FINSAC Annual Report 2002: Managing Director's Report

Operations Report

contd....
A successful bid would leave two independent dominant full-service traditional insurance companies, which would reduce the administrative cost of the business, but still ensure competition in the sector.

This recommendation was endorsed by the Board of Directors of FINSAC and submitted to Cabinet through the Minister of Finance. Cabinet accepted the FINSAC recommendations and authorised FINSAC to commence negotiations with BMLAS et al with a view to arriving at a binding agreement. These negotiations were concluded on November 15, 2001, with the signing of a sale agreement. The agreement was completed on December 6, 2001.

It was noted above that BMLAS had already invested in the Jamaican life insurance sector. This was through the December 1999 joint recapitalisation exercise with FINSAC of Island Life. In that transaction, BMLAS became the majority shareholder in Island Life, with 64% of the ordinary shares. In the wake of the acquisition of LOJ, there has been a decision by the majority shareholders in both Island Life and LOJ to merge the two companies, during calendar 2002. This initiative will enhance the prospect of FINSAC’s sale of its remaining minority stake in Island Life, and accelerate its complete exit from the financial sector.

While the sale of the interest in LOJ dominated FINSAC’s activities in the insurance sector during fiscal 2002, FINSAC also actively monitored its other major insurance investments in Dyoll Group Limited (owners of Dyoll Insurance Company Limited) and Island Life Insurance Company Limited, both of which continued to produce impressive results during the period. Island Life continued to record profits and strong premium income growth, under the continued leadership of BMLAS; while Dyoll Insurance has continued its accelerated payback of FINSAC’s J$135Million investment, on which the principal amount owing has, as at year end, been reduced to approximately J$52Million. Profitability of the company and its parent, Dyoll Group continued its encouraging trend upwards.

(b) Banking/Other deposit-taking institutions

In commercial banking, FINSAC’s remaining interest at the start of the financial year was in National Commercial Bank Jamaica Limited (NCB), in which it held just over 75% of the ordinary shares through its wholly owned subsidiaries, Atrium Holdings Limited and Atrium XS Holdings Limited. For the period, FINSAC concentrated on marketing its stake in the bank to potential investors. Investment advisors HSBC Investment Bank plc assisted in this process.

During the period, contact was made with AIC Limited (AIC), a Canadian mutual fund management company, whose principal shareholder is a Jamaican who resides in Canada. AIC had previously expressed interest in investing in Jamaica, and had participated unsuccessfully in the bidding for the Eagle Unit Trust in 1999.

Notwithstanding the negative climate, marketing efforts continued, and eventually in October 2001, a new expression of interest was received and negotiations commenced. Eventually, on January 30, 2002, the sale of the portfolio to Jamaican Redevelopment Foundation, Inc. (JRF), a subsidiary of Beal Bank, was announced.

Beal Bank is based in Texas in the United States, where it is one of the largest privately owned financial institutions. It is a wholesale bank, specialising in the secondary market in the United States, where loans and debt securities are bought and sold.

The key points of the transaction were as follows:

1. the portfolio of loans would be acquired by JRF with an initial payment of US$23Million on closing on February 1, 2002.

2. thereafter, FINSAC would become entitled to receive a percentage of all gross collections after closing as follows, subject to the deduction of direct costs:

- 15% of the first US$50Million collected;

- 25% of the next US$50Million collected;

- 35% of the next US$50Million collected;

- 45% of the next US$50Million collected; and

- 50% of all further collections thereafter.

Future payments will be secured by a debenture over all the assets of JRF, in favour of FINSAC.

The collection of the loans will be undertaken by Dennis Joslin Jamaica, Inc., who is a service provider under the overall agreement between the parties. Mr. Dennis Joslin, who is the principal of that company, operates from Tennessee in the United States, and is also substantially involved in the acquisition of loans in the United States.

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