CLICO: from rags to riches
The recent contagion caused by the collapse of CL Financial Group, which owns CLICO, has sent shock waves across the Caribbean with policyholders in Barbados among the hardest hit. With this comprehensive series of articles, THE NATION seeks to set the situation in context.
There are two issues which have been identified as the major issues that have contributed to what is before us today. It is very relevant to Trinidad and Tobago. The two things are a lack of regulation and regulatory oversight and a lack of recognising that corrective measures needed to be taken and need to be taken swiftly. – Former Minister of Finance Karen Nunez-Tesheira, February 4, 2009, in the House of Representatives at the time of the CLICO financial meltdown.
AS WE SAW last week in the first part of this series on the CLICO situation, the quality of regulatory oversight, as posited by former Governor of the Central Bank of Barbados, Dr Marion Williams, is an overriding factor in the smooth functioning of financial institutions.
It is a concept that is obviously not lost on the former Minister of Finance in Trinidad and Tobago who told the House of Representatives there was no question of the importance of regulatory oversight, which was the central lesson to be learnt from the global financial crisis.
“Why a need for regulatory oversight?” she asked. “I will give you some of the indications why you need this. They are:
• To avoid systemic risk; the risk that the financial system will collapse due to the degree of connectivity and interdependence among financial intermediaries.
• To avoid overleveraging by financial institutions; that is, institutions taking on too much debt.
• To monitor the capital adequacy of financial players so that sufficient capital exists to offset losses in the event of financial troubles; and
• To curb the abuse of monopolists’ power, but most importantly, to protect the interest of consumers, creditors and depositors.”
What then are CLICO’s problems?
Nunez-Tesheira, leading debate on an amendment to the Central Bank Act to give the Governor the opportunity and ability to address the CLICO difficulties to the benefit of the people, recalled Governor Ewart S. Williams speaking to the issue.
“He is the regulator,” he said, “and if anyone should have any knowledge within the constraints of the legislation that now exists – and he said that the legislation constrains him to deal with insurance institutions in the same way as he can with the banks – within the constraints in which he operates, it is clear to everyone that CLICO’s problems are not simply problems of liquidity.”
She quoted the Governor as citing: “Excessive related party transactions with contagion risk.”
According to her, the same issues affected big United States firms that were deemed too big to fail: high leveraging of the group’s assets thereby restraining the amount of cash that could be raised from asset sales; high interest rate resource mobilisations strategy to finance high risk investments; high risk investments in liquid assets, including real estate locally and overseas.
It has been widely acknowledged then, that lax oversight by financial regulators both here and in Trinidad and Tobago played a key role in the difficulties facing CLICO Holdings, whose parent, CL Financial, had to seek a bailout from the twin-island state.
The company’s operations here and throughout the region remain under a cloud, and in some islands, including Barbados, parts are being sold off to meet the liabilities of the parent and satisfy some of the demands of investors.
At the time its difficulties were made public, CL Financial was the largest privately held conglomerate in Trinidad and Tobago and one of the largest privately held corporations in the Caribbean.
It had become an investment holding company that supported a range of enterprises operating within such sectors as insurance, banking and financial services, real estate, manufacturing, energy and petrochemicals and health services.
CL Financial held investments in more than 65 companies in 32 countries worldwide with assets totalling about TT$100 billion.
It started in 1993 as a holding company for Colonial Life Insurance Company (CLICO), founded in 1936 by Cyril Lucius Duprey, a pioneer in the insurance industry in the Caribbean, whose guiding philosophy was Give A Man Value, Give A Man Service And He Will Support You.
CLICO became the first locally owned life insurance company in Trinidad and Tobago, and when it opened for business on June 1, 1937, Colonial Life – as it was then known – offered coverage in the form of industrial insurance, with premiums ranging from six cents to 24 cents a week.
Company records show that by the end of its first financial year, Colonial Life grossed $20 000 from its single branch in Port-of-Spain.
To fill the need and market for insurance, Duprey quickly established other branches in Tunapuna, San Fernando, Point Fortin, Siparia and Rio Claro.
After three years, Colonial Life had outgrown its original location and, in 1940, the company moved into its first head office building at 32 St Vincent Street – a newly constructed building wholly owned by Colonial Life.
Having established themselves in the local market, CLICO, after ten years in operation, was ready to take the next step forward.
By 1946, CLICO began to expand regionally, establishing branches here in Barbados, Grenada, Guyana, St Vincent, St Kitts and St Lucia.
