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Home › Commentary & Opinion › Between zero and $152M

Between zero and $152M

Published October 9, 2011
Statue of Errol Barrow at Independence Square

 

Not being a policyholder, I did not attend the Sessions last weekend hosted by the Judicial Manager for Clico International Life Insurance Co. Ltd. (CIL), held at the Lloyd Erskine Sandiford Conference Centre at Two Mile Hill, St. Michael.
 
However, one of the news stories emerging from those meetings was that some of the policyholders said they preferred to have the company’s assets sold off and the funds from the sales pro-rated to policyholders, including people, companies and other entities who or which purchased annuities.
 
According to the JM, Deloitte Consulting Inc., “It was estimated that the return to policyholders under a forced liquidation would be 49 cents for every dollar of liability.”
 
Or less, the JM agreed at the press conference to announce further options, because there was no telling how much the assets, mostly real estate, would sell for, especially in a recession.
 
However, if all of the assets currently identified were to be transferred to a new company, thus continuing the insurance operation as a going concern, policyholders would get about 60% of their policy values transferred and the other 40% in shares in the new company.
 
Those who had purchased EFPAs would get a similar 60% of their value converted into new annuities, but no additional shares.
 
However, it was noted that the ability to do this would be based on the company being allowed to write new business to increase cash flows, which as understandably declining right now.
 
These original recommendations would cost the governments nothing, as they would require no new capitalisation (perhaps beyond some seed money to set up the new operation, legal fees, etc.)
 
All that was announced as long ago as July 28. The new options, which the JM was discussing last weekend here in Barbados and is now similarly doing in the other countries of the region in which policies and annuities were sold by CIL, improved on this default position in varying degrees, depending on how much cash the governments of those countries were prepared to inject, based upon some yet-to-be determined formula.
 
Late last week, in answer to both the policyholders (both insurance and EFPA) who were calling for forced liquidation and the judicial manager. the Barbados Investors & Policyholders Alliance, BIPA, issued a statement saying that its members wanted “everything owed” to them
plus any interest due.
 
The BIPA was also prepared to pursue whatever villains of the affair might be identified in order to get at money owed to policyholders, and was not letting the government, which had dragged its feet, off the hook either.
 
All of this is laudable and I support it fully from a moral perspective, but at the end of the day there will be a deal. And that deal will be somewhere far short of what was promised in the original selling of those products by CIL.
 
The very best option so far proposed by the JM, as we have noted here previously, will cost the governments involved, with the lion’s share being borne by Barbados, just over BDS$150 million in cash injections to the new entity.
Under this best-case scenario, the traditional business, the insurance policies, would be transferred at full value. Similarly, EFPAs purchased by individuals and “quasi-government” entities like national insurance schemes would also be transferred at full value into the new company. 
 
But the interest rate would not be near what was agreed by CIL (eight percent and above?) but more in touch with reality. Otherwise the new entity would be no different to the old one and would soon run into trouble as well.
 
To compete this scenario, the $154 million worth of annuities sold to corporations would be converted to shares only. Like new-born turtles setting out in life from the beach and having to  swim against the tide and face all sorts of threats to their survival, these shares would hope one day to grow in value and pay big dividends but of course there would be no guarantee.
 
The other options are lesser versions of that one, so of course the BIPA would be less interested in those.
 
The policy (sorry for the pun) issue here, as I see it, is how much will the total taxpayer pool here be willing to allow their government to borrow in order to salvage, at least to the extent summarised above, the investments of a portion of the citizenry?
 
The BIPA statement points to the guilt factor in anticipating this dilemma, noting that, “As for whether government should assist in the funding of the proposed solutions, let us not forget their culpability in this debacle; the negligence of their agencies and their procrastination in acting.”
 
But it is not any individual politician or office holder at the time who will personal be paying the bill. It is all of us.
 
How much can we afford? That is a question worth between zero and $152 million dollars.