-held 51% of CLICO (Guyana’s) assets at end of 2007
CLICO (Bahamas) Ltd was on Tuesday ordered liquidated raising serious concerns here as the company held 51% of CLICO (Guyana’s) assets at the end of 2007 and sources last night said the government could move to the courts as early as today to protect the interests of local clients.
It is unclear what the figure held by CLICO (Bahamas) was at the end of December, 2008 as accounts for that year are not yet available and CLICO (Guyana) has not volunteered any details. Importantly, CLICO (Guyana) holds $6B for the National Insurance Scheme (NIS) and that would be one of the major concerns of the authorities here.
The liquidation in Nassau was the latest tremor to shake the C L Financial Group and its subsidiaries since the Trinidad Government mounted a surprise bailout on January 30, 2009 of four of the Port-of-Spain-based group’s financial institutions after they encountered liquidity problems.
According to a release from the Office of the Registrar of Insurance Companies in the Bahamas posted on The Eleutheran, a wind-up order was granted on Tuesday by the Bahamas Supreme Court appointing Craig Gomez of Baker Tilley Gomez as the liquidator for CLICO (Bahamas). The order had been applied for by the Bahamas Minister of Finance, who is the Prime Minister, Hubert Ingraham, under the Insurance Act and had been taken to protect policyholders of CLICO (Bahamas).
“This position was taken only after very careful consideration of the interest of the policyholders, staff and creditors of the company in the Bahamas and in the region and only after discussions with the principals of the company over many months urging and directing them to inject additional capital and liquidity into the company but to no avail”, the release said.
It stated that the action was necessitated by a number of factors including the continuing decline in the market value of real estate investments in the United States through CLICO (Bahamas) subsidiaries: CLICO Enterprises Limited and Wellington Preserve Limited. The release also pointed to “the uncertain financial position” of the Lawrence Duprey-led parent company C L Financial, its inability to pay claims and surrenders of policies in one of its jurisdictions (Trinidad –where CLICO (Trinidad) has a TT$10B debt) and the “lack of a credible plan by the company to address the shortfall in capital and liquidity in a reasonable time.” Under these circumstances, the release said that it was felt that to delay taking action would only further erode the assets of the company to the detriment of policyholders.
The release noted that CLICO (Bahamas) has just over 29,000 policyholders, over 170 staffers and over US$100M in policy liabilities. Its advances to its real estate subsidiary CLICO Enterprises Limited – based on unaudited accounts – grew from US$57M at the end of 2007 to US$72M at the end of last year.
“We would like to assure the Bahamian public that the financial difficulties of CLICO Bahamas are in no way a reflection of the entire dynamic and robust local Bahamian insurance industry.
“The domestic insurance industry, at the end of 2007, had 52 local companies and branches of foreign companies, over US$1.2 billion in assets and total gross premiums of $701 million. CLICO Bahamas represented less than 1% of the total assets and less than 1% of the total gross premiums. The financial difficulties of CLICO Bahamas are a direct result of the company’s business model and investment policies.
“We would like to encourage the liquidators to move with all speed in communicating practical guidance to policyholders and other creditors who have claims against the company so as to minimize any uncertainty. Policyholders should consult with their financial advisors on the actions they should now take.
“Persons having any questions or queries may contact the Registrar of Insurance Companies at 3rd Floor, Charlotte House, West Bay Street”, the release added.
Since the C L Financial crisis erupted in January there have been calls here for the Guyana Government and the regulator – the Office of the Commissioner of Insurance (OCI) – to be proactive in ascertaining the extent of the related-party transactions between CLICO (Guyana) and its parent company and subsidiaries and to report this to the public. There has been very little said by the Ministry of Finance, OCI or CLICO (Guyana). It is unclear whether the OCI here will have to take any action in light of the liquidation order in The Bahamas
In a terse statement issued on January 30, 2009 after the news out of Port-of-Spain roiled the business sector here, Clico Guyana said it “wishes to make it clear that developments in Port of Spain, Trinidad involving CL Financial Limited have no financial impact on CLlCO Guyana. CLlCO Guyana is a separate entity within the CL Financial Group, and none of its assets are intertwined with CLlCO [TRINIDAD] or CLlCO lnvestment Bank.
“The facts are that CLlCO lnvestment Bank (CIB) has been sold to Trinidad and Tobago’s First Citizens Bank Limited, and the Government of Trinidad and Tobago will provide the liquidity to support any strain on the insurance company, CLlCO Trinidad backed by assets of CL Financial Limited.
