbean, acquired through subsidiary Fatum Holding NV.

"They are very digestible-sized acquisitions, which should all be fully integrated by the end of this year," said Mack.

"We still plan to grow by acquisition and we still have the capacity to do so. We continue to be on the lookout for good opportunities while still focusing on our organic growth and profitability," said Mack.


Source:
Sabrina Gordon, Business Reporter
sabrina.gordon@gleanerjm.com
Jamaica Gleaner
Wednesday March 27, 2013

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