Straight talk // February 16, 2009 at 9:10 pm (edit)

Can’t see why the Advocate has a problem, it obviously has inside information that Clico is in excellent financial health.

It should advise Mr Parris to release last year’s figures to dispel these damaging rumours.

@Tony

What would be useful is if the Supervisor of Insurance made public if all insurance companies in Barbados are meeting their statutory reserve requirements.

More importantly, can we get the Supervisor of Insurance to speak to the issue regarding if insurance companies in Barbados are in breach of the statutory requirement?

have you heard that the barbados government is buying back the shares it poreviously sold ot republic bank in bnb. where is the government getting the money from?? Did the government not announce in the july budget that they were selling the remaining shares in order to upgrade the hospital

In today’s Sunday Sun we have the ludicrous and very dangerous situation of one report from Opposition Leader Mia Mottley citing documentary evidence that CLICO Barbados is currently not meeting its statutory requirement, the other report refers to a statement from CLICO Barbados stating that it IS meeting the requirement.

A glaring omission is a statement from the regulator or government to paint the true picture. We have written before that that this matter is being politicised given the person who heads CLICO Barbados (Leroy Parris, the man who we all love to talk about and make mock sport). We take heed of BU family member RA who suggested that there is overlapping interest which servers to make this matter very dangerous and has serious implications for the financial market in Barbados.

We have to be very careful with this issue. If everyone who has funds in CLICO, goes for their money it will be catastrophic for all bajans and our fragile economy. Right now, this issue is being politicized for obvious reasons but at this point it serves no one purpose to see CLICO collapse regardless of your politics.

Less we are unaware, CLICO and any government will be and are in bed. If the shoe was on the other foot, a BLP government would not want CLICO to collapse either given that their investments are so wide and varied. I hope everyone in both political parties will be responsible and treat this issue carefully because we cannot readily recover from any meltdown of our financial services sector.

BC

The reserve levels a year ago are irrelevant.
The problem is now, not a year ago.

This issue, like the QEH and St Leonards Boys School are political footballs of both parties.

Leroy Parris is arrogant and nor the PM is not healping Clico or the country by not being more open. However, I think Mia Mottley’s comments in todays paper are very irresponsible and she needs reigning in as well.

She might want to see the demise of the PM and Parris, however she is taking “by any means necessary” too far

Anonymous we agree with you to a point. The reserve level one year ago exposes to the public the lack of transparency which our governments promise but never deliver. It is somewhat disingenuous for the people who were in government just over one year ago to distance themselves from the current CLICO situation.

BIPARTISAN, BIPARTISAN, BIPARTISAN

What is so difficult for politicians to understand about the word BIPARTISAN? The crisis facing the world is unprecedented lets get our asses in gear!

Bipartisanship?
What the hell is that?
Idealism.
Look at the realpolitik which is driven by human nature. Bipartisanship doesnt work unless the external threat is so great as to eradicate the whole.
So, if one group sees an advantage in the crisis, they will seize the opportunity, and rightfully so.
It’s like asking the races to come together; rich and poor; industrialized and developing; capital and labor.
It wont happen. These are dialectical forces to push forward the human agenda.
Don’t you get it?
Get off your idealistic high horse and get real.

Well well well. Is political management only about the ability to manage during economic growth?
The real test of one’s ability to manage is to pull through the rough seas.
The real test to leadership is to inspire the whole to work together.
Of course the global crisis is impacting upon us, however, what is even more frightening is the lack of leadership, creativity and proper management skills to get us through the rough seas.
It has to start by admitting that the bloody country is already in a recession and stop the euphemisms.
Then the real truth about CLICO must be told. The assets those jokers are talking about are illiquid. If there’s a run tomorrow, CLICO cannot meet it. FACT.

If there is a financial meltdown in Barbados politicians will not be the ones to suffer because most of them can survive on their earnings. It is the poor people who will get hurt. Therefore Mia Mottley should curb her ambitions at this time and allow the government and people to ride out the economic situation.

The mighty USA economy stumbled and all the economic powers stumbled also, so what resources do we have not to stumble. I can see some hardships heading our way. We should follow Bizzy Williams call in today’s paper about coming together and be a strong nation.

Therefore she will not get to be Prime Minister using a tactic that will hurt poor people the most

Clico problems could not have started in 2008.The last government never spoke about the Statutory fund deficit. When did this problem start?

