Sagicor as market disrupter

Peter Melhado’s board-level association with Sagicor dates back 15 years, time in which he has become well acquainted with the business of the financial services conglomerate, particularly on the investment and commercial banking sides.

It’s that longevity, he believes, which landed him in the chairman’s seat at Sagicor Group Jamaica Limited three months as successor to Richard Byles, who was offered the job of governor of the Bank of Jamaica.

Himself an investment banker, Melhado ran the former Manufacturers Merchant Bank – which was owned jointly by his father O.K. Melhado and Cliff Cameron – but left that business, later renamed Manufacturers Sigma, when it was sold to Pan Caribbean in 2004 and the Melhados’ interest acquired by PanJam, a large owner of Sagicor stock. He was asked to continue serving as a director of the financial services group.

Now in the top seat at Sagicor Group, and with a regular nine-five job as CEO of diversified investments company, ICD Group, Melhado has had to shed some of the 20-plus boards on which he served – many as chairman – up to July this year.

He retains directorship of a bevy of boards related to ICD, has kept his chairmanship of the American International School of Kingston, his long-standing board leadership at Industrial Chemical Company Limited, and also inherited from Byles, the chairmanship of beermaker Red Stripe Jamaica, where he has served as a director for some time.

At Sagicor, which generated its best-ever profit of $13.88 billion last year and seems set on besting that record this period, Melhado is gung-ho about a range of new financial instruments being offered to the investing market, including small and first-time buyers of stocks, and promising more derivative-type products such as the index funds recently created by Sagicor Investments Jamaica Limited, SIJL.

“In investment banking, there has been a fair amount of innovation from us. We want to be at the forefront of those derivative-type products,” Melhado says. “We are going to be pretty relentless creating those types of funds for people to access the market.”

Melhado gave up the chairmanship of Sagicor Investments when he became chairman of the group. But that had to do with a declared conflict regarding his involvement in ICD’s general insurance business, British Caribbean Insurance Company and Sagicor’s latest acquisition, Advantage General Insurance Company.

“We kind of have this Chinese wall between SIJL and myself ,where the only information that I know is what is already public information, because it’s a regulated entity. That was the only material conflict,” Melhado said of the arms-length relationship created to mitigate that situation.

As chairman of Sagicor Group, whose flagship business is life insurance, Melhado says his mission is to sharpen the agility of the already-successful group and create a market-challenger culture inside the organisation so that corporate complacency never sets in.

“What I have really sought to bring to table is the champion/challenger model. What I tell the team is to always think like the challenger. To always be on the lookout for opportunities. To think like a hungry, aggressive start-up, even though we are an established entity.”

The Sagicor chairman wants to cement the group’s position as the customers’ go-to entity for the full range of financial needs. This is described in its marketing speak as the “one Sagicor” mission.

To achieve this, the group is tracking changing consumer patterns to be more agile in the insurance segment, where it is a dominant player.

In commercial banking, where Sagicor Bank lags behind the big banks in customer base, assets and profits, Sagicor is focused on service in niche areas, like serving small and medium enterprises and providing more services to the unbanked. The low interest rate environment, Melhado says, is good for the economy and creates opportunities for Sagicor.

The one-stop shop mantra, taken to its logical conclusion, means Sagicor should be looking to become a player in areas of the financial services market where it does not now operate.

Something in the pipeline

Asked what new financial segments the group was contemplating, Melhado signalled that there was something in the pipeline.

“There’s probably a little bit more to come in that area,” he said, with a characteristically hearty laugh.

As head of ICD, Melhado is involved in running several tech companies in which the group has invested. Where applicable, he is keen on bringing this expertise to help sharpen Sagicor’s outreach to younger clients.

“But I think it’s a very symbiotic relationship; the Sagicor team is also doing their own thinking,” he said.

At ICD, Melhado is also heavily involved in business in Spanish-speaking South and Central America. A Costa Rica-based joint venture in which Sagicor is involved, has not been producing stellar results, although the group chairman thinks the overseas insurance businesses in Costa Rica and the Cayman Islands remain solid investments.

“We have quite a lot of capital that we have allocated to the (Cayman) venture. You can expect a bit more from us there. We are going to be more aggressive at that level,” he said.

For Costa Rica, the benefit is being interpreted in the lessons learnt about the Latin American market.

“Our partners there have been very innovative and we have learnt a lot. Financially, it hasn’t given us the returns that we were hoping for. If we were to deepen our involvement in Latin America, we would have definitely learnt the rhythm and cadence of those markets,” said Melhado.

But he was not definitive on whether Sagicor would, in fact, be deepening its involvement there. “We will see how it goes,” he said.

Another financial disappointment for Sagicor, at least in the short term, has been the pooling of its tourism assets with Playa Resorts, which is heavy involved in tourism in Mexico and the Dominican Republic.

In both markets, jitters over violence and a series of tourist deaths DomRep contributed to Playa’s stock price losing value. Melhado accepts the challenges faced by Playa in the short term but is sanguine the investment will rebound and prove profitable over the long run.

“Playa, for us, is definitely a long-term investment. They have been at the bottom end of some strong market forces … Jamaica has been their star performer, which is great,” he said.

“We really look at those investments in five- to 10-year increments. There is a strong team, a great collection of hotels, strong relationship with Hilton and Hyatt. Airlift from the eastern seaboard is great, the service culture is phenomenal, (and) there is price competitiveness of the product,” added Melhado, who replaced Byles on Playa’s board.

“The markets will come around. We are patient investors and we have great faith in the management team,” he said.

huntley.medley@gleanerjm.com

CORRECTION: This story has been updated to reflect that Sagicor Group made record profit of $13.88 billion last year and not $13.88 million.