Alignvest Acquisition II Corp
TSX:SFC
Earnings Call Analysis
Q4-2023 Analysis
Alignvest Acquisition II Corp
The company has set clear financial targets for the coming years, projecting a core net income for shareholders between $90 million and $105 million in 2024, distributed across various segments including Sagicor Canada, Sagicor USA, Sagicor Jamaica, and SLI, alongside expected head office costs. This guidance is foundational for investor expectations, though it's emphasized that the actual net income may fluctuate due to inherent volatility in financial reporting under current accounting standards.
Looking further ahead to 2025, the company aims for over 10% growth in core net income, building on the 2024 projections. Moreover, they have set an ambitious target to achieve a core return on shareholders' equity of more than 13% over the medium term. These growth targets reflect the company's strategic commitment to enhancing shareholder value.
For dividend-seeking investors, the announcement of an increased quarterly dividend to $0.06, amounting to an annualized dividend of $0.24 per share, signals the company's confidence in its ability to generate enduring returns. Furthermore, the dividend payout guidance suggests potential future increases aligned with the expansion of return on equity, underpinning a promising outlook for continuous shareholder remuneration.
In light of the company's stock being traded at approximately 20% to 25% below its book value, and over 60% below its book value plus embedded future profits, management sees share repurchases as an attractive means to utilize capital. This decision demonstrates a proactive approach to enhancing shareholder value, exploiting the current market undervaluation.
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Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sagicor Financial Company's Fourth Quarter and Full Year 2023 Earnings Call. [Operator Instructions]. Thank you, Mr. George Sipsis, EVP, Corporate Development and Capital Markets. You may begin your conference.
Great. Thank you, operator, and hello, everyone, and thank you for joining us today to discuss Sagicor's Fourth Quarter and Full Year 2023 Results. Our documents and results are available under the Investor Relations tab on our website at sagicor.com, which includes the financial statements, the MD&A, our annual information form, along with the press release and the link to our live webcast. This conference call is open to the financial community, investors, the media and the public with a reminder that the Q&A period is reserved for the financial research analysts. I will begin by referring you to the cautionary language and disclaimers in our materials and public filings regarding the use of forward-looking statements and the use of non-IFRS financial measures and ratios, which may be mentioned as part of our remarks today. I would also like to remind the audience that the actual results regarding forward-looking information could differ materially.
And please note that a detailed discussion of Sagicor's risk factors is provided in our MD&A which [indiscernible]. A discussion of our assumptions underlying our expectations is provided in our filings and earnings release.
On October 3, 2023, as previously announced, Sagicor completed the acquisition of ivari. Sagicor's results for the 3 months and full year 2023 periods reflect contributions from ivari from the date of acquisition under the newly established Sagicor Canada reporting segment.
Unless otherwise noted, all dollar amounts referenced will be in U.S. dollars, consistent with our reporting practice. Joining me today is our President and CEO, Andre Mousseau; our Chief Financial Officer, Kathy Jenkins; and Anthony Chandler, our Chief Controller. We'll begin with prepared remarks by Andre and Kathy, followed by a Q&A session. With that, I'll pass the call to our President and CEO, Andre Mousseau.
Thank you, George, and good morning, everyone. Thank you for taking the time to join us today. 2023 was a monumental year for Sagicor and this release of our audited financials allows us to put a fine point on that. We had many non-strictly financial achievements, including further strengthening our management team recapturing our investment-grade credit status, bringing on a new operating unit and successfully transitioning to IFRS 17 across 4 different operating segments in 20 different countries. To all of the Sagicor team members, new and old from the Caribbean to North America, I thank and congratulate you on your part in such a sensational year. And our financial results reflect that. In 2023, we roughly doubled our asset base and our shareholders' equity without raising $1 of new equity. In fact, while returning over $40 million to our shareholders in dividends and highly accretive share buybacks. We reduced our leverage as a proportion of our capital base and once again achieved investment-grade status for our credit reflecting our improved asset mix and capital position. And most importantly, we laid the groundwork for stability and future growth, which I'll come back to towards the end of the call.
