Sagicor Financial Company Ltd.

Good morning, my name is Anas, and I will be your conference operator today. At this time, I would like to welcome everyone to SAGICOR Financial Company's Second Quarter 2026 Earnings Call. All lines will be 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 chart from keypad. If you would like to answer a dirty question, please press star, then the number two. Thank you. Mr. George Sipsis, EVP Corporate Development and Capital Markets, you may begin your conference.

Thank you, Operator, and good morning, everyone. Thank you for joining us today to discuss Sagicor's second 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 include 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 a Q&A period being reserved for financial research analysts. I would 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 SagCorp's risk factors is provided in our MD&A, which is available on CEDAR Plus and on our website. A 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 U.S. dollars, consistent with our reporting practice. Joining me today 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 to our President and CEO, Andre Mousseau.

Thank you, George. Good morning, everybody. Thank you for joining us. We are pleased to report another solid quarter for Q2 2026. Our core earnings returned to our target levels as insurance experience was broadly in line with our expectations. Our net income was significantly higher than our core earnings as market volatility on asset prices worked in our favor this quarter. We continue to make excellent progress on our strategic initiatives to drive ROE expansion and future growth, which I'll come back to after Kathy goes through a more detailed financial review of Q2. Kathy?

Thank you, Andre, and good morning, everyone. Sajakor's Q2, 2026 Core Earnings to Shareholders, were $34 million compared to $25 million in Q1, 2026. The stronger core earnings in Q2 were primarily driven by improvements in core insurance experience and investment portfolio performance. Net income to shareholders was $87 million, benefiting from favorable interest rate movements in Sagicor Canada and Sagicor Life and strong equity markets impacting our universal life business in Sagicor Canada. During the quarter, Our operating segments generated steady new business production leading to strong new business CSM of $44 million. Annualized core ROE for Q2 was in line with management's expectations at 13.6%. Now I will give you some more details on the segment financials. DigiCorps Canada's new business production of $17 million for the quarter was consistent with management expectations. resulting in new business CSM of $11 million. Core earnings to shareholders of $27 million for the quarter increased 8% year-over-year by higher expected investment earnings. Net income to shareholders of $70 million for the quarter was higher than core earnings to shareholders due to favorable market-related impacts from lower interest rates and strong equity returns. Net CSM in U.S. dollars decreased 2% quarter over quarter to $548 million due to the devaluation of the Canadian dollar, whereas net CSM increased marginally on a constant currency basis. Sagicor Life USA's new business production of $284 million for Q2 was in line with management expectations. Core earnings to shareholders of $6 million for the quarter decreased year over year, and were impacted by core insurance experience losses in the Legacy Life Block compared to core insurance gains in Q2 2025. Net income to shareholders was also $6 million for the quarter as market experience and other non-core net income were approximately neutral. Net CSM increased 1% quarter-over-quarter to $159 million. Sagicor Jamaica maintained strong insurance sales in the quarter supported by significant policy renewals and new business, resulting in net premium growth of 13% year-over-year. Sagicor's share of Sagicor Jamaica's core earnings to shareholders of $10 million for the quarter was driven by higher expected investment earnings from higher interest margins and growth in the commercial banking and investment portfolios. Sagicor's share of Sagicor Jamaica's net income to shareholders was $9 million for the quarter, marginally lower than core earnings to shareholders. Net CSM increased 3% quarter-over-quarter to $308 million, driven by strong new business production, contributing $14 million of new business CSM. Sagicor Life generated $116 million of net premium during the quarter, having maintained strong insurance sales supported by growth in single premium annuities. Core earnings to shareholders were strong at $14 million for the quarter with favorable core insurance experience in both the short-term and long-term businesses. Net income to shareholders of $25 million for the quarter was higher than core earnings to shareholders driven primarily by favorable interest rate-related market movements. Net CSM was $248 million A decrease of 7% quarter-over-quarter with organic growth offset by the impact of reinsurance contract modification. At our head office, other operating companies, and adjustment segment, core costs to shareholders were $22 million for Q2, consistent with the prior quarter, and total reported costs to the shareholders were $23 million for Q2. With these results, Sagicor remained well capitalized in Q2. The group LICAT ratio was 134% and our financial leverage ratio was 27.4%. Our book value per share increased to $7.65 in U.S. dollars or $10.87 Canadian. We took advantage of some softness in our trading price later in Q2 to repurchase half a million shares for just under $3 million U.S. We are also pleased to announce our 27th consecutive quarterly dividend to shareholders since we've been listed on the Toronto Exchange, and third dividend at the higher level of U.S. 7.5 cents per quarter, or 30 cents annualized. On that note, I will hand back to Andre to close our prepared remarks.

