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Safety net: FSC to rule on policyholder protection scheme

BARBADOS BUSINESS AUTHORITY Monday, March 3, 2014

Safety net: FSC to rule on policyholder protection scheme

by Shawn Cumberbatch 

The Financial Services Commission (FSC) is contemplating the introduction of a special Policyholder Protection Scheme (PPS) as part of efforts to ensure consumers do not suffer when their insurers collapse.

This follows a new International Monetary Fund (IMF) recommendation for the establishment of a “privately-funded” PPS and related concerns from the Barbados Investors and Policyholders Alliance (BIPA), which is representing thousands of Barbadians with money still tied up in CLICO and its sister company British American Insurance Company (Barbados) Limited.

As part of a series of recommendations related to the FSC and issued in its latest Financial System Stability Assessment report on Barbados, the IMF said: “Consideration should be given to the establishment of a PPS for insurance. A privately financed PPS could help secure continuity of insurance coverage and payments by the transfer of insurance policies to a bridge insurer or third party and to compensate policyholders for their losses in liquidation.

“In order to establish a PPS, further discussions would need to be undertaken by the authorities about its governance, coverage level, funding arrangements, and position within the resolution framework.”

After BARBADOS BUSINESS AUTHORITY asked the FSC to respond to the IMF suggestion and BIPA’s related concern that the recommendation might be an inference of a wider concern, its director of insurance and pensions, Randy Graham, said while implementation of a PPS was “a relatively new regulatory tool”, the FSC was examining the feasibility of having one here.

But Graham also emphasised that this had nothing to do with his organisation’s current mandate to ensure the statutory funds of insurance companies operating in Barbados were operating in accordance with the law.

“The Financial Services Commission notes the recommendation from the IMF about reviewing the use of a Policyholder Protection Scheme.

“The PPS which is separate and distinct from the statutory fund is more akin to the deposit insurance scheme in the banking sector. It essentially forms an additional layer of protection for policyholders that creates a structured approach which could allow for the continued settlement of legitimate policy holder claims during a period where there is corrective action ongoing for an insurance entity,” he said.

“FSC actively conducts ongoing supervision of the statutory funds of insurance companies operating in Barbados in accordance with the legislation. The implementation of a PPS is a relatively new regulatory tool recommended by financial safety net specialists as a response to financial crises that would have occurred globally over the past 30 years.

“It is not a response to the characteristics of the statutory fund mechanism. FSC has taken the initiative to review the feasibility of a PPS for the insurance sector as a work in progress. We also continue to work in developing, in collaboration with fellow regulators, a deposit insurance scheme for the credit union sector as we seek to increase the robustness of the safety net for the non-bank financial sectors,” Graham added.

In its own response, BIPA said it supported the IMF recommendation “in principle”, but said it hoped such a scheme “would be operated and managed by a body independent of the insurance companies for which it provided policyholder protection”.

“However, as there is already a legal requirement for Insurance Companies to maintain a Statutory Fund for such purposes, the IMF appears to be inferring that it is concerned about the ability of the Financial Services Commission to adequately oversee and enforce the law as it relates to individual Statutory Funds,” it asserted.

“Certainly, it would appear that the FSC’s predecessor, the supervisor of insurance, failed to adequately monitor the activities of the BAICO and CLICO Statutory Funds and enforce the law when those companies continued to breach the minimum requirements for the fund, as well as failing to submit timely annual accounts.”

CLICO LIGHT

SUNDAY SUN MARCH 2, 2014

CLICO LIGHT

by RICKY JORDAN

CLICO POLICYHOLDERS MAY be getting a dream offer from a North American firm, which wants to buy all of the assets of Clico International Life (CIL) Insurance Limited and repay the principal sums to the policyholders and investors in Barbados and the Eastern Caribbean.

The North American firm has been meeting with CIL’s judicial manager (JM) Deloitte Consulting Inc. as a result of correspondence going back to 2013.

The offer to purchase CIL’s $800 million-plus in assets, including large tracts of land, and ensure policyholders receive over $441 million, was contained in the proposal sent to the JM and Minister of Finance Chris Sinckler recently.

Delivered two days ago to Deloitte, the document obtained by the SUNDAY SUN confirmed the firm’s commitment that policyholders in Barbados and the Eastern Caribbean be restored their principal investment or “made whole for their principal”.

The prospective investors propose to rebrand the company, acquire all of the assets of CIL and ensure that the Government of Barbados achieves its own objective.

Asked why Barbados, a reputable source told the SUNDAY SUN that the woes of CIL were made known to them by an American-based Barbadian businessman.

However, the source added, they also knew that a local insurance company wanted to buy some of the assets, particularly land. “But that would hurt the policyholders very badly. This is a far better offer,” said the source.