Before that, I'll hand over to our CFO, Kathy Jenkins, to walk through our results and guidance.
Thank you, Andre, and hello, everyone. As Andre mentioned, this has been an exceptional year with a number of significant accomplishments over the past 12 months and record results. For 2023, net income to shareholders was $532 million. This includes the $448 million gain on the acquisition of ivari as well as $15 million of related transaction costs. Since we last met, we worked to integrate ivari into our operations, and this has progressed well over the last few months.
You have seen that the acquisition has led to the creation of a new business segment Sagicor Canada within our financial reporting and they've made a significant contribution to our strong results this quarter, both as a result of the $448 million bargain purchase gain as well as the robust results in Q4.
Beyond their impact on our 2023 income statement, they contributed net CSM to shareholders of $559 million at acquisition that will be recognized into income in future years. Besides the gain on acquisition, our fourth quarter was driven by positive results from our Sagicor Canada segment and Sagicor Jamaica, partially offset by an impairment at Sagicor Life and strengthening of actuarial reserves at Sagicor Life and Sagicor USA.
Revenues of $2.5 billion in 2023 were driven by strong contributions across all segments, particularly Sagicor Canada that accounted for almost $1 billion of the total. Strong growth in insurance revenue across segments was further bolstered by positive market experience. The continued solid growth in new business production this year positions us well for the future.
Now let me provide more details on the results of each of our business segments. Sagicor Canada posted net income to shareholders of $122 million for the quarter. Solid ongoing production in Universal Life and excellent investment experience, reflecting the decrease in risk-free rate since Q3 2023 contributed to the strong results in the quarter.
Sagicor Canada has an idiosyncratic dynamic, which causes its net income to be positively correlated to asset prices, that is negatively correlated to interest rates. Due to certain liabilities being held to maturity and therefore, not revalued. As interest rates declined in Q4, we saw some gain from that. Sagicor Canada also has a positive exposure to equity markets and benefited from that in Q4 as well.
New business CSM was $7 million in Q4, excluding the CSM acquired at acquisition. Sagicor Life USA generated $167 million of new business production in the fourth quarter, resulting in $862 million of new business production for the year, slightly above its annual production target. You recall that we deliberately slowed production in 2023 relative to 2022 to conserve capital and liquidity ahead of closing the ivari acquisition.
Net income to shareholders was $41 million for 2023, including a loss in the fourth quarter of $23 million, primarily due to actuarial assumption changes that offset actuarial refinements from earlier in 2023 and had the effect of moving some income recognized earlier out of the income statement and into CSM.
As a result, CSM grew 14% quarter-over-quarter to $203 million. Sagicor Life, our operating segment in the Southern Caribbean posted net loss to shareholders in the quarter of $31 million, driven by goodwill impairments of $29 million, as mentioned previously, and a strengthening of actuarial reserves of $17 million. These offset the increased insurance revenue from the growth in the individual life and annuities lines of business.
Goodwill impaired related to Sagicor's acquisition of Life of Barbados, over 20 years ago, and a decision was made to remove these from the balance sheet. The strengthening of actuarial reserves resulted from studies showing underperformance relative to assumptions coming out of COVID. We believe these strengthened reserves, combined with a lower equity base from eliminating goodwill will position Sagicor Life better to deliver strong returns on equity in the future.
Total net CSM decreased quarter-over-quarter, with new business sales more than offset by amortization of CSM into profit and changes in estimates that adjusted the CSM. However, on a full year basis, SLI's CSM increased 5% over the prior year. Sagicor's share of Sagicor Jamaica's net income to shareholders in 2023 was $50 million, significantly higher than the prior year, driven by positive market experience and higher insurance revenues. Our share of Sagicor Jamaica's net income was $17 million in the quarter. Its life insurance subsidiary had strong performance in both long and short-term products, largely as a result of increased premiums. This was reflected in the year-over-year increase in insurance revenue. Profits improved in the commercial banking business with greater volume on its card payments portfolios and growth in net interest income but remain muted in its investment banking business.