Thank you, Kathy. We're pleased to have seen some of the results revert after a slow first quarter, both in terms of insurance experience in aggregate as well as seeing market volatility being favorable, which as much as anything on the interest rate front came from. Thank you very much. in our recent Financial Strengths credit rating upgrade from A and Best to A in that market. Local credit ratings are very important in the U.S. market, and we believe that that upgrade will help open up further distribution opportunities for us as we look to accelerate the growth of that business next year and beyond under its new leadership. Thank you very much. That transformation plan is well underway and tracking to add significant value in years to come. As we make progress towards combining those organizations, we do expect we'll start to see more one-time charges and investments in the third and fourth quarters of this year. Thank you very much. That's right. Operator, please open the line for questions.

Thank you, Mr. Sipsis. Ladies and gentlemen, we now begin the question and answer session. If you'd like to ask a question, please press star, follow up number one on your telephone keypad. If a question has been answered, you would like to withdraw from the queue, please press star, follow up number two. And if you're using a speakerphone, please lift your hands before pressing any keys. One moment, please, while we compile the roster. The first question comes from Gabriel Deschenes with National Bank Equity. Please go ahead.

Hey, good morning.

I have a few questions here. One on the insurance experience, there was some improvements overall, sequentially, after what was on Q1, but the U.S. had a few quarters of negative mortality, I believe. Can you just give a high-level overview of what you're observing in that block? Is it legacy life, annuities, or what?

Yeah, thanks, Gabe. You know, if you look at this quarter versus last quarter, you know, the Q1 was a little bit of, you know, if you flip four coins in a row, one in 16 times, they're always going to come up tails. You can kind of, you can kind of We had negative in the US segment again the significant majority of that experience in that U.S. segment is around the legacy life block of business that we don't write anymore and it's kind of a combination of kind of vintage 2016 through 2020 term business as well as some significantly older blocks and so You really have to get in and parse it on a block-by-block basis, and we're taking a really deep dive into that. And so, as we've talked about on our other calls, we're always looking at our actuarial assumptions. We're taking a very hard look at mortality across the board, including for our US business for Q3. And then maybe that we end up strengthening reserves on that block so that we don't have to be distracted in talking about it every quarter. In aggregate, the annuities business, the business we put on the book in the last five years or so as we've shifted to this strategy is in aggregate more or less in line with the economics and the expectations that we had. You know, you really have to get in and look at it on a business line by business line basis.

And then a reserve adjustment would be CSM reduction, perhaps? Would that be how it would come through?

It's either through CSM or through equity and the way it works is you have to get in on a cohort by cohort basis and so if we knew what the answer was we'd have put it out in Q2 and we're doing the work for the deep dive for Q3 and we're taking a look at that We're taking a look at the balance sheet and aggregate. We're taking a hard look at the Canadian business and with the combination of the Caribbean businesses, we're going to get a chance, whether it's in Q4 of this year, Q1 of next year to completely reset that as a new combined balance sheet. And we're going to take a look at those as well.

Conversely, the annuity's persistency seems to have been quieter of late. So it looks like that's, you know, with last year and I believe the year prior, there was some noise around the lapses, but that seems to have been settled out. Is that a fair statement?

