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Best buyer gets Clico

Tuesday, May 20, 2014

The Central Bank yesterday confirmed a Sunday Business Guardian exclusive story that the Government is planning to dispose of Clico’s traditional portfolio—life insurance, health coverage and long-term annuities—as part of the resolution strategy for the financially strapped insurance company. The Central Bank, in a statement signed by Governor Jwala Rambarran, was responding to the story headlined “Howai: Clico could go to foreign buyer...systemic risk for locals.” In the statement, Rambarran said the Central Bank was in control of Clico, pursuant to Section 44D of the Central Bank Act and it was the only entity empowered to restructure the business or undertakings of Clico, in accordance with the provisions of the act. While section 44D gives the Central Bank extensive powers to take control of companies in which “the interests of depositors, creditors, policyholders or members of an institution are threatened,” those powers are subject to section 44F (5) of the Central Bank Act, which states: “In the performance of its functions and in the exercise of its powers under section 44D, the bank shall comply with any general or special directions of the Minister (of Finance) and shall act only after due consultation with the Minister.” Rambarran’s statement said in order to sell Clico “the Act requires the Central Bank to have a market price for Clico’s traditional portfolio determined by an independent valuation company. An independent actuarial firm has, therefore, been engaged to value Clico’s traditional business for this purpose and the exercise is still in progress.”

The Sunday BG article quoted Howai as stating that the firm conducting the actuarial review of Clico is the New York-based professional services firm, Towers & Watson. The valuation exercise is expected to be completed next month. The Central Bank statement said after the valuation was completed, “the Central Bank will conduct the process for the sale and transfer of Clico’s traditional insurance portfolio on a transparent, open market basis. The bank has neither engaged with any prospective buyers nor made any decision on the structure of the portfolio transfer.” The Central Bank said it “remains committed to pursuing the resolution of Clico in the interest of policyholders and creditors in accordance with requirements of the law.” Clico collapsed in January 2009 as it was pushed over the edge by the onset of the global financial crisis and years of risky deals, related party lending and dodgy corporate governance.  As a result of the collapse of the insurance company, taxpayers have pumped over $20 billion into Clico, its sister insurance company, British American, and a related non-bank financial institution, Clico Investment Bank, which was placed into compulsory liquidation by the High Court in 2011. 


Clico’s most recent audited financial statement for its 2012 financial year puts the insurance company’s insurance contract liabilities at over $8 billion. Those liabilities must be matched by assets. The Central Bank said that as part of its resolution strategy for Clico, it “proposes to transfer Clico’s traditional insurance portfolio for value to an acquiring insurance company that is well capitalised, has a proven track record and the capacity to honour all obligations to policyholders.” The Central Bank’s three criteria for the acquiring insurance company exclude an issue raised by Howai, who in the Sunday BG article said that the Central Bank had advised him of concerns about the systemic risk inherent in one of the large existing local insurers acquiring all of Clico’s traditional portfolio. “There is a threshold that is used internationally of 40 per cent market share and the Central Bank has signalled to us that they would not want to see that 40 per cent market share breached. 


“Or that you come so close to the 40 per cent threshold that the company that bought it cannot write another dollar of business because they would then be in breach of the Act,” Howai said.
The Finance Minister said that the Central Bank had indicated to the ministry that it thought the best approach may not be to sell all of the portfolio to a single existing buyer in the local market. Howai said: “That could mean that an international buyer could purchase all of Clico or we could split the portfolio among different (local) buyers. The reason for that is that the Central Bank is concerned about systemic risk.”Union: Not informed of sale.


Workers in the dark

Head of the Clico branch of the Banking, Insurance and General Workers Union, Roxanne Cuffy, has disputed a statement made by Howai in the Sunday BG that the staff of the insurance company has been advised that the Government is considering the sale of the traditional portfolio. Cuffy described Howai’s assertion that the workers were advised as “completely untrue and highlights a deeper concern to the workers here at Clico.” She said five years have passed since the collapse of Clico and the workers there “are tired of being treated as non-entities by the powers that be.”  Cuffy said the Government “is taking its cool time to make up their minds and still failed to inform one of the major stakeholders in this scenario, the workers, of their plan,” which will significantly impact the life of every employee. “Imagine finding out about something like this in the newspapers?” she asked.


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