Total net CSM grew $8 million quarter-over-quarter with a 16% increase in new business CSM compared to Q4 of the previous year. Going back to the consolidated picture. As Andre mentioned, we have significantly enhanced our capital position. During Q4, Sagicor increased its shareholders' equity by 119% quarter-over-quarter to $971 million, driven by the bargain purchase gain on the ivari acquisition. Net CSM to shareholders increased 103% quarter-over-quarter to $1.135 billion with the addition of Ivari's net CSM to shareholders, as mentioned earlier.
Our debt-to-capital ratio improved significantly quarter-over-quarter to 26.6%. Our life insurance businesses remain well capitalized with our consolidated MCCSR ratio at 301%. As we continue to enhance our reporting and as we committed to you when we last met, we are disclosing our consolidated total LICAT ratio for the first time this quarter, which is 136%. Since the start of Q4, our finance team was focused on the integration of ivari into our reporting processes and systems and providing the additional disclosure required as part of our first year-end reporting under IFRS 17.
As we spoke about previously, we are committed to providing a supplemental information package in 2024, which will provide greater visibility into our financial performance each quarter. This will include a drivers of earnings analysis, and we will adopt a final non-IFRS core earnings measure on a segment-by-segment basis. At this time, our segment quarterly core earnings analysis is still in draft form and will be disclosed publicly when we're satisfied with its analysis.
I would now like to comment on the update to our previous guidance on key measures. We expect core net income to shareholders for 2024 to be between $90 million to $105 million. That is composed of the following operating ranges. Sagicor Canada, $70 million to $80 million; Sagicor USA, $40 million to $50 million; Sagicor Jamaica, $40 million to $50 million; SLI, $25 million to $30 million and head office costs of approximately $95 million. New business CSM for shareholders to be between $180 million and $200 million. Our 2025 target for core net income growth is 10% plus growth beyond 2024 level. And thereafter, we project a target core return on shareholders' equity over the medium term of 13% plus.
Now obviously, actual net income is expected to vary, especially with the accounting volatility we are observing under IFRS 17 but we see this guidance as consistent with the core underlying profitability of our business.
With that, I will hand you back to Andre.
Thank you very much, Kathy. So Kathy did just provide an outline of our financial guidance. underpinning those targets is a robust strategic plan with a laser focus on expanding risk-adjusted returns on equity. This plan includes allocating resources and capital to growing our highest marginal return on equity businesses, a focus on cost savings and synergies between our operating segments and the continued optimization of our capital structure to take advantage of our improved credit ratings.
With the acquisition of ivari, we now have access to 2 large growing North American markets, and our participation in those markets collectively represents over 70% of our balance sheet. In Canada, we believe we have several potential levers of growth through expanding products and distribution.
And we continue to believe the U.S. and our U.S. segment represents an excellent avenue for growth, and we intend to increase our production in 2024, significantly beyond our levels in 2023. And that this growth in 2024 will lead to earnings growth in 2025 and beyond. This growth is driving high marginal returns on equity and our total return on equity will continue to expand as we get more scale in our U.S. platform.
In the Caribbean, we're focused on capitalizing on our existing strong presence and working to modernize those operations with technology. Collectively, these initiatives can significantly expand our return on equity, allowing us to fuel growth while at the same time continuing to return capital to our shareholders.
To that end, we're pleased to have announced an increase in our dividend to $0.06 a quarter or an annualized USD 0.24 per year as well as dividend payout guidance would suggest we may further increase our dividend going forward as our return on equities expand. And we continue to be active in repurchasing our shares given our strong capital position. At our current levels, a discount of approximately 20% to 25% of our book value and over 60% discount to our book value plus our embedded future profit as measured through net CSM, we continue to see buybacks as a compelling use of our shareholders' capital. With that, I will hand it back to George to wrap up, and we can start the Q&A.
Great. Thanks, Andre. Operator, please go ahead and open up the lines for Q&A.
[Operator Instructions]. Your first question comes from Gabriel Dechaine from National Bank.
