The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Family Guardian’s president yesterday hailed the offloading of its under-performing pensions and capital markets business to Leno Corporate Services as a “win-win” for all parties.

Glen Ritchie told Tribune Business that the sale of its FG Financial, FG Capital Markets and FG Financial Fund Ltd subsidiaries to a competitor will eliminate a frequent drag on the BISX-listed insurer’s profitability and shareholder earnings.

Revealing that its 12-year long venture into the pension, investments and capital markets business had failed to generate the expected returns, Mr Ritchie said the decision to exit will enable Family Guardian to get back to its roots and focus on its core life, health and general insurance segments.

The Family Guardian chief, declining to reveal the purchase price paid by Leno, would only say that it was “mutually beneficial” to all sides as it allows the latter to significantly expand its client base and assets under management in a sector where scale is key. And he added that the deal will not result in any job losses at either party.

“This allows is to focus on our core insurance business, not only life and health insurance but our general insurance, which is taking off and moving in the right direction,” Mr Ritchie said of the Leno transaction. “Throughout the years, if you look at Family Guardian’s profits, the parent company’s [FamGuard] have been a little less than the insurance company’s...

“They [the three units being sold] haven’t been bringing us the returns we expected and that contributed to this decision. It’s not our core business, it’s not produced the returns we wanted it to produce, and the board took a serious step to go in this direction.”

While FamGuard’s financial statements for the 2018 full-year have yet to be released, those for 2017 and 2016 illustrate Mr Ritchie’s point and the rationale for selling its three former affiliates.

In particular, the pensions, investment and mutual fund business produced a combined $2.207m net loss in 2016, with total income of $2.584m dwarfed by $4.791m in expenses. This slashed the $8.5m-plus net profit produced by Family Guardian’s life and health insurance segments by more than 25 percent, dropping FamGuard’s overall bottom line to just $6.311m.

And for 2017, while much improved, the capital markets and pensions business contributed just $425,000 to FamGuard’s total profitability on total income of $2.825m. Expenses had been cut by almost 50 percent year-over-year to $2.4m.

Total assets for the three business units stood at $57.003m at year-end 2017, with liabilities of $4.127m giving them just under $53m in net assets that will now be transferred to Leno in a deal that is due to close by June 1 this year. Mr Ritchie yesterday said there had been little change in assets since then because “the business has not grown much”.

He revealed that FamGuard’s board of directors had begun to look seriously at selling the three subsidiaries during the 2018 second half, with the disposal effort and serious talks with interested parties starting earlier this year.

“Throughout the years you look at the returns from this, look at what our focus is, what our strategic vision is, and it came down to the last half, last quarter of 2018 when the Board really took a stand of let’s analyse this, see what direction we’re going in, and in the early part of this year we pulled the trigger and started discussion in earnest,” Mr Ritchie told Tribune Business.

Asked how much Leno had paid for the business, he declined to comment beyond saying “it’s mutually beneficial” and both himself and the Board were “very pleased with what we got as proceeds for this transaction”.

“From our side it’s a win-win, from Leno’s side it’s a win-win with the increase in scale that they’re getting, and from the staff side it’s a win-win,” Mr Ritchie added. “It’s not our core business, the business is not growing much, and Leno has a greater amount of assets under management.

“This is a scale business. For Leno it helps out with their scale as volume triggers profit in this kind of business.” Mr Ritchie confirmed three senior staff members: Andre White, assistant vice-president; Sherell Conliffe, senior manager; and Kerah Farquharson, assistant manager would move with the sold units to join Leno.

“All wealth management staff will transition,” he added. “There are absolutely no redundancies, no job losses. That’s the beauty of this transaction and why it’s mutually beneficial to all parties. Leno’s core business is wealth management, and the expertise of those three individuals is in that same field.”

Mr Ritchie said Family Guardian had launched the businesses it is now exiting in 2007 to provide value-added offerings to its insurance clients, and give them access to investment and capital markets products such as pensions, brokerage services and mutual funds.

FamGuard, the group’s parent, was shown to own 100 percent of both FG Financial and FG Capital Markets by its 2017 financial statements. FG Financial Fund Ltd is a segregated accounts company (SAC) that acts as an umbrella entity, or holding company, for the group’s four-strong mutual fund family. FamGuard’s equity interests in these funds ranged from 15 percent to 92 percent.

Sean Longley, Leno’s founder and president, did not return Tribune Business’s calls seeking comment on his company’s perspective on the deal before press time. However, a notice issued by Family Guardian to impacted clients on Friday, April 5, revealed that Leno has more than $100m in assets under management - although it is not clear whether this figure refers to the total before or after the deal closes.

“On or before June 1, 2019, all individual and group pension accounts, mutual fund accounts, and brokerage accounts will transfer to Leno, who will ensure continued service to all of our clients,” said the note, which was signed by Ramon Curtis, Family Guardian’s vice-president of finance and investments.

Regulatory approvals for the transaction likely still have to be obtained. Leno is a relatively young, upstart player in the Bahamian capital markets space having been founded in 2010 by Mr Longley and other Bahamian financial services professionals who split from Colina Financial Advisors (CFAL).

Reaction from Bahamian capital markets competitors acknowledged that the deal made sense for both Family Guardian and Leno, although some suggested that the level of disclosure and lack of concrete details was not in keeping with the former’s status as a publicly-traded company.

“After 10 years they’ve ended up admitting defeat,” one source, speaking on condition of anonymity, about Family Guardian. They suggested that the BISX-listed insurer’s move into investments and capital markets was driven by former president, Patricia Hermanns, who left in 2013, and remaining senior management “never got involved with it”.

“When Glen moved there his role was to look at their business and see what made sense. A year later he seems to have decided this does not fit long-term into their business model. I’m sure it’s a reasonable book of business; not a large book of business, but it probably doubles Leno’s size.

“It will help create scale for Leno and creates a larger competitor in the market in that same capital market space. Strategically it’s a good move for Leno.”

The source questioned, though, whether all former Family Guardian clients would make the transition to Leno when the deal closed. “It’s not been overwhelming, but we’ve already had people calling us asking if we can take on their business,” they added.