Clico (Guyana) 2007 accounts show debt to Clico (Trinidad)

Clico (Guyana) Ltd’s accounts for 2007 showed a surplus of $160M for 2007, slightly over the previous year and several related party transactions including one where Clico (Trinidad) was owed $1.18B which was to be netted off against an advance of $494M.

Clico (Guyana), formally known as Clico Life and General Insurance Company (S.A.) Limited, has attracted closer attention locally following the bail-out by Trinidad of four of the financial subsidiaries of its parent company CL Financial Limited. In the interim, both Clico (Guyana) and CL Financial in separate statements have emphasized that its other subsidiaries are unaffected. The four affected subsidiaries are Colonial Life Insurance Company (Trinidad) Limited, Clico Investment Bank Limited, CMMB and British American Insurance Company (Trinidad).

A copy of the 2007 accounts, obtained by Stabroek News from the Office of the Commissioner of Insurance following a request, showed a surplus of income over expenditure of $160M for 2007, an increase of 1.9% over 2006. While its long-term fund showed a balance of $231M at 2007, its short-term fund was $82M in the red. Total income slid from $296M in 2006 to $190M in 2007 and significantly, while taxation in 2006 was $126M in 2007 it was $9.7M. There was no explanation of this.

According to its balance sheet, its current assets in 2007 totalled $1.14B including $127.9M in cash at the bank and a $11.2M overdraft while its current liabilities totalled $1.64B – a difference of around $500M. There was also a gap between current assets and liabilities in 2006 but not of that magnitude.

Ordinary life premiums rose from $6.8B in 2006 to $7.75B in 2007 but there were declines in four other categories: general, group life, group health and motor. Total premiums rose however from $7.4B in 2006 to $8.2B in 2007.

While both Clico (Guyana) and CL Financial has said there is no risk to the Guyana operations there are several related party transactions that could pose issues. The major one is  $1.18B in cash advances from Clico (Trinidad) to Clico (Guyana). These advances are repayable within a year.

It is unclear how much of this amount might have been repaid during 2008 though some of it is offset by an advance to Clico (Trinidad). Clico (Guyana) – a 20% shareholder in the Berbice Bridge Company – has not responded to recent media queries and only issued a brief statement two Fridays ago assuring the public that it was “solid”. With the Government of Trinidad taking an equity stake in Clico (Trinidad) to improve its liquidity there could potentially be a call on Clico (Guyana) to clear the outstanding balance.

Clico (Guyana) also had due to it in 2007 $184M from various subsidiaries of CL Financial including Clico (Suriname) Limited, Clico Trust and Finance NV of Guyana, Caribbean Resources Limited – Guyana and Premium Security Service Limited.

The notes to the accounts also revealed that Clico (Guyana) invested $1.5B in Caribbean Resources Limited (CRL) in 2007, an investment guaranteed by C L Financial Limited. There are no fixed repayment terms. A loan was also granted in 2007 to CRL of $447M at a rate of interest of 12% per annum. There was also a $5.9B investment in Clico (Bahamas). An amount of $29M invested in Star Lumber – a part of the group – had to be written off in 2007 as the company closed its operations in the year.

Clico (Guyana) also listed several contingent liabilities and pending litigation including one against the Guyana Bank for Trade and Industry (GBTI) in relation to a draft for US$394,965, approximately $80M. The draft was misplaced in transit and this led to another action against Camex Ltd. Clico (Guyana) is seeking to have GBTI compelled to issue a duplicate bill in relation to the draft.

The notes also referred to the actuaries’ recommendations which said that policy surrenders remained relatively high and that the “company should endeavour to maintain high new business levels and to improve its persistency rates, since in the long term these are the main sources of revenue for the life insurance business”.

Prior to the Trinidad turmoil, Clico (Guyana) was also in the news when it was revealed that the estate of slain businessman Farouk Kalamadeen had lodged a claim on a $200M policy. Clico (Guyana) has refused the claim and has since gone to court over it.

In their report, auditors Deloitte & Touche said that Clico (Guyana) did not comply fully with the requirements of the Insurance Act 1998 as Section 55 of the Act requires that 85% of the company’s statutory fund be invested locally.

According to the Commissioner of Insurance’s Annual Report for 2007, the amounts deposited by Clico Guyana for the purpose of meeting the statutory deposit requirements were as follows: $18,750,000 for long-term insurance and $27,720,927 for general insurance for a total of $46, 470, 927. The audited figure for 2006 was $44,544,091.

Meanwhile, the government here is monitoring the operations of Clico (Guyana) “closely” in the wake of the liquidity problems at its Trinidad-based parent company CL Financial Limited.

“We are looking at it closely,” President Bharrat Jagdeo told reporters at a news conference at State House on Thursday.

“We want to ensure that people here, their interests are protected so we are watching this closely,” Jagdeo declared. The President said he looked at Clico (Guyana’s) liquidity position as well as its assets and liabilities. He noted that Clico (Guyana) makes up just three percent of the country’s total financial assets.

He explained that the company holds its assets while a significant amount of its liabilities are long-term and even if people make a run on it, it would not face a problem of not having enough assets to match the liquidity.

“But you may have a situation of cash flow liquidity problems,” he said, adding this would be the problem faced by any major bank in any part of the world in a similar situation.

Jagdeo added that the only problem he could envisage in the short term is a mismatch between liabilities and assets in the event of significant changes of the company’s investments abroad. “But we are paying close attention to the issue,” he said, adding that the government would continue to monitor the developments.

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