Keith Collister, Gleaner Writer
BYLES - file
Jamaica's leading life insurance company, Life of Jamaica (LoJ), reported six-month net profits of $1.17 billion, significantly lower than the comparative period in 2005 for which its earnings were restated at $1.52 billion.
The insurance company's June quarter profits came in at $664 million to better its April quarter performance of $511 million.
LOJ president Richard Byles said he expected further improvements in the coming quarters.
Though profits were about 22.6 per cent down for the six months, compared to last year, the figures were eight per cent above 'normal' earnings of $1.09 billion, with normal being defined as excluding a one-time gain of $430 million from the sale of over 197 million shares in its subsidiary Pan Caribbean Financial Services (PCFS) to LoJ's ultimate parent Sagicor.
Shares from First Life
These shares had been acquired by LoJ from the former First Life, along with the purchase of First Life's Employee Benefit and individual life portfolio.
The sale was effected April 1, 2005, but was only booked as part of the audited full financial year under international financial reporting standards.
LoJ's investment policy is not to take unrealised investment gains and losses into their profit and loss statement.
The insurance company's six-month revenues of $7.16 billion were 29 per cent above the comparable period in 2005.
However, much of this large increase reflects the fact that the 2005 period includes only three months of the acquired First Life insurance business, and none of the revenue from the Cayman General Insurance (CGI) company, which was acquired afterwards in December 2005.
In contrast, the 2006 numbers include six months of operations of both First Life and CGI.
'Normal' earnings growth
On a comparable basis, excluding the acquisitions, organic revenue growth of eight per cent was in line with 'normal' earnings growth for the period.
Earned premiums from the employee benefits services grew 10 per cent and by 20 per cent for the individual life division.
However, investment income grew by only four per cent due to lower interest rates, a retreating stock market and the deployment of cash - an investment of approximately $500 million not currently earning interest - in the Winchester real estate project.
Some 95 per cent of the Winchester housing units have already been sold.
"Companies like insurance companies have had a subsidy handed to them over many years from the previously high interest rates, and need to become used to an environment of lower interest rates," said Byles.
Nevertheless, the strong performance of LoJ's underwriting profit (excluding investment income), driven primarily by the performance of its individual life segment, shows, according to Byles, that the recent acquisitions were good strategic investments, in his view.
"LoJ's employee benefits and individual life business are the best in the industry," he said.
"This is partly due to the size of the business, and partly due to the expertise LoJ has developed over its years in operation."
The prospect of further cost savings and synergies from its recent insurance acquisitions, as well as a better second half performance from its Pan Caribbean subsidiary, should allow 'core' or 'normal' earnings to end the year just a bit below last year's earnings (inclusive of the exceptional item of $430 million).
Combined with the capital gain from the Winchester real estate development, which is expected to be completed by the end of the third quarter, this should allow net earnings attributable to shareholders for the full 2006 calendar year to exceed the $2.42 billion recorded in 2005.
Despite LoJ's improving underlying performance, half-year earnings per share fell to 32 cents compared to 48 cents (35 cents before the unusual gain).
The lower earnings per share from normal operations is a consequence of the weighted average number of shares in issue during the current period being about 19 per cent more than those outstanding during the corresponding period of 2005.
This is because the acquisition of the First Life business lines, and PCFS shares owned by First Life, in the second quarter of 2005 was equity financed through increasing LoJ's share capital by 1.156 million LoJ shares, of which 236.8 million were subsequently acquired by Sagicor, leaving what is now called First Jamaica holding a very significant 24.73 per cent of LOJ's equity capital.
