Rawle Lucas is a Guyanese-born Certified Public Accountant and Assistant Vice-President of the Lending Services Division.
Mr Lucas has agreed to serve as a columnist with the Stabroek Business and will be contributing articles on economic, financial and development matters.
By Rawle Lucas
National Consensus
With a declaration by the administration that no investor in Clico (Guyana) will lose his, her or its investment, it is easy to understand why so many Guyanese seem complacent about the general behaviour of the administration. This is a profound decision which appeared sufficiently considerate and sensitive that it easily secured the endorsement of the political opposition and, even the unanimous approval of the Guyana Parliament. This new national consensus, since it was not done for the depositors and investors of Globe Trust, must be welcome news for current and prospective investors.
Profile
The motivation for this position of support and the public defence of Clico’s investment conduct is not altogether surprising. Clico (Guyana) is one of 13 registered insurance companies in Guyana. It is the only one that provides both long-term insurance products such as life insurance and pension programmes and general insurance services such as fire and auto coverage from unified operations. Clico (Guyana) reportedly has 14,900 policyholders and manages 17 of the 109 listed pension plans in Guyana. Through these relationships, Clico (Guyana) gains access annually to substantial amounts of money from Guyanese workers and families. By managing pension plans for entities like GAWU, Banks DIH, Continental Group of Companies and Guyana Revenue Authority, it also has access to persons of influence in the country.
As a business enterprise, the profile and national value of Clico can be assessed in the context of its relationship with the Guyana economy and its policyholders. Current data on Clico are not readily available to this writer but it is now public knowledge that Clico (Guyana) reportedly held as much as G$6.9 billion or 53 percent of its assets overseas. That translates into G$13 billion in total assets, giving Clico control over one-third of all the assets of the insurance industry in Guyana. In the context of the broader economy, the assets of the insurance industry are equivalent to 13 percent of Gross Domestic Product (GDP), with those of Clico alone approximating four percent of GDP. In effect, Clico is like the AIG of Guyana, supposedly too big to fail.
Industry Investments
Despite its size and importance, Clico is now in trouble and the attention that it has gotten is leading to closer scrutiny of its behaviour and that of the insurance industry as a whole. By understanding the behaviour of the industry, it would be easier to place the behaviour of Clico in proper perspective. Further, the confusion surrounding the whereabouts of Clico’s foreign investment raises the likelihood that Clico could be in greater legal jeopardy than meets the eye. An understanding of what comprises the industry investments would make clear also why those associated with Clico’s foreign investments should be worried.
Compliance
The resources available to the insurance industry are huge and the regulations suggest that the bulk of those resources should be primarily invested in the Guyana economy. That places a major responsibility on the shoulders of Clico and the entire insurance industry to be effective corporate citizens. Unfortunately, the data do not show that the insurance companies have been complying with their statutory obligations
According to the 2008 Statistical Bulletin of the Bank of Guyana (BOG), the insurance companies in Guyana kept an average of 8 percent of their resources in the Guyana banking system from 1999 to 2008. Within the last five years, from 2004 to 2008, that share fell to 6 percent. At the end of 2008, a sizable share of the resources of the insurance companies, nearly 50 percent, were sitting in bank accounts outside of Guyana and in securities of companies that were also out of the country.
So, at a time when the Commissioner of Insurance was supposedly urging Clico to reduce its foreign investments, other insurance companies were thumbing their nose at the regulations and increasing their overseas investments in full view of the administration. Thus, it is not surprising that Clico may have ignored the warnings of the Insurance Commissioner. Clico knew that it was in good company and it had a near foolproof legal defence for its behaviour; it was following industry practice.
Negligible
Moreover, the deposits of insurance companies in the local banking system were so negligible that they made up less than 2 percent of the money supply of the country in 2008. So insignificant were the deposits that all of it could be counted as part of the excess liquidity of the banking system. What this means is that commercial banks could ignore these deposits and fully conduct their operations without them. Therein also lies the motive for the insurance companies to move their money abroad. Having it sit as excess liquidity in the banking system earns little or no money for them or their policyholders. Importantly, however, this marginal relationship with the banking system in Guyana also means that if any insurance company fell apart, it could not drag down the Guyana banking system.
Thus, the failure of Clico (Guyana) by itself could not cause the financial system of Guyana to collapse. It was therefore a surprise to learn that the administration found it necessary to create a panel to study a non-existent problem. Worse yet, the administration solicited the help of individuals with a direct stake in protecting their own self-interest to make the call. However, if that course of action had a positive psychological effect on Guyanese, then the charade was worth the effort.
At times, it is easy to believe that the insurance companies are not overly supportive of their policyholders. There is always the temptation not to think of the general insurance services such as auto, fire and accident coverage that are provided to policyholders.
Transfer Abroad
But that policyholders have limited access to long-term resources is undeniable. Admittedly, I do not know how many policies contain cash value that may be available to its policyholders. What we know is that together, the insurance companies have lent domestic policyholders less than 2 percent of their money for home mortgages while they have lent more than three times that much to foreigners. The insurance companies kept local policyholders at bay with discouragingly high interest rates, thus leaving themselves with more money to transfer abroad. It is disheartening to know that insurance companies in Guyana look Guyanese in the eyes, take their money and then transfer it overseas to the detriment of domestic investments and job creation.
The most substantial local investment is in the securities market. Through the capital markets, insurance companies have invested 12 percent of their resources in businesses in Guyana. By investing such little resources at home, the insurance companies demonstrate an unwillingness to help Guyanese build a prosperous Guyana and create good paying jobs that in turn could be mutually beneficial.
No Confidence
By their investment choices, the insurance companies have shown no confidence in or regard for the policies of the administration. So the haste with which the administration and others have rushed to protect the stakeholders of Clico undoubtedly have piqued the interest of many.
The next piece will look at the composition of the industry investments and its implications for Clico (Guyana).