As the Clico matter heads into litigation and the evidence stage of the Commission of Enquiry, it would be instructive for all those who have an interest in a win-win resolution of this issue-and those with such an interest would include every man, woman and child living in this country-to reflect on how we got to this point and what could have been done to avoid the huge expense, in both money and time, of the court and the commission. There is a widespread perception that the previous administration made $5.1 billion available to Clico, but did not have a strategy for a resolution of the issue.
Good evidence of the national ignorance of the resolution strategy for Clico that was put forward under the last administration can be found on the YouTube Web site, where there are several video clips of a CNC3 talk show, titled Bailout: the rise and fall of the Clico empire, which was presented on October 4 last year. One of the questions that the host asked the three guests (Government Senator, Prof Patrick Watson, Clico Policyholders Group chairman, Peter Permell, and head of the Association of T&T Insurance Companies, Douglas Camacho) was to describe the handling of the Clico crisis by the last administration.
In answering the question, Permell referred to the Memorandum of Understanding (MoU) that was signed by CL Financial, represented by its former chairman Lawrence Duprey, and the Government, represented by former Minister of Finance, Karen Tesheira. Asked the same question, Watson referred to the MoU as an "illegal document, as far as we are concerned," adding that the verbal undertaking from the previous minister of finance made to the Clico policyholders "cannot be considered to be a guarantee as it had no basis in law."
Referring, as well, to the MoU, Camacho said the previous administration had done the right thing at the right time "as it prevented a catastrophe of even greater proportion" within the national financial system. Camacho also said the PNM government should have taken legislation to the Parliament to give effect to the commitments it made to policyholders and to appropriate funds for such commitments.
It appears that not many of those who have spoken or written on this issue are aware of the plan and strategy outlined by Central Bank Governor, Ewart Williams, and current Clico boss, Carolyn John at a news conference at the Central Bank on March 24, 2010, exactly two months before the 2010 general election.
The plan and strategy, which seemed to have been glossed over in the contemporaneous media reports of the news conference, including my own, would have involved the majority of the policyholders recovering their investments (principal plus accrued interest) within a five-year period. What was said at the news conference is so important for an equitable resolution of this issue that I took the time to transcribe the relevant portions of the recording. The news conference began with a statement by Governor Ewart Williams, who then handed over to Ms John. Ms John said Clico and the Central Bank "had come up with a short-term strategy which we have put in place while we work out with the consultants the long-term plan going forward."
As regards the short-term strategy for treating with people who invested more than $100,000 in Clico's Executive Flexible Premium Annuities, she said: "Requests for maturities where the values are greater than $100,000, we are paying over a period of time and that time period is determined by the value. So we are entering into arrangements with our clients where we work out a payment schedule with them.
"So, for instance, if it is $500,000, we may opt to pay you $100,000 per month for the next five months going forward. So we are working out these issues with our clients.
"Largely this strategy has been well received by our clients and we guaranteed clients who have policies over $100,000 that their installment would at least be 100,000 per month going forward in keeping with the formal schedule." The 2009 maturities have been given priority. "Basically, this is how we are operating: We are treating with all the policies $100,000 and under and for those over $100,000, we are working out payment schedules with our clients. And it's fairly normal operation where the traditional business is concerned. That's the strategy we have developed and it satisfies the majority of the clients with whom we are dealing." In answer to a question from English journalist, Mark Wilson, Ms John confirmed the Clico plan included accrued interest.
It seems to me that what Ms John outlined was a strategy for paying off Clico's short-term policyholders as quickly as the company could afford; that this strategy was the subject of some negotiation with policyholders and, most importantly, that the policyholders would have formed a legitimate expectation that they would have recovered their investments in a mutually agreeable manner. Williams then said:
"I would like to take up your question following up where Carolyn left off. I think we have to understand that Clico was in serious distress. Clico could not have met all of its maturing liabilities for all sorts of reasons; for liquidity reasons and for solvency reasons, okay. "But the Government made the decision that it was important to step in to help Clico and in so doing to ease the burden on the policyholders.
"Otherwise, what would have happened in addition to the contagion impact on the economy as a whole, you could have wound up Clico and people would have got, I don't know, 40 or 50 cents on the dollar.
"The intervention by the Government, in a way, facilitated the policyholders to the extent that they were told that we are going to do all we can so that you get your money back. "It's turning out that because all sorts of assumptions have not turned out as we expected, that you would not get your money back as fast or everybody would not get their money back on request. "And, in a way, as Carolyn explained, over the last several months, there has been a dialogue between Clico, its agents and the policyholders to come to an acceptable solution.
"What is happening now is that having brought in the consultants and the consultants having quantified the way ahead, in our view, it's better rather than having ad hoc individual arrangements to decide on certain basic principals going forward. "The fact is that there isn't-at the current time and on the current assumptions-all the liquidity that's needed to pay everybody on demand. "And, what we are trying to do is come up with a plan that ensures that-whilst we try to cultivate and ring-fence the traditional business-it's a plan designed to ensure that policyholders get maximum recovery in the shortest possible time." That's essentially the strategy.
Later, journalist Anthony Wilson asked this question: "Governor, is Clico broke? Williams: No, I am broke but companies don't get broke. No, Clico is not broke at all. Wilson: Is it bankrupt? Williams: Absolutely not. Wilson: So if I have a $2 million deposit that is coming due on March 31 and I approach Ms John with my maturing $2 million deposit and I say please honour this, from what I understand Ms John to be saying Clico would not be in a position to honour it. And therefore, you may describe it as illiquid, but others might describe it as bankrupt.
Williams: We have to start off from the position that Clico started off in serious distress...There is no liquidity gap if the assumption about the inflows from CL Financial are realised. There is none. If all those inflows could be realised and realised in time, the gap is closed. The reality is that is not likely to happen and that is why the liquidity management comes in." Why was this plan, which would have paid out $100,000 a month to all policyholders who held maturing policies, not given more publicity by its proponents and why was it not followed up by the incoming administration? Is the plan of March 24, 2010, still a feasible resolution for Clico?