Last week, a detailed solution to the British American Insurance Company (BAICO) debacle was announced by Organization of Eastern Caribbean States (OECS) governments and the sub-region’s judicial manager.
Under that plan BAICO is assured of US$38 million in financial support from the governments and regional insurance giant Sagicor is poised to buy out BAICO’s traditional business in the Eastern Caribbean over the next three to six months.
The development, though welcomed by BAICO’s 28 000 policyholders in the Eastern Caribbean, has raised the anxiety level for their 10 000 counterparts in Barbados who are yet to receive clear word on their fate.
This past week, Nation Editor-In-Chief Kaymar Jordan spoke to the local judicial manager David Holukoff of accounting firm KPMG. She began by asking him to provide a detailed update of the BAICO (Barbados) situation.
Holukoff: Right now we are in discussions with our preferred purchaser and what has been going on is really actuarial work. The actuaries have been going back and forth over the model in terms of how it would apply at the policyholder level. So it really is nothing very exciting but it is a lot of detailed work.
You said you were talking with a preferred buyer. Sagicor seems to be central to finding solutions to BAICO’s problems. Under a deal reached last December, Sagicor Life took control of BAICO’s health insurance line, while Sagicor General took charge of the property coverage. Can you confirm that it is Sagicor you are talking to about the life and flexible premium annuity (FPA) portfolios?
Holukoff: I wouldn’t be comfortable at this time disclosing who the party is.
But what is the timeline you are working with in terms of bringing this matter to a head, given that the Eastern Caribbean has now given a clear indication of six months?
Holukoff: Well, there is actually a process laid out as to how this goes about, but the real timing in terms of getting to some very specific deadlines is once the actuaries have completed their work and there is agreement with a preferred purchaser, which is what you are seeing with the announcements coming out of the OECS. They have that agreement.
So one month, two, three, six months?
Holukoff: I am always reluctant in forecasting because it always seems to take longer than we anticipate but once we have that agreement, it is probably around a six-month process.
That’s after you have settled with a preferred buyer?
Holukoff: Once we have had agreement, there are the courts and so forth that need to approve it and there are a lot of things that can either make that go faster or make it go longer, because it is not solely within our control.
We have been through the valuations and it is really going through: how do we take this down to the specific policyholder? And what it means to them in terms of what they receive at the individual policyholder level. So it is literally going down policy by policy. That’s what the actuaries are doing.
We have so many assets and liabilities and in the context of a life policy, there is the fund value, premium, face value, how long the policy has been in place, as well as remaining duration. So there are a lot of factors you have to take into account [in determining] what it means to each policyholder and what they receive coming out of the process, and ensuring it is equitable to all policyholders.
When do you expect to complete your negotiations with the preferred buyer?
Holukoff: I don’t want to get into discussions around negotiation.
What about when you are next due to report to the court?
Holukoff: We are in the final stages of reporting to the court so there should be something out in a couple of weeks.
There is a sense that Barbados is behind in this entire process. Who is responsible for that: is it you as judicial manager? Why is it that the Eastern Caribbean has a firm timetable and we are still sort of ‘iffy’ with our process?
Holukoff: If I’m not mistaken, the Eastern Caribbean [countries] were in judicial management probably a year prior to us so from that perspective, I wouldn’t say we are behind them. These things are extremely complicated and they do take some time.
But isn’t your plan basically the same as what has been proposed there?
Holukoff: Our model is one which is constructed in such a fashion that it can proceed with or without government involvement.
So you are not depending on any financial injection by the Barbados Government?
Holukoff: That is something that is the subject of ongoing discussions with the Government but there hasn’t been any final resolution.
We have let the Government know the extent of the assets and the liabilities and it is really whether they are able to make any contribution to the overall solution. It would be welcomed but I would never want to speak for the Government.
But in case they can help, how much support are you really asking them for?
Holukoff: In our December report, we highlighted that based on the current actuarial review and valuation of assets, there is an approximate shortfall of $48 million, but I don’t want to get into details of what we’re discussing with Government right now. All that we can say is contained in the three reports which are publicly available at the Financial Services Commission.
What is the status of your sale of the BAICO Collymore Rock building and surrounding lands?
Holukoff: There is some interest in it but I don’t have anything definitive before me.
Does your plan take into account holders of flexible premium annuities?
Holukoff: Yes, it does.
So they are likely to get their money back?
Holukoff: All of our assets are within the statutory fund and the legal advice we have received is that the FPAs are policies and therefore benefit out of the assets which are in the statutory fund as well.
So it is safe to say that any solution coming out of BAICO will benefit both the traditional policyholders and the annuity investors?
Holukoff: Yes, subject, of course, to what the courts ultimately say. The key reason why British American is under judicial management is that there were insufficient assets to meet the liabilities and so with that, it is expected that each of the stakeholders really would share in that reduction based on their individual rights and the nature of their contracts.
If I’m getting you clearly, you are saying that BAICO policyholders should not expect to get back the full value of their investment.
Holukoff: If there is no funding coming from elsewhere, then, obviously, assets will not equal liabilities and it has to come from somewhere.
Generally, there is a sense that people are very anxious and frustrated. What words of comfort can you give to the 10 000 policyholders at this stage?
Holukoff: All I can say is that the work is proceeding. The various stakeholders and participants are engaged in the process and we are looking to bring forth a solution to the policyholders in a very short period of time.
