The following extract from William Layne’s paper is instructive and has been made several times on BU:

However, it is noteworthy that even though the Statutory Fund was in deficit, there is no mention of this in any of the audited statements. The estimated deficit of BAICO Barbados is some Bds$48.

It is obvious that the patient had been suffering from a terminal disease for some time but the surgeons were unwilling or reluctant to perform the radical surgery to ensure that there was the possibility of survival. Now the patient is dead they are trying to preserve it cryogenically to fool some of the people that it will be resurrected some time in the future. After all this who would put money in any Corporation with the name of CLICO or any entity arising from its ashes?

Layne touched on the point about donations from CLICO and its subsidiaries to political parties in the OECS, Barbados and Trinidad; therein lies the rub the politicians were bought and silenced and looked the other way given the time line of the events transpiring at CLICO Trinidad. CLICO Trinidad was playing both sides of the political fence and I suspect the same was true for CLICO Barbados.

So much blame to go around, the Politicians; The Auditors; The Directors which brings me to the Sarbanes/Oxley Act which was enacted in the USA to provide new Accounting Standards for Auditors and additional Corporate responsibilities for members of the Boards of public Companies. Pity there is no such act in the Caribbean otherwise the Auditors and The Directors would be shaking in their boots.

BTW if a Company is prohibited from performing some function by a Gov’t Agency, isn’t it the responsibility of the Agency to inform the public? How else would the public know? This is done on a routine basis by small operating companies in Barbados and the Gov’t can’t get its act together?

@ David

1)The article ended rather abruptly I was expecting more. 2) What period of time did the investigation by the JM cover?

I trust that in light of the Clico scandal and the BLP quest for Integrity legislation and their members lining up to declare their assets, the BLP will also declare all political donations before the next election.

This would be real Integrity.

William Skinner hits the mail on the head. Here is the last paragraph:

“Finally citizens must demand that where corporate executives are by their fraudulent actions responsible for the demise of corporations, then the full weight of the law is brought to bear on such persons. Madoff is in jail, Stanford is in jail, David Smith is in jail, but no one in the Eastern Caribbean has been brought before the courts for the pain and suffering caused by the collapse of CL. Financial and BAICO. We have the ridiculous situation of the Executive Chairman of CLICO International Life Barbados bringing an action against the Company for nonpayment of bonus payments, while policy-holders cannot receive what is due to them.”

Thank you William Layne for an excellent, well researched article.

Let us hope that our law makers are listening and that our fellow Bajans will take the wider point that state funded elections will minimize a lot of the corruption and undue influence ’bout here.

Off topic – my condolences to Keith Rayside’s widow and his family.

@ John | March 7, 2012 at 12:35 AM |

But isn’t this a perfect example of the ‘kettle calling the pot black” or is it the other way around?
What a laugh, these politicians are! But to top it all off some become ministers only to confirm the ordinary man’s suspicions of the genuineness of the instruction: “Do as I say and not as I do” coming from the men of the cloth who display similar characteristics as those temporal ministers with only the votes in sight.

miller thanks for your information of the duties and responsibilities Directors of Boards under the Companies Act. Seems to me from my limited knowledge that Section 96- 4(a) (b) still absolves the Directors of blame under certain circumstances cand offers them some way out. would like to hear from Mr Franklyn in this regard.

and the worst part is that with all that is being brought to the public attention in the article bajans are stilling looking for leadership from some of the very politicians who looked the other way in theClico debacle.

And because it is a caribbean issue DT’s and LP’s estates will not escape.

The OECS legal wolves will soon come a calling and will scrape every remaining piece of flesh from the CLICO entities in Barbados.

The BLP meeting was on Sunday- No new astounding revelations, the same political gamesmanship but the BLP PR paper – The Nation has run EIGHT (8) STORIES from the same political meeting over the last 3 days. That’s right EIGHT.
You see why they are called the BLP’s PR firm.

