OECS confronts CLICO meltdown

by Wilberne Persaud, Financial Gleaner Columnist

Following the three part series on responses to recent financial crises I thought it would be interesting to consider, in a bit more detail, how our neighbours in CARICOM, once part of the 'Little Eight', have attempted to cope with the CLICO meltdown.

Here's a tidbit: reading archival and other materials on Commonwealth Caribbean efforts through the years, at regional integration, always provides ideas and comments potentially profound, but in our Caribbean way, definitely funny.

It begins with Eric Williams new math that discovers '1 from 10 leaves zero'.

Another gem I'm reminded of is the view once expressed by elements of the business elite in St Lucia that there could be no union between 'sharks and sardines' - I imagine they meant 'living union' for sardines in sharks' bellies must be dead.

I might add to this the view of a high official in a partially state-owned financial institution of the ECCU who shared with me, the opinion that the impact of the CLICO and BAICO meltdown in the ECCU was a deal breaker for CSME!

Acronyms proliferate so to jog memories the meanings are: BAICO - British American Insurance Company; CLICO - Colonial Life Insurance Company; ECCU - Eastern Caribbean Currency Union; CSME - Caribbean Single Market and Economy.

Now to the details.

First, with the demise of BAICO, health insurance in Anguilla, Antigua, Dominica, Grenada, Montserrat, Nevis, St Kitts, St Lucia and St Vincent and the Grenadines abruptly came to a halt. BAICO's reach spread wide across the Organisation of Eastern Caribbean States (OECS) chain with diverse offerings.

They included: Mediflex plus standard and deluxe plans, Mediflex silver and gold group insurance, hospital and surgical insurance (adult and juvenile), personal accident income replacer, hospital & surgical - cancer, Mediflex hospital - instant issue (hospital and surgical version only), sickness and accident policy - instant issue and super shield cancer coverage.

St Vincent and the Grenadines' Prime Minister Ralph Gonsalves' comments to Parliament give us a good take on the issue. "Mr Speaker," says the Prime Minister, "you can't get words more powerful in our Caribbean - Colonial Life, the word 'colonial'; British-American - when you have those three combining, and if you put a dash of something else along to it - I don't want to say what that dash is - they are very powerful words; can lead you to buy anything." Such was the power of these companies. Such was the trust placed in them by the population.

The OECS governments recognised they had to act and in May 2011 revealed their creation and commencement of operations of the ECCU/BAICO Health Insurance Support Fund. The fund was "established and funded by the governments of the ECCU in order to provide financial assistance to persons with unpaid but valid claims" on health insurance policies issued by BAICO.

BAICO's website, by this time under judicial management, then indicated procedures claimants must undertake for settlement of their claims.

So that's one element of the problem for which it was not too difficult to mount an interim solution. The question we need to answer but cannot at this time is, how well this scheme meets its objectives. The other issue - one with a much bigger price tag - is of course, the fate of the insured, life policies, annuities and instruments that promised bits of life insurance attached to what was essentially an investment vehicle paying top-dollar interest rates.

Sources requesting anonymity indicate that Executive Flexible Premium Annuities (EFPAs) amount to BDS$282.5m while real estate on the books of CLICO associated entities total BDS$115.4m in the OECS.

This is not a pleasant 'beach at sunset' picture.

Additionally, appalling accounting and recording procedures make these numbers potentially 'in error' to significant degrees.

In this connection, the judicial managers for BAICO's operations in the OECS are associated with KPMG in Barbados. Judicial management is a process which seeks to obtain what's best for the stakeholders after a meltdown. Problem with this, for John and Jane Public as well as stakeholders themselves, is that judicial managers' findings and reports to the court are matters initially confidential.

Their negotiations for sale of a portfolio should remain secret. Whether a stakeholder shall receive ten cents in the dollar or full, or no value, is not known until the announcement is made.

Governments of the OECS are unable, simply to 'bail out' aggrieved policyholders, so until the matter is settled there can be but little more than speculation.

Discussions with key players in KPMG Barbados reveal, I must say apparently, for these are but short conversations, competent individuals doing their job under stress like cold case detectives, trying to make sense out of tangles, puzzles with missing pieces.

Still, I submit, a regional approach to this problem from the outset was our only chance to get this right more quickly.

NB: your columnist served on the board of FINSAC, the resolution institution created to address the Jamaican indigenous financial services crisis.

Wilberne Persaud is author of 'Jamaica Meltdown: Indigenous Financial Sector Crash 1996'. wilbe65@yahoo.com