Prospects for CLICO (Guyana) retrieving any of the US$34M deposited with CLICO (Bahamas) grew dimmer on Monday with the Bahamian liquidator proposing that the amount dispatched from Georgetown be reclassified as unsecured intercompany advances.
The liquidator Craig Tony Gomez also revealed in a court affidavit that CLICO (Bahamas’) liabilities exceed its assets by a whopping US$18M
According to a report in yesterday’s Nassau Guardian, Gomez filed an affidavit on Monday in the Bahamian Supreme Court in which he said that the directors and management of CLICO (Bahamas) operated the business without “proper corporate governance; without an understanding of the basic financial management requirements of managing a regulated insurance business, and without any acknowledgment of the insurance laws of The Bahamas or any other country in which the company has a licence to conduct business”.
Gomez contended that the person who bore the ultimate responsibility is the parent company chairman Lawrence Duprey. Ironically, Duprey was in Nassau on Monday for a meeting with a delegation of regional regulators, The Nassau Guardian said.
Gomez revealed in the affidavit that the company invested a large portion of policy funds in illiquid assets (real estate) and high risk investments (an equestrian real estate development in Florida). He added that even its bond portfolio had been invested in long-term securities that would require discounting in the current situation. As a result, he said, there was no liquidity without incurring significant losses on the sale of investment holdings.
“The major part of CLICO Bahamas assets are real estate and other fixed assets and we believe such assets cannot be sold at book values in the existing economic environment,” the court document said. Bahamian Prime Minister Hubert Ingraham said in the House of Assembly last month that advances totalling US$73.6 million by CLICO Bahamas endangered its financial integrity.
In his affidavit, Gomez made a ‘liquidation projection’ that takes into account a draft unaudited balance sheet at December 31, 2008, and a financial and actuarial analysis on CLICO (Bahamas’) operations.
The liquidation projection reflects an ability to pay off policy owners and secured creditors in full provided the court agrees with some ‘critical assumptions’ – which impinge directly on the Guyana funds. One such assumption by Gomez is that balances with CL Financial (CLICO (Bahamas’) Trinidad-based parent company) and its subsidiaries are unsecured debts and rank after Bahamian policy owners in a liquidation, and are thus not included as secured creditors in the liquidation projection. Another assumption is that funds transferred to the Turks and Caicos branch of CLICO (Bahamas) from Guyana, Trinidad and Suriname – annuity products sold by associated group companies to their own citizens – are not policy owner liabilities of CLICO (Bahamas), but rather unsecured advances due to affiliated companies.
“We believe these liabilities should remain as policy owner liabilities of the originating company and such amounts have been removed from CLICO Bahamas policy reserves and reclassified as unsecured intercompany advances in the liquidation projection,” the affidavit said, according to the Nassau Guardian.
The liquidator presented a twin-fold rationale for this treatment: CLICO (Bahamas) was never licensed to do business and has never sold insurance products in those countries and therefore cannot have policy owner liabilities in those countries.
The other reason listed by Gomez is that CLICO (Bahamas) has no relation with individual policy owners, and no policy documents were ever delivered. “The documents in the files solely related to the transfer of funds to the Turks and Caicos,” according to Gomez.
Another assumption listed in the affidavit is that CLICO Bahamas’ core life and health policy owners and the CD annuity policies rank pari-passu (without partiality) under a fairness doctrine. The liquidator contended that although one could argue a case that bank CD-type products are not genuine insurance products, the facts are that insurance regulators gave their approval to the product, the policy was marketed and sold by a registered insurer, and other competitors also sell similar products.
Gomez also stated in his affidavit that the audited financial statements for 2007 contained policy reserves that appear to have been understated regarding both the life and the CD annuity contracts. He said the actuary did not appear to take account of the risk of loss of interest on loans to a subsidiary to finance the real estate investment in Florida.
“The actuary has significantly changed the valuation basis from prior years which will reflect in materially higher policy reserve numbers and an enormous operating loss for 2008,” the affidavit says, according to the Nassau Guardian.
Critically to Guyana, he added, “The achievement of sufficient assets to meet the CD annuity reserves is dependent on relegating the Guyana/Suriname funds to unsecured status. On the other hand, should they participate, the distribution to the annuity policy owners will be much reduced which will sandbag any strategy to sell the core portfolio.”
Meanwhile, the Trinidad Express, quoting the Nassau Guardian, is reporting that the liabilities of CLICO (Bahamas) exceed its assets by US$18 million, according to a report by Gomez. The report was filed in the Bahamas Supreme Court, the Nassau Guardian reported on Sunday.
Gomez’s report listed the Bahamas subsidiary’s total assets at US$116,965,096 and its total liabilities at US$135,085,964.
In the report, he noted that the company had a “considerable amount of critical claims”, which were being reviewed, including death benefits, emergency surgeries, cancer patient treatments and HIV patient treatments.
CLICO (Guyana) and CLICO (Suriname) are also claiming policy packages of US$34 million and US$15.5 million respectively with CLICO Bahamas.
But Gomez’s report suggests that while the funds initially went to CLICO Bahamas, they were immediately forwarded as cash to a United States bank account.
The concerns come amid a meltdown of Port of Spain-based CLICO and CLICO Investment Bank earlier this year. CL Financial chairman Duprey approached the government and the Central Bank for a financial rescue in January and the Central Bank then took control of the companies, installing a new board of directors at CLICO and dissolving CIB.
It triggered concern in Guyana and an initial assurance from CLICO (Guyana) that it was “solid”. This façade later fell away when it became clear that its huge investment in the Bahamian subsidiary was impaired and that a run on it had created a liquidity crisis at the Georgetown office.
President Bharrat Jagdeo has assured local policyholders and investors that their funds would be guaranteed but he had also expressed optimism that Guyana would be able to retrieve some or all of the investment from Nassau. That now looks increasingly unlikely.