Yeah, so if you look at what we did last year, we said, okay, here's what's happening as the early stages of the cohorts come up for renewal and you would start to see patterns of behavior with a little bit of negative correlation between how they roll over and the size of the policy. And so we went in and tweaked those assumptions. And now what we're seeing on that is and many more. At some point, it becomes diminishing marginal returns where you're actually better off with a new policy because of the way U.S. statutory works and as the interest rate environment has moved.

Yeah, and the annuities sales volumes, is there any connection there that were 15% or so below last year's first half production? Or is it just the rate volatility or market conditions that are causing you to step back a little bit relative to last year?

It's a little bit of all of the above. We're taking a disciplined, long-term approach around, okay, what are the IRRs? What's the ultimate ROE of the marginal dollar that we're building to? And so the environment has gotten... and more and more competitive and for the time being we've stuck and we said we're going to put rate in the right place where we're offering good value to policyholders and we're happy with the returns that we're getting rather than stretching with rate and accepting lower returns and many, many more. and setting higher targets for next year. You see the run rate. We should still be well through that billion-dollar production. This year, if you look at that, where we've been for the first six months, we have a comprehensive plan that has come with upgrading the balance sheet there. You saw that with the announcement with AmBest a few weeks ago and running with the new leadership of that organization to drive that growth next year and beyond because we still see a really significant opportunity to deploy our capital well there.

Okay, and then the last one for me, just the CSM reconciliation. There was a Pretty big decline there, tied to some reinsurance contract modification. Can you shed some light on that, please?

Yeah, you know, I put this under the category of balance sheet cleanup of the Caribbean businesses as we move them towards the combination. And so, you know, these get down into individual matters with individual reinsurers and were kind of making decisions that are the right long-term decisions, you know, for the ROE looking forward.

All right. Thank you.

Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star 1. Your next question comes from Dr. Mihalik with RBC Capital Markets. Please go ahead.

Hi, thank you. Good morning. So we could be looking at potentially some, let's call it noise in the next couple of quarters with respect to investments in the Caribbean, maybe some reserve changes and so on. So maybe you can talk a little bit about what, or maybe it's too early to talk about expectations going into 2027. So my question then is, we have witnessed a lot of volatility in investment results. And, you know, it's not just Sajak or we've seen it across the board. But it does tend to be a bit more volatile for you. So my question is, Andre, have you considered at some point maybe altering the investment strategy a little bit? maybe some curbs or some hedges in place to reduce the volatility. Is that something that's crossed your mind at all? I would respect to how you operate especially considering the inordinate impact it's having on your company versus some of the others that I cover. I'm not saying I've heard this from other insurers but I'm curious if If this is a thought, and it's not necessarily just to remove the volatility, maybe it's just even to remove some of the tails. So I'm very curious on your thought process with respect to your investment program.