“CLlCO Guyana remains solid with a statutory fund that is in good standing,” the CEO Geeta Singh-Knight said.
In another press release last week CLICO said “CLICO (Guyana) is a separate entity. It is a wholly owned subsidiary of CL Financial. We wish to assure our policyholders that your annuities and pensions and other insurance policies are protected and as previously published, our statutory fund remains in good standing with an adequate solvency margin, which indicates a surplus in the fund”.
It said that the investment portfolio comprises short-term and long-term investments which continue to return favourable profits.
It added “As an insurance company, we are obligated by law, through the Insurance Act, to conduct an actuarial valuation which assesses the company’s liability to its policyholders. Based on the result of the valuation, the company must prove that there are sufficient assets to meet its obligation to its policyholders. These assets, some of which must be liquid, are placed in a Trust and cannot be accessed by CLICO, unless it is approved by the Commissioner of Insurance”.
The statement added that the company will continue to ensure that all policyholders, stakeholders and the general public are kept apprised of “all developments”.
Assured
At a press conference on February 20, Head of the Presidential Secretariat and Chairman of the NIS Board, Dr Roger Luncheon had said that that close to $6B of the Scheme’s funds were invested in CLICO (Guyana) which the local company had assured was safe. However, he said that revelations in Trinidad at C L Financial have “provided some idea even if preliminary of how exposed CLICO (Guyana) is to what is happening over there”. The NIS investment with CLICO (Guyana) amounts to 17% of the NIS’s holdings.
The Guyana Government on February 5th had said that it 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.
“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.
With the winding up in the Bahamas, depositors and creditors will have to stake their various claims and it may be some time before liquidators will be able to establish the true financial position of CLICO (Bahamas) and to make payouts.
In his Business Page (BP) column on February 8 in the Sunday Stabroek, columnist Christopher Ram had pointed to the large investment by CLICO (Guyana) in the Bahamas subsidiary. He had noted that 80% of CLICO (Guyana’s) assets were in three related entities: $1.5B or 13% in Caribbean Resources Limited (CRL), $6B or 51% in CLICO (Bahamas) and $1.8B or 16% in the Berbice Bridge Company Inc.
He pointed out that CLICO (Guyana’s) financial statements describe the investments in CLICO (Bahamas) as fixed deposits which was misleading since it suggested a banking-type deposit when in fact they are described by the Bahamas company as annuities under the heading Future Policy Benefit Reserves.
Emphasis of Matter
Ram noted that the auditor’s report on CLICO (Bahamas) had an Emphasis of Matter which adverted to the fact that 59% of the company’s assets were placed in a related company, CLICO Enterprises. The audited financial statements did not show a specific amount due to CLICO (Guyana) but annuities in the amount of US$70M of which 42% would be ascribed to Guyana.
Ram had concluded “What is now very important is for the Minister of Finance, the government and the Office of the Commissioner of Insurance to ask the right questions and to get hard information from the company… It is not enough to downplay the impact of any potential difficulties and we should not forget that the NIS up to December 31, 2005 (the last date for which financial statements have been released) was heavily invested (to the tune of $7.7B) in the company.”
He said further: “ It is also clear that the Office of the Commissioner of Insurance simply does not have the resources, the authority or apparently the will to deal with issues like these. The local authorities should act quickly by first obtaining and analysing the relevant information and having further discussions and agreement with the company, and then following this by a visit to Trinidad and The Bahamas to meet with the relevant persons. Delay only drags the situation out, which is not good for either the company or the economy.”
It had been noted in BP that the CRL investment is guaranteed by the troubled C L Financial Group but even this may not be as straightforward. On Tuesday, according to Newsday of Trinidad, the Trinidad Central Bank and Colonial Life Insurance Company Limited (which was taken over by Trinidad) on Monday secured a restraining order against cash strapped CL Financial, barring the company from conducting any local or international business with its assets.
High Court Judge Gregory Delzin, according to Newsday, prevented CL Financial from dealing with, selling, pledging, assigning, mortgaging, charging, disposing, transferring, divesting, diminishing the value of all or any of the assets, howsoever held by or to the use of, and or vested in the defendant, wheresoever located, and howsoever described.
The restraining order was granted following an urgent ex-parte application brought by attorneys for the Trinidad Central Bank.
CLICO (Guyana’s) 2007 accounts had its long-term fund showing a balance of $231M at 2007 while 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.
Cash advances
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. 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 the $6B 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.
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.
