An­tho­ny Wil­son

Last week­end, Cli­co pub­lished its au­dit­ed fi­nan­cial state­ments for the year end­ed De­cem­ber 31, 2009, which in­di­cat­ed that the fi­nan­cial­ly strapped in­sur­ance com­pa­ny had as­sets of $15.1 bil­lion and li­a­bil­i­ties of $24.5 bil­lion, re­sult­ing in a deficit of $9.4 bil­lion.

In the chair­man's re­port, Ger­ald Yet­ming states: Cli­co's 2009 op­er­at­ing re­sults present a grim pic­ture in­deed as the board and the man­age­ment team grap­pled with the non-per­for­mance of re­lat­ed-par­ty in­vest­ments and the with­draw­al de­mands of clients hold­ing our short-term in­vest­ment and mu­tu­al fund prod­ucts. "As at De­cem­ber 31, 2009, the bal­ance sheet shows as­sets of $15.1 bil­lion (of which $1.9 bil­lion was pledged as se­cu­ri­ty to var­i­ous loans) com­pared to li­a­bil­i­ties of $24.5 bil­lion re­sult­ing in a sig­nif­i­cant deficit of $9.5 bil­lion (4.5 bil­lion as at De­cem­ber 31, 2008).

The state­ment of com­pre­hen­sive in­come shows a loss of $4.8 bil­lion for the pe­ri­od end­ing De­cem­ber 31, 2009 (9.5 bil­lion for the pe­ri­od end­ing De­cem­ber 31, 2008). The loss for 2009 was main­ly caused by sig­nif­i­cant im­pair­ments on re­lat­ed-par­ty in­vest­ments to­talling $3.1 bil­lion (2008-$6.1 bil­lion) and a 34 per cent de­cline in in­vest­ment in­come.

There are sev­er­al com­ments that can be made about the bal­ance sheet:

• The re­sults, while in­ter­est­ing, present a dat­ed snap­shot of Cli­co's fi­nan­cial predica­ment and are there­fore of lit­tle val­ue in de­ter­min­ing the present val­ue of the in­sur­ance com­pa­ny. The more im­por­tant re­sults would be the 2011 fi­nan­cials which are due by the end of March.

• The au­dit re­veals that Cli­co was in­sol­vent at the end of 2009 and that had the com­pa­ny been wound up then, it is like­ly that the hold­ers of the in­sur­ance con­tracts called Ex­ec­u­tive Flex­i­ble Pre­mi­um An­nu­ities (EF­PAs) would have re­ceived 100 per cent of the sums due to them ($12 bil­lion) when their short-term in­sur­ance poli­cies ma­tured. This is based on the well-es­tab­lished le­gal doc­trine that in a wind­ing-up sit­u­a­tion, pol­i­cy­hold­ers have first call on the as­sets in the statu­to­ry fund of an in­sur­ance com­pa­ny. A bank­rupt­cy or court-man­aged wind­ing up, though, may have left Cli­co short of re­sources with which to pay hold­ers of the so-called tra­di­tion­al life in­sur­ance poli­cies.

• In the 2009 fi­nan­cial state­ment, there is an in­ter­est­ing sleight-of-hand some con­ver­sion of in­sur­ance con­tracts in­to in­vest­ment con­tracts, which is pos­si­ble to dis­cern even by some­one who has no for­mal train­ing in ac­count­ing. In the 2007 ac­counts, Cli­co's in­sur­ance con­tract li­a­bil­i­ties amount­ed to $11.8 bil­lion, while its in­vest­ment con­tract li­a­bil­i­ties to­talled $797.4 mil­lion. In the 2009 ac­counts, Cli­co's in­sur­ance con­tract li­a­bil­i­ties to­tal $5.5 bil­lion, while its in­vest­ment con­tract li­a­bil­i­ties to­tal $12.7 bil­lion. It seems to me that what the man­age­ment of Cli­co, or the man­age­ment and the board of the in­sur­ance com­pa­ny, has done is re­de­fine the EF­PAs from be­ing in­sur­ance con­tract li­a­bil­i­ties to be­ing in­vest­ment con­tract li­a­bil­i­ties.

This is in­ter­est­ing be­cause the EF­PAs were deemed to be in­sur­ance con­tract li­a­bil­i­ties by the Su­per­vi­sor of In­sur­ance and its suc­ces­sor reg­u­la­tor, the Cen­tral Bank of Trinidad and To­ba­go, for at least 15 years. It is al­so note­wor­thy that the for­mer ad­min­is­tra­tion went to Par­lia­ment in Feb­ru­ary 2009 to amend the in­sur­ance leg­is­la­tion to en­sure that the EF­PAs were prop­er­ly de­fined as be­ing in­sur­ance con­tracts. It is, there­fore, of du­bi­ous le­gal­i­ty for the cur­rent man­age­ment and di­rec­tors of Cli­co, by some mag­i­cal fi­at, to re­de­fine the EF­PAs as in­vest­ment con­tract li­a­bil­i­ties when 15 years of prac­tice and an amend­ment to the in­sur­ance leg­is­la­tion would in­di­cate oth­er­wise. This would seem to be an ex­am­ple of ex­treme bad faith by the Gov­ern­ment in its treat­ment of the hold­ers of EF­PAs and would seem to add to the am­mu­ni­tion in the var­i­ous law­suits that have been brought against the Gov­ern­ment for its han­dling of this mat­ter;

• The au­dit, which was con­duct­ed by KP­MG, states in the in­de­pen­dent au­di­tors' re­port: "These fi­nan­cial state­ments have been pre­pared on the as­sump­tion that the com­pa­ny is a go­ing con­cern and will con­tin­ue to op­er­ate for the fore­see­able fu­ture. This as­sump­tion is based on the as­sur­ances pro­vid­ed by the Gov­ern­ment of the Re­pub­lic of Trinidad and To­ba­go, fi­nan­cial ad­vances made pur­suant to such as­sur­ances and the es­tab­lish­ment of a res­cue plan to ad­dress a sig­nif­i­cant por­tion of the com­pa­ny's li­a­bil­i­ties."

• It is note­wor­thy that the Gov­ern­ment of T&T owns 49 per cent of Cli­co by virtue of the in­vest­ment of $5 bil­lion in to the com­pa­ny in the form of in­ter­est­ing-bear­ing pref­er­ence shares. It is al­so note­wor­thy that the bal­ance of Cli­co, some 51 per cent of the com­pa­ny, is owned by CL Fi­nan­cial. The three-year share­hold­ers' agree­ment be­tween the Gov­ern­ment and CL Fi­nan­cial, signed on June 12, 2009, comes to an end in the sec­ond week of June this year-in less than five months time. From my lay­man's read­ing of the share­hold­ers' agree­ment, this means that in less than five months time, Lawrence Duprey could be back in charge of Cli­co.