Just a few questions here. You disclosed the LICAT ratio, 136%, but I'm probably missing it somewhere, but is there any way you can quantify an excess capital position above like [ $115 million or $120 million. ]
You can -- the best way to connect the dots would be to go through operating segment by operating segment, and we have some disclosure around the capital levels of our Canadian and our U.S. and our Jamaican subsidiaries. That's where most of the excess capital now lies. We have a significant amount of access to liquidity at the holding company. But as you get into excess capital, it would be measured in the hundreds of millions of dollars.
And I think you can probably connect the dots looking at whatever you chose to be the appropriate LICAT ratio in Canada and in Jamaica, where a significant amount of that excess capital is.
Yes. And is the excess capital in Jamaica is something that's easy to remit?
Well, it can be done. There's been a history of dividend payouts out of the life company and to the financial holding company and then the financial holding company has stated guidance of approximately a 40% dividend payout ratio. And other than a brief hiccup during COVID, Jamaica has a long period of paying dividends. I think our preference for the time being is to allow the Jamaican business to retain a significant amount of that capital and be able to fuel its growth.
Okay. I just want to move over to the fixed income sales in the U.S. and there was some fluctuations in 2023, so $450 million or so in sales in Q2 and the other couple of quarters were around $170 million. And now you're talking about -- well, you've got the excess capital. I guess your appetite is higher. What -- can you give us any goalpost to assess you by in terms -- for sales performance next year?
So with respect to the volatility in 2023, that was intentional. I think as Kathy mentioned, we had set out a target of about $800 million. And the goal with that was to grow the balance sheet without consuming any more capital as we waited to see how everything settled from the acquisition. And we ended up in a bit of a better capital position than we thought even with exceeding our production by about 7% or 8%. I think the -- you'll see that when we come through with Q1 that we're roughly on track to 2023's average production, but we'd like to get that beyond $1 billion subject to making sure that we have an appropriate capital and liquidity position. So we could do approximately $800 million or so of production, again, without requiring any capital to go into the U.S.
We'd like -- we believe we have the ability to significantly accelerate it and get it back to where it was, say, in 2022. We just want to make sure that we're -- that we have the appropriate capital and liquidity position to do that. And part of that revolves around exactly when and how well we can refinance the term that we took on in at the same time as the ivari acquisition. So we'd be looking to complete that refinance at some point over the next number of months from here but by the end of Q3 before deciding on a final target.
Got it. And I'd like to wrap up on the actuarial assumption changes. Firstly, the quantum. I mean is it somewhere around $10 million, $12 million in the Caribbean, and then about $10 million in the U.S., but in the U.S. looks like there's a few other items associated with that allocation of expenses associated with ACMA of $6 million and another $18 million of finance expenses associated with this thing. Just want to fine-tune those numbers a little bit. More importantly, I want to dive into some of the factors that were driving these assumption changes.
So I think Kathy can comment on some of the specifics. One thing I would say overall is that for the moving parts as we fine-tune IFRS 17 over the various quarters. There was noise in some of the various quarters that if they had all been done together would have offset. So I think the Q4 of the U.S. really makes the most sense when looking at in context with the rest of the year. And if you see what happened in Q4 in particular, there was some movement of net income back into the CSM, which -- where CSM had been moved into net income a bit earlier in the year.
But Kathy, if you'd like, you can fill in anything you're comfortable with on Quantum.
Yes. So in terms of the allocation, you saw that there was the -- approximately maybe $20 million went up -- back up into CSM. And so some of these came from actuarial adjustments is we're continuing to evaluate the IFRS 17 and accounting for things on a go-forward basis. So we're putting -- but those things like go into income. So we will eventually see these make their way through. And as we were saying before, you will recall, in Q2, we had about $53 million positive from the actuarial changes. So this offset the other way. So it's best to look at this altogether in terms of how these kind of have come together to get to the $40 million, $41 million we made for the year in the U.S.
Okay. Is there any -- like what are the assumption changes though? Labs, I don't know, something else?
They're more in terms of our crediting rates. We made certain assumptions. You recall, we -- part of what we'll see in there is the addition of a renewal commissions. And so we continue to keep the -- it's best to keep the renewal business as much more profitable than [indiscernible] new business. So there are certain things such as crediting rates impacted our go-forward estimates.
So you're assuming higher crediting rates on the fixed annuity block on renewal. Is that...
