THE HOYOS FILE: Saving BAICO and CLICO policyholders
ALTOGETHER, RESCUING THE LIFE INSURANCE and annuity policyholders in British American Insurance Company (BAICO) and Colonial Life Insurance Company (CLICO) will cost Barbados taxpayers close to half a billion dollars.
That is the sum I have come up with having read the final report of KPMG, British American Insurance Co.’s judicial manager, placed in the high court just a week ago, and the one by Deloitte sometime back with regard to CLICO.
The plans are to let BAICO’s policies be transferred to Sagicor Life Inc. and CLICO’s go into a new company, titled New Life Insurance Co., or, given our obsession with acronyms, NLICO. Personally, I would have thought anything evocative of the name “CLICO” should have been avoided so as not to tempt fate.
Under both plans, neither company would be liquidated as this would end up costing the Government far more. After the respective transfers, they would be wound up.
As KPMG put it re BAICO: “The deficit is presently estimated at $56.8 million and the realisation values of the investment property are uncertain, therefore the deficit could increase significantly under a liquidation scenario. In addition to returning the post-appointment premiums, the company would likely receive discounted sums for the sale of investments and property given the distressed nature of their disposal . . . . In light of the foregoing, the JM is recommending the approval of the solution to avoid the necessity of a liquidation of the company.”
Bail out policyholders
That solution, which the Government has already approved in principle seems like a done deal: Government bonds worth $57 million will be issued to “bridge the existing deficit and will also ensure that it will not increase, which would be the case if the JM was forced to sell the illiquid investments or liquidate the properties, as Sagicor is not in a position to take such real estate assets,” said KPMG.
Those bonds would mature ten to 25 years from now, when, of course, they would most likely be refinanced. And as for that real estate worth close to $27 million, more bonds would be issued to Sagicor to prop up the statutory fund which must underwrite the BAICO business being taken over. Altogether, we are going to have to put up $84 million to bail out the BAICO life insurance and annuity policyholders ($57 million plus $27 million). May I request that you save your gasps for later. We still have CLICO to do.
BAICO was placed in judicial management at the end of September 2010; CLICO followed suit in April 2011. Both actions were taken under Section 57 of the Insurance Act of Barbados, on the grounds that the companies were unable to pay policyholders’ liabilities as they became due, and their assets were not sufficient to protect policyholders and creditors.
The first go-round envisaged the Governments of the other Caribbean countries where CLICO Barbados had sold policies coming together and funding the shortfall at the company, as well as converting the infamous Executive Flexible Premium Annuities into long-term annuities and setting up the new company.
Caribbean governments? Right. That one was a non-starter, so the proposal, made in October 2012 by CLICO’s judicial manager Deloitte, bit the dust. Quickly.
As Minister of Finance Chris Sinckler diplomatically put it in his Budget Speech last June: “After consultation with regional governments, it became apparent to the JM that funding from these governments would not be forthcoming, and after further consultation with the Government of Barbados, a ‘Barbados First’ approach was developed.”
Deloitte’s new report, issued in June 2013, outlined the Barbados First restructuring plan which, said Sinckler, “essentially was a resolution plan to keep CLICO as a going concern and required Government funding to support the proper establishment of the statutory fund”.
Delay eroded assets
Back then, he said, “shortfall support” was put at around $300 million. But, previously, the total value of the bonds which the Government had said it would need to issue was around $380 million. The Government would recover some of its money if buyers for some of the CLICO assets could be found, but the maximum achievable was put at $230 million, and the other $150 million was to be in bonds without collateral attached.
An affidavit filed by the JM in early 2015 suggested that the long delay had eroded CIL’s financial assets, so perhaps it is even more than that today.
So, if you add the $84 million needed for BAICO to the, let’s say, $350 million needed for CLICO, you already have over $430 million. A lot of that debt will just remain a burden to our children and grandchildren, perhaps being forever rolled over, with the country ultimately paying far more in interest on it over the decades to come.
Now, the CLICO plan has already been approved (last December 2015) by Justice William Chandler, following some three months of deliberation. So the Government of Barbados’ proposal for the reconstruction of CLICO Life Insurance as submitted by the Ministry of Finance and endorsed by the Judicial Manager and BIPA is ready to be rolled out. Can we get started, please?
Well, not yet. There has been an application seeking leave for an appeal by the attorneys for the Eastern Caribbean Currency Union. Say what? I thought they weren’t putting any skin into this game? I wonder what could be their objection now.
Assuming that the plan prevails, at some point in the future, the Government will be issuing bonds for all of these financial commitments, on which interest will have to paid, and which will eventually mature only to be rolled over ad infinitum.
It is the best that can be done for a bad situation, which was certainly not an “act of God,” not caused (but maybe exposed) by the global financial recession of 2008-09, but most definitely “home-grown” and “man-made.”
And if the Dems keep putting it off as they had been doing for a long time, although the present hold-up is not of their making, then the Bees will have to do it if they get back into power. The longer both BAICO and CLICO are left to fester the worse the payout by the taxpayers will be when the deals are finally done. (PH)