“The company would be buying CIL lock, stock and barrel and have the financial capability to satisfy all the parties.” He added that the firm was a billion-dollar operation that had been doing business since the 1970s.

“Barbados has Trade Confirmers behind us and one doesn’t want that to happen again, not in the 21st century, especially when there are opportunities to avoid it,” he added.

The SUNDAY SUN understands that the company’s partners include some of the largest North American financial entities. Recently, Central Bank Governor Dr Delisle Worrell told regional media that a cooperative solution had been found to settle outstanding CLICO claims in Barbados and the Eastern Caribbean.

He said the latest report from Deloitte made to the court here provided a way forward which seemed fair to all stakeholders. CLICO and its sister company, British American Insurance Company (BAICO), collapsed in 2009, and on February 4, 2011 the Supervisor of Insurance in Barbados announced the appointment of a judicial manager.

Last July, the JM informed policyholders and other stakeholders that it had presented its final recommendations to the High Court, and based on discussions with the Ministry of Finance and the Central Bank of Barbados and subject to Cabinet’s approval, it was proposed that a new company be established to hold CIL’s portfolio of traditional insurance business and the restructured Executive Flexible Premium Annuities (EFPAs).

The ultimate aim is to create a viable insurance company which could be sold to an investor insurance company, and the decision on this matter is expected to include the approval of policyholders and investors.

The total value of the policyholder liabilities to be transferred to the new company was put at $542 million, consisting of $275 million of liabilities from Barbados and $275 million from the Eastern Caribbean Currency Union (ECCU).

The JM also presented a forensic report to the court but its scope did not cover all areas of CIL’s activities.

CLICO Judicial Manager’s Report

Click on each of the links below to view the documents comprising the CLICO Judicial Manager’s Report.
All documents are in PDF format.

ON GUARD!

Efforts by the Judicial Manager to get the High Court’s permission to seal the CLICO financial forensic report which was filed last Friday, is being fought in court by the Barbados Investors and Policyholders Alliance.

The judicial manager, represented by attorney Patrick Toppin, appeared in court today and submitted their final recommendations along with that report, with respect to the collapse of the insurance company.

Lead attorney for BIPA, Alair Shepherd, said today the alliance would be urging the court to reject an application by the judicial manager to have the forensic report sealed. Shepherd is insisting that the policyholders paid for that report and that everything related to the CLICO issue, would impact on them and therefore, they had a right to see the document. The judge has postponed, until Friday, July 12, hearing in that case, where the judicial manager is seeking further directions from the court on how next to proceed, now that the final recommendations and forensic report have been presented.

The court is also expected to rule on whether the forensic report should be sealed. If approval is given to seal it, the public would not have access to the document, which should reveal all the financial transactions of CLICO, leading up to its collapse.

A source close to the judicial manager told Barbados TODAY they had asked the judge to bring forward the date of hearing to an earlier time and was currently awaiting a response. In a separate matter, but related to CLICO, BIPA has filed two claims. Most of the parties to this case appeared in the Number 10 Supreme Court this morning, requesting that the Alliance be appointed to represent the policyholders in the proceedings of the judicial manager and also to act on behalf of CLICO and British American Insurance Company’s policyholders.

Their attorney, Shepherd said afterwards, that in those actions, BIPA was seeking to ensure that any losses incurred in the proceedings of the judicial manager, are paid to the policyholders by the Crown or Attorney- General on behalf of the supervisor of insurance, the company directors or auditors, PriceWaterHouse Coopers.

Shepherd said some of the directors in this action were requesting security for costs from BIPA. These directors, he explained, say the Alliance cannot bring any action of negligence against them, because the case had been filed outside of the statute of limitation.

But the attorney is rejecting such a position. Shepherd said while the policyholders did not want the forensic report sealed, their desire was for the judicial managers to get as much money as possible for the sake of the policyholders, and would therefore do nothing, to prevent that.

Attorney for the State, Donna Brathwaite gave notice that she would be seeking to have the name of the Attorney- General removed as a party to this case. This case was adjourned until October 21.

President of BIPA, June Fowler was upbeat regarding the “positive” progress of the issue declared her delight at how it was nearing a conclusion. Fowler said she was also pleased at being able to “sit down” and hold discussions with the judicial manager over the weekend.

No fewer than 13 defendants are being summoned. Among the high profile persons served were former Executive Chairman of CLICO Holdings (Barbados), Leroy Parris, and his Trinidad counterpart Lawrence Duprey, represented by Hal Gollop, QC; Leslie Haynes, Woodbine Davis, Anthony Ellis and Basil Springer, CLICO directors, represented by Elliott Mottlley, QC, and David Griffith, former Accountant-General and a director, whose counsel is Vernon Smith, QC.

Source: http://www.barbadostoday.bb/2013/07/01/on-guard/