“If the [1940s] for CLICO can be seen as a decade of expansion and growth,” said a company document, “then the fifties can be characterised as a decade of profit and results as the company’s premium income crossed the TT$1 million mark (1950), share capital increased to $300 000 and total assets rose to TT$6.5 million.
“Once again, the directors were faced with what, for them, had become a regular problem; their unprecedented rate of success meant that their existing head office had become too small. CLICO’s ever-growing staff and agents needed a new home; this new home would be as immense and impressive as the success that built it.”
The Colonial Life building, completed in 1954, was the first multi-storied building to be built in Trinidad and Tobago and was officially opened on March 29, 1954.
From their new head office in Port-of-Spain, CLICO’s physical and financial expansion would continue. New offices were opened in Aruba and the sister isle of Tobago in 1953, while 1956 saw the company record a premium income of in excess of TT$2 million.
In the same year, it bought shares in Colonial Life Assurance of Jamaica.
In 1957, CLICO once again led the way by becoming the first company to install a data processing system, and in 1958, the company entered the field of group insurance and grew to become the major group carrier in the country.
In answer to the growing demand for a more complete coverage of insurance needs, Colonial Fire and General Insurance was formed in 1958.
The 1960ss brought changes in the organisational structure of the company as Cyril Duprey, then managing director, was appointed chairman.
Agency expansion, however, remained constant as offices were opened in London, Montserrat, Bermuda and Jamaica, with the company selling off its controlling interests in the ‘Colonial Life Assurance of Jamaica’.
This step brought about a change in the company’s name so as to avoid conflict and the word ‘Trinidad’ was inserted, that is, the name changed to Colonial Life Insurance Company (Trinidad) Limited (CLICO).
In 1974, CLICO’s premium income rose from TT$6.6 million (1969) to TT$14.6 million; a net annual growth of 25 per cent. The year 1974 would also see CLICO set new business records with sales in excess of TT$100 million.
Lawrence Duprey, a nephew of founder CL Duprey, and who would later become executive chairman of the CLICO empire, joined the Colonial Life team as head of the Data Processing Operations Department in 1970.
The year 1977 was a landmark year for both CL Duprey and CLICO, which took over the Trinidad portfolio of Confederation Life, with the end of the decade bringing even more success.
In 1979, CLICO’s new sales climbed to TT$7.7 million, ordinary premium income stood at TT$27.7 million with business in force climbing to TT$1.2 billion.
By 1982, new sales for the 1982-83 contract year stood at TT$16.5 million with ordinary premium income at TT$63.4 million.
In 1987, Lawrence Duprey was promoted to the post of managing director of head office, Trinidad, and in 1988, was appointed chairman to fill the post left by founder, CL Duprey.
In 1992, CLICO acquired British Fidelity from Sammons Enterprises Incorporated, a United States firm having its heads office in Dallas, Texas.
This large corporation was a holding company that owned several life insurance companies in the United States.
Shortly after this, in 1994, CLICO South America was formed with Lawrence Duprey as chairman.
In 1995, CLICO Life and General acquired the American Life Insurance Company and British Life Insurance portfolios in Suriname.
The company’s client base was approximately 75 000 policyholders.
In 2001, CLICO showed a reduction in management expenses combined with a 45 per cent increase in premiums.
In the same year, a report on the local insurance industry, published by The Association of Trinidad & Tobago Insurance Companies (ATTIC) and Ernst & Young, showed CLICO holding the largest asset base (TT$5 534 500) along with an 85 per cent share in the local market.
It involved itself in the development of the territories in which it operated and made substantial investments in both the private and public sector in Barbados, Grenada and St Lucia.
In 2005, CLICO made a momentous move by consolidating British Fidelity Assurance to CLICO (BAHAMAS) Limited, joining the other CLICO companies across the region.
This strategic move was part of CLICO’s evolution in becoming, as a report said, “a global financial services leader providing innovative end-to-end solutions that optimise wealth and create security for all our stakeholders” and to strengthen the CLICO brand.
Thus, from offering 24 cent premiums in 1937 to operating in more than 24 territories in the new century, CLICO, the first locally owned insurance company in Trinidad and Tobago, had reached the pinnacle of business in the Caribbean and seemed poised for even greater things.
And then, the bubble went bust.
• DISCLOSURE: The Nation Group is the holder of annuity policies in Clico International Life Insurance Limited. Further, it is a matter of public record that Colonial Life Insurance Co. (Trinidad) Limited is a shareholder in our parent company, One Caribbean Media Limited (OCM). This disclosure is made in the interest of transparency. The Nation wishes to assure its readers that the above will in no way inhibit its commitment to the time honoured principles of journalistic integrity.