Grupo de Inversiones Suramericana S.A. (Grupo SURA) hereby reports on the progress made to date with the sale of its annuity business in Chile (hereinafter the “Sale”), which is being carried out by its subsidiary SURA Asset Management S.A. (SURA AM), with the companies Bicecorp S.A. and Inversiones BICE Chileconsult S.A. (the Buyers).
As publicly announced on October 30, 2018, the Chilean Financial Market Commission (Comisión del Mercado Financiero de Chile) authorized Seguros de Vida SURA S.A. (SURA Chile), a subsidiary of SURA AM, to proceed with the demerging of its annuities business. Consequently, SURA Chile began to spin off its annuity business, transferring the corresponding assets and liabilities to SURA Seguros de Rentas Vitalicias S.A, a new company which was specifically created for this sole purpose.
Once this demerger is finalized and the corresponding regulatory procedures and authorizations for the Sale are completed and obtained, the ownership interests held in SURA Seguros de Rentas Vitalicias S.A. shall be transferred to the Buyers.
As announced at that time, this Sale forms part of the SURA´s Business Group´s drive to optimize its portfolio and reassign its capital towards its core lines of business. In this regard, SURA AM aims to further its growth strategy by focusing more on its core lines of business in the pension, savings and investment industry. This strategic decision was also based on the following economic, financial and business considerations:
- The value of this Sale comes to approximately to USD 232 million or COP 648,682 million and corresponds to an estimated multiple of 1.36 times its value in local books.
- The total amount invested in the business, including the initial capital and subsequent capitalizations, amounted to USD 145 million (COP 394,411 million), producing an IRR of 15.3% in Chilean pesos and 18.6% in Colombian pesos.
- The share of the now demerged annuity business in the Group´s consolidated ROE is lower than the cost of capital.
Similarly, as stated in the information released when this transaction was first announced, the Sale itself is expected to have an impact from the accounting standpoint once the demerger takes place and the business is duly delivered to the Buyers. This impact, while not entailing any lessening in the stream of cash flows received, shall be produced by the adjustments to be made in standardizing the accounting principles used to locally record equity in Chile and those contained in the International Financial Reporting Standards (IFRS) for consolidation purposes, mainly in the following accounts:
- Investment properties: the values of these items, based on local accounting rules and regulations, are not adjusted based on their acquisition costs, while according to IFRS and based on accounting policy upheld by Grupo SURA for all its companies, these are updated based on their market values.
- Reserves: under local accounting rules and regulations, these are calculated based on regulatory mortality tables that produce higher levels of reserves than those normally calculated under IFRS. The aforementioned accounts are to be standardized using the same mortality table as applicable to all of Grupo SURA’s insurance operations.
Given the headway made so far in obtaining the necessary approvals and authorizations for proceeding with this Sale, and based on the detailed estimations regarding the accounting impact this would have for Grupo SURA (duly adjusted for the amount of stock held) the aforementioned transaction is likely to produce an accounting loss of COP 128,036 million. It is important to point out that this loss shall have no effect on the cash flows produced and this figure could change due to fluctuations with the exchange rate from here until this Sale finally goes through.
For the SURA Business Group, Chile continues to be a key component of its organic growth strategy, which it is pursuing through its subsidiaries SURA AM (pensions, savings and investment) and Suramericana (insurance and trend/risk management).