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Is Clico ready for new ownership?

Thursday, September 7, 2017

CL Financial Ltd subsidiary, Colonial Life Insurance Company (Trinidad) Ltd or Clico (Trinidad) Ltd has been operating under the control of the Central Bank since February 13, 2009. Via Central Bank directive, effective September 1, 2014, Clico, with limited exceptions, ceased writing new policies.

Also under the Central Bank’s directive, Clico’s traditional insurance will be transferred for value to an acquiring insurance company. An independent third party has been engaged to manage the sale process.

According to the Joint Provisional Liquidators of CLF, Clico is CLF’s most valuable asset. In the context of a company that is no longer writing new business, it seems that, except for its investment holdings, its core value may be diminishing daily.

Let us now review Clico (Trinidad) Ltd.’s results to December 2016.

Changes in financial position

Total assets declined to $20.34 billion from $23.74 billion or by $3.4 billion.

The sharpest fall was shown under investment securities, which dropped to $12.21 billion from $14.75 billion. Here, the largest contraction was shown under available-for-sale securities, which closed at $11.1 billion from $13.6 billion. Quoted equity securities rose to $2.33 billion from $1.85 billion while government securities declined to $8.77 billion from $11.76 billion.

For both 2016 and 2015 there were impairment reductions totalling $1.3 billion. Included in that total was a bond issued by CL Financial of $476 million and a bond issued by Clico Investment Bank of $497.6 million.

Investment in subsidiaries edged up to $2.56 billion from $2.43 billion. The value of its 56.53 per cent in Methanol Holdings International Ltd, which is earmarked for sale, rose from $2.25 billion to $2.37 billion while the value of Occidental Investments Ltd appreciated to $166.8 million from $155.7 million. Its smallest holding, Oceanic Properties Ltd closed at $19.6 million from $18.3 million.

As part of the Resolution Plan, effective March 2017, Clico’s entire ownership of both Oceanic Properties Ltd and Occidental Investments Ltd were transferred to a state enterprise, Buccoo Ltd.

Those entities owned valuable land in Tobago, a portion of which is earmarked for development by the Sandals hotel group.

Investments in associates dropped to $1.88 billion from $2.07 billion. The largest component was its 32 per cent stake in Angostura Holdings Ltd, which appreciated to $1.005 billion from $935.6 million.

In contrast, both CL World Brands and One Caribbean Media declined in value; the former closed at $870.2 million from $983.7 million while the latter ended at $304.2 million from $336.3 million. The value of its 43 per cent stake in Home Construction Ltd was unchanged at $178.4 million.

Although small, its holdings in LJ Williams apparently changed dramatically. It seems to have disposed of its entire 10,190,584 “B” shares while its holdings of “A” shares were shown as 3,245,694.

However, in LJ Williams’ Annual Report to March 2017, Clico is still shown as owning 10,190,584 “B” shares and 3,498,956 “A” shares. Both sets of figures can’t be right; some party needs to clarify this apparent discrepancy. Maybe, a share sale is in the making?

Due from related parties closed at $1.71 billion from $1.74 billion. Sums due from the parent ($1.62 billion) and from fellow subsidiary and associates ($3.72 billion) were almost unchanged. In addition, there was a further $50.1 million due from subsidiaries. The major movement was shown under provision for impairment, which increased to $3.67 billion from $3.65 billion.

Not included in these figures was $1.699 billion due from Clico Investment Bank; that sum is offset with an identical payable that Clico owes to that company.

Loans and other receivables edged up to $383.6 million from $374.5 million. Accrued investment income rose to $145.3 million from $137.7 million while sundry debtors and prepayments advanced to $19.4 million from $6.4 million.

Policy loans increased from $203 million to $209.3 million, of which $15 million is impaired. The largest component is promissory notes of $362.7 million (2015: $362.7 million), however, 99 per cent of this figure is impaired.

Investment properties closed at $406.9 million from $426.1 million; this mainly reflected the loss of $19.9 million on the revaluation of some properties. Property, plant and equipment fell to $150.6 million from $157.5 million. The major decline was shown under land and buildings, which closed at $113.3 million from $117.9 million. The main contributors were loss on revaluation ($1.1 million) and disposals of $2.3 million.

Bank and short-term deposits narrowed from $1.78 billion to $1.04 billion. The bulk of this, almost $750 million, was denominated in US dollars. The cash at bank component was $346.2 million. Total liabilities contracted by $3.64 billion to $21.25 billion from $24.89 billion.

Insurance contracts fell to $7.2 billion from $7.6 billion. The long-term insurance fund component declined to $7.14 billion from $7.57 billion while the short-term component edged up to $24.2 million from $23.4 million.