Was it not Mia Mottley who pushed the Kola Syrup issue and basically destroyed a black business when they got into power?

If the Gov’t came clean on the Clico affair then any speculation by the Leader of the Opposition would be exposed as baseless.

While Bajans have short memories, I well remember a speech made in Haggat Hall, where the speaker excoriated a former Minister of Finance for dodgy dealings with a banker (who was employed by a Clico associated bank). The speaker’s argument then was that even if no impropriety was committed, the appearance of a conflict of interest between a Minister and another under the Minister’s regulatory oversight was warrant enough for the Minister’s removal from office.

But what is the issue here?

Mia contends that a fund required by the Insurance act is short 93 million dollars

Thompson contends that fund requires “assets” and that dollars is but one kind of asset.

WHAT DOES THE LAW SAY?
———————————————-
the Statutory Fund, required by Section 25 of the Insurance Act Cap 310 of the Laws of Barbados, was a fund in which the insurance company must place in trust, enough assets to match their liabilities so as to protect policy holders, in the event of there being financial difficulties that would make it difficult for the insurance company to meet its obligations to policy holders.

————————————————

Again Mottley seems to grasping at straws to save her fading political leadership life.

Posturing is the political way, and whichever party is in power this would have been expected. So it be know banks do the same thing that CLICO has been doing i.e investing liquid assets (your cash deposits) in stocks, bonds, lending out the money, misc investments, etc…, the only differences being, a) banks are not as generous with the interest rates and b) the deposits are acquired for predetermined period by the isurance (investment) companies. Neither CLICO nor any bank can withstand a charge of customers demanding (their) money back.

Royal Rumble and more propaganda, seems you are always in time to see stuff or have some secret document.

This is so ridiculous. If you all have so much confidence in CLICO Barbados, then why don’t you all go tomorrow and take policies with CLICO? While you are all at it, please transfer your mortgages to CLICO or invest your savings in their mutual funds or RRSP.
If Mia is blowing hot air, then you all should demonstrate the confidence you all have in CLICO with your own money.
I’m willing to bet that not a single one of you is bold enough to put money in CLICO.
As for the the jackass who asked if there can be a run on CLICO, please explain to them that if policyholders lose confidence and decide to cash in their policies, that’s a run.
If the public cash in on other investment instruments offered by CLICO, then that’s a run.

If there’s so much confidence in CLICO Barbados, then somebody from CLICO should come out and state how much new business they’ve underwritten in the last two weeks.
CLICO Barbados should prove to us that they’re liquid and solvent and that there are no cash flow problems.
The half-truth put out in their latest paid advertisement is so unconvincing that it’s risible.
Their credibility is dead and the PM would do himself a big favor to distance himself from them like how Obama distanced himself from Rev. Wright.

But are they not similarities between AIG and CLICO with regards to their size, and importance to the economies in which they reside? I think so. Has there been a policy holder and pension fund run on AIG? However Investers have fled. AIG is curently a penny stock, trading at about 54 cents per share.

If I were Clico policy holder and held some of it’s shares as well, I would sell the shares and hold the policy.

A bunch of illiquid assets that aint worth wha paddy shoot at. Any smart person in their right mind would know that CLICO cannot get true market value for those assets.
Yet, we would prefer the LOTO to say nothing and keep her mouth shut.

Here is an Interesting Article from the TT press.

Oh no CLICO

William Lucie-Smith

Monday, February 9th 2009

The Governor of the Central Bank and a variety of other commentators have done an excellent job of explaining why the CLICO disaster was inevitable and self-inflicted. Typically a life insurance company has long term liabilities and a portfolio of assets carefully matching the cash flow profile of those liabilities.

In CLICO however, there were long term investments in real estate, equities, petrochemical plants and loans to CL Financial funded by short term deposits. The credit crunch meant that despite paying premium rates, the available funding began to shrink.

At the same time ammonia, methanol, equity and property prices started to fall, putting a double squeeze on the group. This was not just bad luck but the inevitable demise of a high risk business strategy which broke all the rules.

Such strategies were successful in a growing and inflationary economy with high petrochemical prices, but when the group hit the perfect storm of declining asset values and cash flows, and a shrinking availability of credit they were doomed to fail. It is foolish to suggest the global recession did not contribute significantly to the demise, but it is also quite clear the business model was high risk and dangerously flawed.