Yes.
Yes, in a nutshell.
Okay. And then in the Caribbean?
The Caribbean, those adjustments are primarily as -- as we're coming out of COVID, you'll see that there was a certain -- we saw experienced losses over the last few quarters. So in terms of taking a look, so those were things more in terms of taking a look at expense experience, and I believe there was some lapse assumptions to several [indiscernible].
I think there was some laps. There was a little bit of bad morbidity on some annuities where we have longevity risk. So it was a mix and a cleanup of a number of assumptions.
Your next question comes from Meny Grauman from Scotiabank.
Just a follow up on Gabe. Just wanted to get a little bit more understanding of what drove the goodwill impairment at Sagicor Life this past quarter.
It was very old goodwill related to the consolidation from 20 or so years ago. And it had been something that we had struggled with over the last couple of audits and just decided that this was the appropriate time to take it down and that eliminates goodwill from SLI entirely. I said it a little bit in our prepared remarks. And we're focused on return on equity at each of our segments. And as we are looking at SLI and getting its return on equity back up, we decided that analytically writing off the goodwill made sense, and so we chose to do so.
Got it. And I guess that's a good segue into the next question was really about ROE. You're guiding to about 10% in '24 and then you're talking about the medium-term target of 13% plus. I'm just curious, how do you get to 13%. I think you touched on it a little bit in your prepared remarks, but if you could just kind of sketch out sort of the path to go from 10% to 13% here. Obviously, earnings are growing, but just wanted to understand if there's anything that you would highlight there that's worth noting?
So I think we would see compared to our '24 guidance over the next couple of years, disproportionate growth in the U.S. as we put some more capital behind that business and grow it to scale. We think that the marginal return on equity on new capital is quite high in that business. And so you could see that business by growing quite significantly relative to our guidance. We think that there continues to be room for better than market organic growth in ivari.
That business that we acquired from a financial sponsor. It was very well run, but we see multiple opportunities to grow that business. And so we would have higher-than-market growth aspirations for ivari. So you could see the growth in those North American segments, just on top line growth or gross margin growth, getting you more than halfway towards that 13-plus percent return on equity. And then we have a number of initiatives in each of our operating subsidiaries to use technology better to serve clients better and ultimately get to a better cost structure. We have projects to have our 2 Caribbean subsidiaries and our North American subsidiaries to work closer together, again, for possible cost savings. And then the last piece of the puzzle to get to that 13% over a couple of year period would be step change cost and our cost of debt financing.
I think the pricing on the $320 million term loan that we took in connection to the ivari transaction was reflective of a moment in time when we were not an investment-grade issuer. And when we went into that in Q3 2022 in a very rocky financing market now that we're at investment grade, and we believe we can refinance that just mechanically that would be a measurable bump in ROE as well.
Got it. That's very helpful. And just 2 follow-ups in terms of what you just referenced you highlighted sort of marginal ROE in the U.S. Would you go to quantify that? That's the first one.
Depending how you look at it and whether you include the effects of reinsurance and moving to Bermuda, it's -- we see the marginal dollars as being high teens or better. The unit economics of the annuities business, if you can invest the assets well, is very attractive. And this is why we've seen so many big smart private pools of capital going and snapping up the engines to participate in this market. So we think we do it very well ourselves and see very high marginal returns on the capital that we put in.
Got it. And then under the final follow-up question just in terms of Canada, you highlighted opportunities in terms of expanding products and distribution. Just thought I'd get a little bit more color from you in terms of what products and what distribution channels, where do you see the opportunity there in Canada?
So today, ivari is particularly strong in -- with the Universal Life product, we think that there could be room to be more competitive from a term product as well. ivari has continued to offer a term as it has since the beginning of time back to the Transamerica days. But just from a pricing point of view, it's been a little bit less competitive than others. So I think we have room to take a longer-term view and get back some of the market share that had dwindled away over time. Similarly, from a channel point of view, I think there are a number of in the independent broker channel. I think there's room on the shelf for another participant in some of the places where over time, they -- ivari had deemphasized it. And so we'll be working with the team on that as well.