Well, thank you, Darko. And it's a really important question. It's a great question. And, you know, the answer, has it occurred to us, is a resounding yes. And, you know, this is something that we discuss as an executive team, and it comes up at the board level, you know. and particularly we're at the board level. We have representatives from our big shareholders who take this volatility themselves. And so I think your observation is correct with respect to IFRS 17 or at least I'd agree with it. With IFRS 17, there's volatility for all life insurers and as we have benchmarked ourselves against the bigger public peers here, Our volatility is more pronounced. Now that is volatility based on our analysis in the statistical use of the word and not a euphemism for bad results because if you look at the aggregate of these, you know, whatever we're up to now, 14 quarters, I guess, under IFRS 17, Our actual return versus reported core is at least as good, if not, and in some cases, better than the returns on that ratio to other public funds. Life Insurance Companies. We have a couple hypotheses on why it's the case that we are more volatile. It's probably a combination of things, but we are more heavily tuned proportionally to old-fashioned balance sheet Life Insurance businesses than the big four Canadians who have, you know, as you know, and you spend lots of time with them, you know, have evolved to have more of their business in, you know, capital light EBITDA type businesses. And, you know, that's what's enabling them to push up ROEs into the 20% range. And so some combination of that and just simply, you know, The economies of scale, the relative size of head office relative to the operating entities. But it's not definitive and we can observe it that we can say, okay, our reported net income tracks over a long period of time to your core in a pretty Thank you very much. Shorten up on your assets back in capital and make your assets back in capital that are not going to move more or less in line with your liabilities if you're getting ALM right. Shorten it up, get less volatility on that, and become more indifferent or less correlated on a quarterly basis. And What that basically means is taking away risk and taking away the tenor premium on your capital and ultimately reducing your net income over a long period of time, whether it's your core net income or the aggregate of the actuals that fall out. We are playing with a North Star here of generating strong long-term return on equity. And so we've made the strategic decision for the time being that we're going to optimize the economics for... How much book value generation can we get over the next two, three, four years and beyond rather than shortening up and feeling it a little bit more comfortable? And so you're accepting that if you get a tougher mark like you did in the fourth or fifth week of March, your book value dips down to $10 a share and then market normalizes and you come back up to $11. But really what we're trying to do is say, okay, as we draw that book value generation out over a long period of time, how do we optimize value for long-term shareholders?

Okay. Thank you for the thoughtful response. And it's an interesting one and one that I have to think about as well because we do see, even amongst just the five Canadian life goals, let's say, we definitely see a difference in positioning and in returns, right? So, and Volatility. So it's all connected. I appreciate the response very much. Thank you.

Thank you. Your next question comes from Trevor Reynolds with Acumen Capital. Please go ahead.

Good morning, guys. I think most of my questions have been answered, but just is there any update on when you expect the Caribbean transaction to to be completed, and maybe just anything you can share on kind of the magnitude of noise that you expect over the coming quarters here and how you guys will kind of guide us to what to expect here over the coming quarters.

Yep. Thanks, Trevor. You know, we're still pushing to get it closed in Q4 if we can, but it may end up going into the first half of next year, you know, because this is Fundamentally, an internal transaction, we can be nice to ourselves, so to speak, and close it on the first day of a quarter, which really, really simplifies things from an accounting point of view. If we're not ready to go September 30th, it moves the transaction into next year. With that, it's hard for us to give specific guidance around the noise and when it shows up because if a lot of the transaction costs and investments that we're making happen in the same quarter that we close, then it all goes into the wash of the closing of the transaction and we're going to have All sorts of significant noise to look through, whereas we are marching full speed ahead with this transformation, irrespective of when it's going to close. And so if it moves into next year, you might start seeing some of these charges. that show up in Q3 and Q4, which are good investments, but I wouldn't want to give guidance on how much because we don't even know yet which ones that they'd be. So I think we're sticking to the story that we told the last couple of calls where we said 2027, once the transaction closes, we see a path to the value of creation. We see the path to being in a 14% ROE target next year and then going to 15% in 2028 as These strategic initiatives really, really kick in and so we're not modifying that and still comfortable with it given even this quarter we're closer to 14 than we are to 13. And so really trying to keep our eye on the ball for the results next year.

In terms of realizing the synergies on that transaction, do you expect to realize that? Maybe just the timing of how you see that playing out?

I think it's going to be a process that builds over a couple of years. Some of the stuff would even start showing up as soon as this year. It'll be tough to parse through because you're spending money on the investments to get them, but we have some quick wins already. and more will come through in in 27 and then a lot of the things that are more around uh you know process re-engineering and and uh consolidating on more modern technology is uh you know realistically goes into 2028 and so you know that's all that's all built into you know pretty are pretty meaningful ROE growth guidance from 27 to 28. Great.

Thanks for taking my questions.

Yeah. Thank you. Thank you, Trevor. There are no further questions on the phone line. I will turn the call back to Mr. George Sipsis for some closing remarks.

Thank you, Operator, and thank you, everyone, for joining the call today. As usual, 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. Have a great day, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.