President defends handling of CLICO crisis

Bharrat Jagdeo

-says efforts were being made to retrieve Bahamas assets

President Bharrat Jagdeo  yesterday strongly defended his government’s handling of the crisis which has seen CLICO (Guyana) placed under judicial management in the backdrop of earlier statements where both he and the CLICO management had said there was nothing to worry about

He told members of the media  that the government’s move yesterday (see other story on page 20) to intervene in CLICO (Guyana) was brought about specifically because of the position with CLICO (Bahamas) where that country’s Supreme Court ordered its liquidation on Tuesday, which affected more than half of the assets of CLICO (Guyana).

During a press conference held at the Office of the President, Jagdeo emphasized that the government was still optimistic that the local company will be able to recover  its assets and consequently should be able to cover its liabilities.

According to Jagdeo, CLICO (Guyana) had invested $ 6.9 billion (US$ 34 million) in CLICO (Bahamas) which represented 53 percent of the firm’s assets. The President stated that the firm should not have had such a substantial portion of its investment overseas. He stated that the company had persisted with this practice despite “instructions from the Commissioner to the company over a year ago and more recently to reduce this exposure”.

 Bharrat Jagdeo
Bharrat Jagdeo

There had not been any public evidence that the Commissioner of Insurance had instructed Clico(Guyana) to reduce its exposure. Indeed, in the 2007 accounts of CLICO (Guyana) lodged with the Office of the Commissioner of Insurance it was stated that 51% of the Guyana company’s assets were invested with the Bahamas company.  However, instead of decreasing, this figure went up to 53% of the Guyana company’s assets in the following year. President Jagdeo did not refer to any specific action that had been taken by the Commissioner of Insurance to enforce the reduction of the investment in the Bahamas company.

The auditors, Deloitte and Touche had noted in the 2007 accounts that the Guyana company was also in breach of Section 55 of the Insurance Act which required that it invest 85% of its statutory fund locally.

According to the President, it was revealed that despite the investments of the local company in the Bahamian firm being “liquid on paper” investigations by the authorities “revealed that the Bahamas Company was exposed to real estate investments in Florida through related party transactions with other subsidiaries in the Group.”

Jagdeo said that subsequently, the Guyana company began to experience sizeable claims which resulted in a liquidity strain on its operations.  He said that while the company has so far managed to meet its claims, it has been forced to dispose of some of its investments including the $2 billion that the firm had invested in the Berbice Bridge. These shares have been transferred to the New Building Society (NBS), the President explained.  CLICO (Guyana) had been one of the original lead investors in the bridge.

When asked if the government had deceived the public by its reluctance to reveal the true state of CLICO (Guyana) earlier, the clearly irate President said that it was not a wise policy by financial officials to reveal the financial situation in these circumstances since it would cause unnecessary unease among the populace.  Jagdeo emphasized that this move by the government was done in the best interest of the policyholders and that efforts were being made to ensure that no money was lost.  He stated that the situation was being monitored for a long time and that over the last two weeks efforts were being made to retrieve the local company’s assets from the Bahamian company.

He said that unfortunately this investment was tied up in real estate in Florida and explained that the government was even trying to acquire these properties.

Monitoring
During a press conference on February 5, the Head of State was asked about CLICO (Guyana) and stated that the government was monitoring the situation closely but assured citizens that their interests were protected. On that occasion, Jagdeo said that he had looked at the liquidity position of the local firm, as well at its assets and liabilities.

“We want to ensure that people here, their interests are protected so we are watching this closely,” Jagdeo declared on February 5th. The President said he had 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 on February 5, 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.

Following the dramatic takeover by the Trinidad Central Bank of parts of the CL Financial Group on January 30,  CLICO (Guyana) declared that same day that it was solid and its statutory fund was in good standing.
In a terse statement 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 had asserted.
The statement by Ms Singh-Knight did not mention the exposure to the Bahamas company.
National Insurance
Scheme
When quizzed yesterday about the funds that the NIS had invested in CLICO (Guyana) ,Jagdeo said that the National Insurance Scheme is an independent body that covers workers from all over Guyana and that the government had no authority to influence where such entities made investments. He explained that if the NIS were to lose its investment of $6 billion, the government will not be bound to provide the lost sum of money.  He explained that the NIS will have to raise funds by raising its rates or other means to make up this amount.

Concerns of the
Populace
When Stabroek News visited the CLICO Head Office on Camp Street yesterday morning and during the mid-afternoon, there was a hive of activity with anxious customers gathering to find out about the state of their policies.

One policyholder, who wished to remain anonymous, told this newspaper that she rushed to close her account after reading about the financial woes of CLICO (Bahamas) in the newspaper. She said that she was disappointed that the authorities of the local insurance company were so silent on a matter of such grave importance.

Another customer, who has several policies in the insurance company, said that he was optimistic that things will work out. The man, who declined to be named, said that the Commissioner of Insurance needed to have intervened earlier.

He also said that the occurrence brought into focus exactly how much attention is paid to the financial statements these bodies release on a yearly basis.  He said that if the financial experts had paid careful scrutiny was paid to these figures they should have been able to see that all was not well with the company.

An employee attached to CLICO told this newspaper that he was concerned about the financial woes of the company since he had a $3 million policy with the firm. He said that he was waiting on advice from his agent.

Origin
The proximate origin of the crisis was the January 30 bailout by the Trinidad government of several financial services subsidiaries of CLICO Guyana’s parent company C L Financial. That put the microscope on the balance sheet of the local company which revealed the large investment in the Bahamas company and a big debt to CLICO (Trinidad) which had been taken over by Trinidad. It was these related party transactions that contributed to the turmoil in C L Financial and led to the collapse of the Bahamas and Guyana operations.

A copy of CLICO (Guyana’s) 2007 accounts 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 had said there was no risk to the Guyana operations there were several related party transactions that could have posed issues. A major one was  $1.18B in cash advances from Clico (Trinidad) to Clico (Guyana). These advances were 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) 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 $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.

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.