Of course the rule makers (not necessarily the regulators who enforce the rules) are not blameless. The Hindu Credit Union had the same business strategy, taking deposits to finance long term investments, which were often bad investments. They appeared to break the credit union regulations but despite unease, they were not stopped.

Similarly CLICO was allowed to take short term deposits and call them executive flexible premium annuities although they were not truly insurance policies. CLICO was used as a cash cow to finance the long term and high risk investments of the CL Financial empire. This built up a huge mismatch of tenor between liabilities and assets that the regulations and regulators could not control. Inadequate regulations allowed gross abuse of fundamental risk management principles. Revised legislation, after the event, will give the supervisory authorities much greater power over regulated institutions.

In a real sense the chaos that would result from the inability of CLICO to meet its liabilities necessitated the decisive action by the Central Bank and Ministry of Finance. To be sure the intention of the Central Bank is to bail out depositors and policyholders, not bail out the companies themselves. This will protect investors and preserve the integrity of the financial system. The companies being “taken over” are CLICO, British American, CLICO Investment Bank and CMMB. The rest of the CL empire will presumably continue to fend for itself.

The debate in Parliament has been disappointing. While Keith Rowley raised pertinent issues both the Leader of the Opposition and the Prime Minister were embarrassing in their comments on what should be a bi-partisan issue.

Basdeo Panday has been stating that this is a conspiracy by the Government to take over CLICO as an act of political revenge. There is no real evidence for the idea that such a disaster was deliberately provoked by political malice.

The action taken by the Central Bank is entirely appropriate in response to the inability to meet obligations as they fall due. Ideas that money should be lent to CLICO to bail them out are flawed and ignore the governance issues, the flawed business model, the complex inter-company loans and the need for a renewal of confidence. The Prime Minister compounded the foolishness by focusing on his ability to access confidential records to see who paid for the Pandays’ apartment in London. This was so crass that it is no wonder people were shaken by the thought that Government wanted to take control of Republic Bank. This is foolishness at a time the Governor is attempting to restore confidence.

The Central Bank has made the excellent decision to recruit Euric Bobb to supervise the arduous task of de-leveraging CLICO. This is a tough task because of the massive debt owed by CL Financial to CLICO and the vast illiquid assets owned by CLICO that will need to be monetised.

There is certainly no public interest need for Government to take ownership and control of shares in Republic Bank, OCM, Agostini’s, Methanol Holdings, Angostura, or any of CLICO’s assets. The Government will be well advised to back away from that thought. Nevertheless there will be a need for an orderly disposal of shares that preserves the integrity of the financial system and provides liquidity to the depositors and policyholders.

It may be necessary to require depositors to take a cut in interest rates and a stretch out of the tenor of all deposits to, say, a year in consideration for the Central Bank guarantee of their principal. This will give some time for the full assessment of assets and liabilities to determine what shortfall, if any, exists and the best method of obtaining full value for the vast array of assets in CLICO, without disrupting the operations of those investee companies.

The CL group will now face a multitude of challenges as the Duprey brand has been badly tarnished. This must be very disheartening for Lawrence Duprey who, despite his failings as a manager, did have a massive vision for his group and did contribute greatly to the development of industry in the Caribbean. Hopefully a chastened and smaller CL will survive and prosper. There will be many challenges ahead as many of the investments will have to be sold in a very difficult market.

@Anonymous,

I do not know if you saw this the thread below but it contains a good deal of useful info as well as my more complete opinion of Clico Intl Life:

(http://bajan.wordpress.com/2009/02/10/perplexed-by-clico-comments-duprey-republic-bank-cmmb-bail-out/#comments)

In my comment above – and in that other thread – I have said continuing and new business will suffer. And no, I would not put my money in.

But this is putting the cart before the horse. The point is this: the company is too highly leveraged in a period of massive – massive – asset destruction; has written business in 2007 probably too aggresively; has dubious loans to CL Financial outstanding; etc etc (the thread has full detail).

Before any action whatsoever by clients and potential clients this is a recipe for recapitalisation all on its own.

Any ongoing lack of confidence is a symptom – not a cause – and merely hastens that outcome.