Four years before the collapse of its parent company in Trinidad and Tobago in February 2009, the Supervisor of Insurance in Barbados ordered top management of CLICO International Life (CIL) to stop selling its controversial Executive Flexible Premium Annuities (EFPAs) to companies, credit unions and institutions.
In fact the company was told by then Supervisor Carlos Belgrave to “cease and desist from marketing the product until [a] review is complete”. The order was issued in a letter to CIL president Geoffrey Brewster who had earlier advised the company that its EFPAs should be “withdrawn from the market with immediate effect”.
CLICO officials were repeatedly ordered not sell or even market its EFPAs to anyone other than individuals, but the company did so, going as far as to send a proposal to Barbados’ National Insurance Board inviting it to invest $20 million in the financial product, according to an official paper trail dating back to 2005.
In fact, as far back at 2002, the insurance supervisor wrote the Registrar of Co-operatives telling that office the EFPAs could not be marketed to credit unions. It is unclear how much money credit unions invested in the CLICO product.
A number of businesses, institutions and Caribbean governments also stand to lose millions of dollars without Government assistance, based on a new document that spells out the restructuring plan for the beleaguered CIL.
The plan, devised by the Oversight Committee headed by William Layne,permanent secretary in the Ministry of Finance and head of the Oversight Committee, concluded that companies and governments in the Eastern Caribbean should have done due diligence, and so Barbadian taxpayer dollars should not be used to bail them out now.
“The Government of Barbados should only be responsible for individual EFPA investors, as they are the only ones whom it could reasonably be argued were duped into purchasing the product,” the Oversight Committee wrote.
CLICO has over half of a billion dollars in the EFPAs in its portfolio with maturities that stretch into 2012.
According to figures from accounting firm Ernst & Young, as at December 2009, $507 million in EFPAs were sold, including $149 million held by companies, $44 million by government institutions in the Organisation of Eastern Caribbean States, and $314 million by individuals. Of the $314 million invested by individuals, $9 million represented third party investments.
The Oversight Committee concluded: “The Government of Barbados should not bail out related parties of CL Financial or CLICO Holdings who invested in EFPAs. They knew what they were doing. Related parties would include all senior staff of CL Financial or CLICO Holdings and its subsidiaries and associated companies and their wives and children, as well as directors of the parent company, its subsidiaries and associates and their spouses and children.”
Attached to the Layne committee’s report are several documents showing repeated warnings from the Supervisor of Insurance to CLICO management, cautioning them against marketing and selling EFPAs to institutions.
The Oversight Committee also urged Government to have a forensic audit undertaken into CIL’s operations.