The meeting was carried on CBC tv on Monday and on VOB up to yesterday in Sagicor business section.
The Nation is on full BLP spin- Sanka today, Mascoll on Thursday, I would not be surprised if they call each other and coordinate their stories.
Sanka is truly a S.ad A.nd N.aughty K.nown A.ssociate of the BLP.
Mascoll is cordinating his talking points for Thursday and we can all predict what Brandford and Hoyos will say before we see it. Remember Mascoll’s weekly meetings with Branford.
The Nation should just report and let us decide but NO WAY-8 stories from one political meeting. They would never extend such a courtesy to this government.
The Nation has taken balanced journalism to a new low.

As an academic who specializes in Finance one of the things that has stood out for me is the number of investors who seem unaware of, or choose to ignore the relationship between risk and return. Almost all investors I have spoken to say that they were attracted to various products because of the relatively higher returns. What does not seen to factor into their investment choices is that relatively higher returns typically comes with relatively higher risk, however, credible the institution offering the product is.

If an entity offers you a 9% annual return, then if that entity is to cover its costs and earn a profit margin, the funds would have to be invested in assets (if they are legitimately invested) generating an average annual return of at least say 14%. In our markets (almost any market) such returns typically comes with relatively high levels of risk. Investors would have to carefully decide how much of say their pension money they would want to invest in such products, which by the very high returns they offer should be telling you that they carry relatively higher levels of risk. I hope this aspect of thestory does not get lost among the more juicy aspects.

Three years hence are we happy that the Financial Services Commission (FSC) is empowered to prevent another CLICO?

We need to move pass the political cackle and get proactive. We are told we are an educated people. Is there another version of the CLICO Mess out there?

As a people and as a society we need to step up to the challenge of doing better!

@ Observer:

Heard that you got a special reference today on the popular ‘Brass-tacks’ show. Your legal illumination has really caught the eyes of the mainstream media. Perhaps it’s the intellectual goading of the miller that has awaken the sleeping giant within you. You even managed to get the miller to agree with you in the matter of the role and responsibilities of the former office of the SoI in relation to the Minster of Finance and by extension the Cabinet under our form of “collective executive” responsibility governance system.

Seems as if this blogging place is becoming a very serious interest group and lobby force to reckon with.
Well done, Observer. The BU family members are very proud of you!

@Jeff Cumberbatch

BU regrets that after being elevated to Commissioner at the Financial Services Commission the BU family has been robbed of your erudite interventions. Suspect you still find time to follow the commentary and urge you to galvanize you colleagues to agree to speak to the state of the insurance industry in Barbados.

Are there insurance companies which are operating below legal and performance requirements? What about those whose financials have been tardy to publish? What about those companies which have Holding Companies? Have we leveraged against any learning from the CLICO MESS?

But considering that not too many of the liitle guys who these policies are being sold to don.t understand how the financial markets operate most of the time the buyer buys the police only based on the return which sounds good absent of the fact that they can also lose.most policyholders never give that a second thought until it is too late

@ Justin Robinson | March 7, 2012 at 11:08 AM |

What you described is called ‘financial prudence’; an axiom mentioned early on in any training module of basic Finance. For the layman it’s called ‘common sense’. The bigger the expected profit from any venture or more attractive the product the higher the concomitant risks or cost.

Life insurance products and invested pension contributions are not meant to be highly speculative in nature. Hence the long-term horizon and generally low but consistent rates of returns. It is not right therefore for those entrusted with the management of these funds to play “casino royale” and totally usurp their fiduciary responsibilities . If such gambling moves- buttressed by lavish lifestyles incapable of being financially supported on the agreed fund managers’ fees- are undertaken then one can conclude that they were not “risky” ventures but bordering on downright fraud and misappropriation of policyholder’s money.

The EFPA’s could indeed meet the speculative criteria you mentioned and as a result could be subject to the vagaries and risky outcomes of the financial markets. But the question to be asked is this: Were these financial products marketed as insurance-type investment instruments subject to regulatory constraint and thereby ensuring a measure of security of return?
If these EFPA products did not receive the ‘blessings’ of the Regulators why were they not marketed as “medium-term’ certificates of deposits (CD’s) with their attendant risks of speculative high rewards or irrecoverable losses?

PS: Since your first man the marshal(l) has gone underground could you tell us what is the status of the financial statements for the various NIS funds as promised via a Press Release issued last year?

