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Sura Asset Management Headquarters in Santiago,Chile Sura Asset Management Headquarters in Santiago,Chile Source: Grupo Sura

Sura Posts US$19 Million 1Q 2020 Net Loss on Money-Losing Investments; Potential Covid-19 Insurance-Cost Crunch This Year

Published in Companies Written by  May 15 2020 font size decrease font size increase font size 0
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Medellin-based insurance and investment giant Grupo Sura revealed in a May 15 filing with Colombia’s Superfinanciera oversight agency that it suffered a COP$75.9 billion (US$19 million) net loss for first quarter (1Q) 2020, down from a COP$560 billion (US$143 million) net profit in 1Q 2019.

The company cited a “challenging environment that has forced companies to adapt many of their operating models to be able to continue serving their customers and fulfilling their goal of creating added value” in the face of the Coronavirus crisis.

Operating earnings fell 71% year-on-year, to COP$244 billion (US$62 million), mainly due to “lower investment income as a result of a widespread depreciation of financial assets on a global level, which had a greater impact on the income obtained from the legal reserves of our pension fund management firms” as well as “lower revenues obtained via the equity method from [part-owned] Bancolombia mainly due to higher provisions, as well as from [retirement-fund specialist] Proteccion given lower returns obtained from its legal reserves,” according to the company.

These negative factors undercut “sustained growth in operating income from insurance premiums, health care services and asset management fees and commissions,” according to Sura.

The company’s financial-segment losses hit COP$324 billion (US$82.8 million) -- down 161% year-on-year – “mainly due to the accounting effect of the depreciation of the Colombian peso on the exchange difference, related to the unhedged portion of the dollar-denominated debt maturing in 2026,” according to Sura.

“All of this produced a net loss of COP$75.9 billion (US$19 million), which is mainly due to the aforementioned negative effects that do not constitute any cash outflow,” the company added.

“The negative effect of exchange-rate differences and hedging appraisals [are tied to] the depreciation of the exchange rate during the first quarter of this year. The company has hedged its U.S. dollar-denominated debt, but a portion of the principal due in 2026 still shows a total exposure to the dollar."

The “Suramericana” insurance division posted a 14.6% gain in premiums -- mainly in life, property, casualty and health insurance -- to COP$4.3 trillion (US$1.1 billion). But net income nevertheless fell 9.89% year-on-year, to COP$106.7 billion (US$27 million).

“In spite of a positive level of operating performance, net income was affected by a decline with investment income, mainly due to the loss of marked-to-market investment portfolios in some geographies,” the company added.

The “Sura Asset Management” investment division posted a net loss of COP$129.8 billion (US$33 million), mainly because of loss-making performance of the company’s legal reserves “as well as revenues obtained from [retirement-fund specialist] Proteccion via equity method, all of which produced a negative contribution given lower returns from the aforementioned portfolios,” according to the company.

“These losses mainly correspond to the negative returns posted on the pension funds' own investment portfolios (legal reserves) which were negatively impacted by losses in value with the large majority of financial assets on a global level, which nevertheless managed to partially recover in April and May,” according to Sura.

Results also were hurt by a drop in investment income “given falling prices of fixed-income securities in Argentina” as well as a “26.1% drop in retained premiums in Chile” and “increased administrative expense on the part of our Uruguayan subsidiary.”

Sura’s health care segment showed a drop in net income “mainly due to the IPS [Colombia hospital and clinic] and diagnostic-aid providers, since these health care subsidiaries invested in expanding their capacities for providing the support and services required in preparation for the Covid-19 crisis,” according to the company.

“This entailed increasing the number of health professionals, which today number approximately 10,000, as well as deploying the required technology for providing on-line attention as well as defraying the cost of [Coronavirus] sample taking.”

On the other hand, Sura’s EPS health-insurance network in Colombia “performed much better than in 1Q 2019, thereby confirming the current trend toward obtaining better results during the second half of 2019 and first quarter of 2020," according to the company.

“At the end of 1Q 2020, the technical results posted by Suramericana did not present any significant impact due to the Covid-19 pandemic, since the infection curve, as well as the corresponding government actions and the measures taken by the company in the different countries where present, were still at a very early stage,” according to Sura.

“At this juncture, and given the situation that Covid-19 poses for our different businesses, the estimates drawn up by the company show that corresponding impacts shall place pressure on sustaining our operating results in the short term, particularly with regard to the life and health care insurance segments as a result of the increase in claims that this pandemic represents, as well as the non-life insurance segment, given the economic and social consequences that the current lockdown measures may cause mainly in 2020,” the company cautioned.

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