The long-term fund benefitted from premiums of $153.5 million (2015: $209 million) and investment income of $466 million (2015: nil). The major reductions were payments for death and other terminations of $595.8 million (2015: $439 million) and changes in actuarial reserves, which declined to $453 million from 2015’s $461.3 million.

Investment contracts weakened to $4.1 billion from $7.5 billion. The major movement was under the EFPA contracts, which fell to $2.6 billion from $5.97 billion. Two types of valuations were used; policies assigned to GORTT were valued at the pay-out value. For policyholders who did not accept the government’s 2011 offer, those policies were valued at the fund’s value, as determined by actuarial valuation. There were little changes to either the managed funds or deposit administration contracts.

Debt securities issued were stable at $4.992 billion. These are redeemable preference shares owned by GORTT, which pay an annual dividend of 4.75 per cent.

Accounts payable rose to $2 billion from $1.76 billion. Other payables declined to $342.5 million from $344.2 million. However, sums due to GORTT rose to $1.66 billion from $1.41 billion; this increase primarily represents the unpaid interest on the preference shares ($237.8 million).

Amounts due to related parties were unchanged at $1.76 billion.

The mutual fund obligation declined to $1.19 billion from $1.31 billion. Both figures represent an estimate of the obligation to which the company may become liable should the core (series VI) and/or power (series VI) funds not perform to the level of the guarantee.

Equity movements

Total equity improved marginally to negative $910.6 million from negative $1.16 billion.

The accumulated deficit closed at negative $5.14 billion from $5.59 billion. This slight improvement reflected the current year’s profit of $447.3 million.

On the other hand, valuation reserves weakened to $4.22 billion from $4.42 billion. This drop reflected the reduction in the fair value of available-for-sale securities of $211.3 million along with $1.1 million loss on the revaluation of property.

Share capital was firm at $14.75 million. The number of shares outstanding was stable at 2,950,000; consequently, the book value of each share improved to negative $308.69 from December 2015’s negative $392.13.

Income and profit

Clico’s total net premium income declined to $226.3 million from $270.9 million. The long-term premiums fell to $153.5 million from $209 million. In contrast, short-term premiums improved to $72.8 million from $62.9 million.

Insurance benefits and claims registered at $427.8 million compared to 2015’s $484 million. The long-term portion ended at $378.5 million from $439.1 million while the short-term component closed at $49.3 million from $44.9 million.

Contract acquisition expenses declined to $4.4 million from $4.8 million. Changes in the value of insurance contracts registered at a positive $430 million from 2015’s $692.3 million.

These changes saw the net results from insurance activities produce a profit of $224 million (2015: profit of $474.4 million).

Its investing activities produced a profit of $637.5 million versus $708.4 million in 2015.

Its primary source was investment income, which fell to $621.8 million from $808.6 million. Its main income stream was interest on government securities, which improved marginally to $445.5 million from $444.3 million. In contrast, dividends from corporate securities contracted to $130.2 million from $335.3 million.

Also, administration and asset management fees declined to $4.3 million from $9.4 million. Boosting the current result was “other income” of $102.2 million, which is not detailed (2015: loss of $2.3 million).

There were three major reductions to its investment income. Loss on assets at fair value through profit or loss registered at $43.3 million (2015: loss of $20.3 million). Also, loss on revaluation of investment properties was $19.9 million (2015: profit of $14.9 million).

Finally, impairment losses on financial assets climbed to $17.8 million from 2015’s $114,000.

Total operating expenses rose to $167.2 million from $44.9 million. The key component was administration expenses, which advanced to $127.3 million from $70.9 million. Here, bad debts swelled to $33.8 million from $9.2 million while professional fees grew to $40.2 million from $25.3 million.

Finally, employee costs increased from $22.7 million to $29.9 million.

Investment contract movements deteriorated from a positive $5.7 million in 2015 to a negative $83.2 million. Of this figure, the EFPA valuation component moved from a positive $11.8 million to a negative $32 million; this adjustment was due to policyholders not accepting GORTT’s offer.

The last component of operating expenses was the revaluation gain on managed fund liabilities, which improved to $43.3 million from $20.3 million. These movements produced an operating profit of $694.3 million versus $1.14 billion.

Finance costs rose minimally to $238 million from $237.3 million. Primarily, this represented the interest on the preference shares.

These variations resulted in pre-tax profit contracting to $456.3 million from 2015’s $900.44 million.

After allocating taxes of almost $9 million, the net profit registered at $447.3 million versus $894.3 million. That result translated to EPS of $152.30 compared with the previous year’s $303.14.

Next week’s article will highlight some of my previous articles published over the past 20 years.


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