Whatever the failures of the regulators, investors should be encouraged to take a careful look at the risk profile of the investments they are undertaking and what portion of their portfolio to allocate to various investments.

Whatever the quality of the institution or the level of regulation all investments carry risks and Investments will go bad from time to time. Diversification is one of the best means of protecting yourself. A number of folks seems to have put all their money in one place for example. As a general rule you should avoid this.

Don’t think I am downplaying the other issues, but this is also a pertinent side to the whole affair.

@ Prodigal Son | March 7, 2012 at 1:37 PM |
“CAN YOU TELL THE PUBLIC if quoting your own words ” the number of investors who seem unaware of, or choose to ignore the relationship between risk and return”…… Did you take this advice to Chris Sinckler when you decided to bend under his pressure?”

Prodigal, don’t expect a specific response from jr. He is certainly misled into thinking that by presenting himself as some guru of theoretical Finance & Business he can be accepted as the paragon of objective analysis, informed judgment and only here to educate the layperson and enlightened those keen to imbibe his esoteric knowledge and wisdom. People like yourself rely on good old commonsense and the ability to sniff out a rat from afar. Not bullshit from the hill.

We would rather listen to Gearbox than to entertain one line of hypocritical advice from a sycophant indiscriminately prepared to compromise the principle of Integrity rather than vacate a position no objective intellectual with a modicum of competence would wish to retain.
Show us the money (NIS financials) and we would listen to any investment proposal or option for any four seasons of the business cycle.

Give us an Investment 101.

CIL receives pension contributions which it invests.

We are not discussing the EFAP.

Why can’t those investments be segregated?

Segregated funds are just funds that may be put SEPERATE from other funds…(.like another bank ac )..but still attract same WACCrisk.. as other monies being kept by firm.
Term segregated funds is uaually associated with Govt accounting and NGO’s.
For a profit oriented firm like CLICO….just jaga.

@Dr. Robinson

Assumed that you followed that a segregated pension fund would have to be housed under a unit trust to defend the fund from the balance sheet of the company.

@Justin Robinson | March 7, 2012 at 3:39 PM |
“I see your point, but its not clear that in the context of a consolidation of the financials for the entire firm that pension liabilities would necessarily rank above EFPAs in a liquidation

Yes, pension funds would have priority over unregistered or approved EFPAs in a liquidation. Pension funds if registered would take priority over a non-regulated investment instrument. The question you must address is: Were these EFPAs approved by the SoI and other regulatory agencies as fit and proper annuities that would be subject to the Statutory Fund requirements? If approved then they would have the same status as the pension funds but below life insurance contracts.

@Miller

Agree with you because the idea of setting up a unit trust and benefit from tax exemption is to shield the fund from the balance sheet of the company in the event it heads south.

This begs the question to Dr Robinson’s point why companies and individuals would invest in pension plans owned by companies which don’t bother to shield the fund.

I hope the financial savvy aspect of the debate does not get lost among the other bigger issues.

Diversification is key to managing the inevitable risks of investments.

I think the aversion to investing in stocks makes persons especially vulnerable to products offering fixed rates of returns.

@ David:

Dr. Robinson made the following statement:
“Segregating funds does not remove the risk from the underlying assets, that the funds are invested in.”

There is validity in what is said. Let us assume that say 25% of the various funds is placed in very low risk (low returns) instruments, e.g. government bonds, Treasury notes, shares in utility companies (BL&P). Then the other 75% (if not spent on executive high living and funding political campaigns) would be invested in much more risky ventures such as real estate, agri-business, manufacturing, wholesale & retailing ventures, financial services (banking and commercial insurance).
Now let us accept that the other 75% that is subject to the vagaries of the market and economic boom and bust cycle. The question is:
Did CLICO suffer the ravages of market forces to such an extent that at least 75% of its investment portfolio was seriously compromised resulting in losses (negative returns) to these various funds? If so, why only CLICO? What about the other major player? If market forces are to be blamed instead of management excesses and tainted deals leading to alleged corruption and fraudulent activity can we expect a similar virus from the market to affect the other major player’s investment portfolio? Or is this other major player so well inoculated as to withstand any attack of its investment firewall and possible infiltration to spread the malware to the its overvalued asset portfolio?