Central Bank Governor Ewart Williams said yesterday that the institution wants holders of short-term Clico deposits above $100,000 to agree to an extension of the maturity periods of these investments. Speaking at a news conference at the Central Bank, Williams insisted that the insurance company, which is under the management of the Central Bank, is not "broke," bankrupt," or "insolvent," but is experiencing a liquidity problem. Carolyn John, acting CEO of Clico, told the news conference that the insurer was hoping to pay off all maturing investments of less than $100,000 by March 31.
Williams warned that Clico could be forced into liquidation if too many depositors demand their monies immediately, in which case depositors would receive between "10 and 15 cents on the dollar," as the company would be forced to embark on a fire sale of its assets.
"We recognise that policyholders have legal rights but there are costs to enforcing these rights and if everybody seeks to exercise their rights immediately, we will all be worse off," he said.
Williams said that for everyone, "the better option may be to reach agreement, in a collective way, with all the policyholders, so that we could maximise the level of recovery in the shortest possible time." He said Clico's policyholder liabilities amount to $17 billion, of which about $11 billion is held in short-term deposits or policies and $6 billion is in long-term annuities or insurance contracts.
According to Williams, policyholders and depositors with accounts of more than $100,000 account for 54 per cent of the number of Clico accounts and about 95 per cent of the value of the deposits held.
He also revealed that most of the $11 billion that Clico holds in outstanding short-term deposits and policies is being held in EFPA accounts–once Clico's most popular investment because they paid very high deposit rates for periods of up to five years. Of the $11 billion, an estimated $1.2 billion is owed to non-resident holders of the EFPAs and $1.1 billion to holders of the CORE mutual funds. This means that Clico is looking to convince depositors holding an estimated $8.7 billion in the short-term EFPAs to extend the maturity of their investments.
While the policyholder liabilities equal $17 billion, Williams disclosed that the insurance company has "available resources" of between $11 billion and $12 billion. The available resources include the $5 billion the Government put into the insurance company in the last year as part of a bailout package, but it excludes monies Clico is owed by its parent company, CL Financial. Williams attributed the current state of Clico to larger-than-expected redemptions of the EFPA and the decline in the value of Clico's real estate holdings as well as its stake in Republic Bank. He also said that it was discovered that CL Financial's assets "were far more leveraged than we thought and that the contribution expected from the sale of these assets in the short to medium term would be minimal."