Your next question comes from Darko Mihelic from RBC.
I have a number of little sort of questions and then some bigger questions for you. But first, with -- maybe starting with just some of the small sort of questions that come to mind. The first one is I think the BMA updated their economic capital framework, and I think that's for March 31. Does that impact you at all in your capabilities? Does that impact you at all with respect to excess capital and to our ability to give back excess capital to shareholders.
I think if you look at where the guidelines are now, the primary effect of Bermuda would be a little bit more in terms of friction costs. So it's becoming more expensive to do business there. So kind of embedded in our SG&A as the cost of doing business there going up. We don't see it based on our asset position of materially changing its use within the group at this point.
Okay. Great. The next question is similar to that, which is the minimum tax. Have you done any analysis on that with respect to your company? Does it apply?
We've done a little bit of analysis and now we are doing more analysis on it. Again, the so what here is going to be friction costs. So we are going to spend several hundreds of thousands of dollars dotting the i's and cross the t's on this over the coming quarters. But just as a blanket statement, we are -- Sagicor is not very aggressive with respect to tax. And so it's ironic in a sense because when you're based in the islands, sometimes people jump to the assumption that you are. But we're a big income tax payer in all of our jurisdictions. Even our U.S. sale in Bermuda that services our U.S. business is a U.S. taxpayer. So we don't see anything material coming out of that for us.
Okay. Good. That's helpful. Now to the more important questions, frankly. So my question is first with respect to the CSM and your sort of vision for $180 million to $200 million of CSM growth. Is it fair to say that it's proportionate to the current size. So for example, I think on a net basis, Canada is like $560-ish of the $1.2 billion, is it fair to say that there'll be a significant chunk or should I really weight it more towards some of the smaller sort of CSM? I'm just trying to get an understanding of where your expectations are by business segment for CSM growth.
Okay. So Kathy, you can take that and maybe clarify new business CSM versus net -- versus net growth of CSM.
Okay. So the new business CSM is basically in terms of excluding our reinsurance. In terms of the -- Andre, do you want to give the split in terms of how we're seeing the growth? It's because it is primarily weighted into the U.S. -- or the U.S. like our North American, though we are seeing some growth in our Caribbean ventures as well, albeit not at the same rate.
Right. But I want to be just precise about whether the new business CSM includes amortization of the current book. And so what is current -- what is total CSM growth going to be.
So I understood the $180 million to $200 million to sort of be a gross addition to CSM then you can amortize off CSM and then you'd have net CSM. So am I -- and so I'm thinking about the gross $180 million to $200 million, how would I think about who are the -- which segments are the major contributors to that?
Kathy, I think we can put proportional guidance around that.
[indiscernible].
And if we don't have it proportional right in front of us, that's something that we could follow up on in our next earnings call, certainly.
And that's fair if you don't have it today. I guess where I'm trying to sort of -- like I'm envisioning that it's possible, for example, that some of your segments may, in fact, have a CSM that is -- you're adding some CSM, but after you amortize in, your net CSM will actually be down year-over-year. And -- and so that's, I guess, where I'm going. I can envision, for example, U.S.A. growing. It's net CSM year-over-year, whereas Canada may actually be in runoff. Am I correct in at least thinking about it that in that way?
Okay. Sorry. They're all net growth in terms of -- do you want me to pop in, Andre, on this one?
Yes, please.
Yes. Okay. So we're seeing across the board that the net CSM is growing in all of our regions. So the -- in terms of the growth -- and we can come back with the more precise -- more precise percentages. But definitely, we're seeing probably the largest growth in the U.S.A., but we're also showing growth in ivari as well.
So I could jump in. I think that we would expect to see a disproportionately large in the U.S. off of its current base. But ivari has grown at CSM and maintained it over the last number of years. And as I talked about a few minutes ago, it is our intention to -- it's our intention to push forward and allow them to grow a little bit more. So I would certainly not say it's in runoff. Wilton itself, the previous owner was a natural runoff owner of businesses, but they did allow the new business machine to keep operating, it was just relatively constrained.
But if you look at the LICAT number for ivari, it's got lots and lots of excess capital right now. So we certainly have the ability to grow that if we're successful pushing it into the market. With respect to the U.S., it's our intention to put a bit more capital in so that we can continue to grow that disproportionately. And then I think if you look back at the comments from Kathy, from Jamaica and SLI, they've been that CSM positive this year as well, and we would expect that and certainly target that to continue to grow.
Okay. And I appreciate these are difficult without giving us the [indiscernible]. So the DOE, I should say. So all good. And maybe I can just focus my last set of questions here on the guidance per segment, which is very helpful, by the way. But I just wanted to just to zero in a little bit just why I understand it a little bit better. So for example, your expectation would be that -- looking at somewhere in the range of $70 million to $80 million in Canada. So the first question around that is, is that some sort of a core number that doesn't really have any kind of a view on interest rates? Because as you mentioned earlier in your commentary, there's an idiosyncratic sort of behavior there with investment results and interest rate changes. So can I assume that the $70 million to $80 million is some sort of a core number where the investment result is some sort of a longer-term expected result?
Yes. So within that, it's a longer-term expected result on the fixed income side and long-term expected kind of sale digit appreciation on the equity side.
Okay. Okay. And -- but would it still be fair to say that the vast majority of the $70 million to $80 million would be an investment result and a much smaller component of it being the insurance result.
This is still where we're pushing around geography from a core earnings point of view because trying to get each of our subsidiaries to sync up what's insurance, what's investment, what's return on surplus is and tying it all together as is where we're still finalizing it.
Okay. Okay. Fair enough. And then just my last question for you, Andre, is the head office somewhere in the range of $95 million in terms of losses. Is that a number that as we think we go to 2025 and beyond should shrink. And I asked that because in most of the other companies that I cover, head office costs are proportionately much lower. And I'm just wondering if this is a year where, yes, you've got a lot of cost because you just brought in ivari you're working on a lot of things, including maybe some holdovers and where do you -- like where -- I would imagine that, that should be lower, but over to you if you have any sort of longer-term thoughts on that?
Sure. So if you look -- I'd agree with the observation. The head office is in our reporting is an amalgam of a number of different things. And the first important distinction is SG&A versus SG&A versus financing costs. So out of that, there would be $25 million would be SG&A. And so that's more comparable to head office costs than others. I think your commentary with respect to proportionality, I suspect should still be valid, which is a function of how many the jurisdictions that we operate in, the cost proportionate to the size of our business of things like audit and rating agency fees, et cetera.
But the $25 million includes some hangover costs with respect to consulting costs on around IFRS 17 and systems improvements. And so that $25 million, it would be our goal to keep flat at worst over the next number of years. So as we get more operating segment earnings, we would expect to get operating leverage out of that. So the remainder of the costs are the financing costs about $10 million mechanically or what we call internal financing costs, which is $20 million or so of interest that the top company owes SLI netted against $10 million or so of interest that our U.S. business pays up to the top company. And then the remaining $60 million is the net external financing costs. And that is basically our -- that's the interest cost on our top company debt. Net of -- that's the interest on our top company debt, net of investment -- expected investment income at the holding company. So earnings on excess cash and some expected investment income for the proportion of the Playa shares that we continue to own at the top company. So as I do the -- as I talked about in one of the earlier questions on the return on equity walk, we would have a medium-term goal to refinance that the external debt to a lower number in the ZIP code of reduce that by $5 million or $10 million over time.
Right. And I guess you're paying it down as you go anyway, right? There's principal payments included [indiscernible].
Yes. The ivari term debt amortizes. So it would go down negative carry on investing our TopCo cash at 5-something percent versus about double that for that term loan. But I think we'd prefer to replace that with less expensive, more permanent capital.
And there are no further questions at this time. I will turn the call back over to George Sipsis for closing remarks.
Thank you, operator, and thank you, everyone, for joining the call today. A reminder that a replay of this call will be available for one month on our website and a transcript will be posted as soon as available. If you have any additional questions, please do not hesitate to reach out to any one of us. With that, thanks again for your participation and interest today. Have a great day, everyone.
This concludes your conference call for today. You may now disconnect your lines. Thank you.