The observation has been made by BU et al from time to time that there is a lack of financial analysis by the local traditional media. While there is reporting about financial matters, the public continues to be cheated out of billions invested in the education system through the years which continues to produce accountants and graduates in many disciplines a dime a dozen. Our observation pertains mainly to financial entities where consumer risk is greatest for many.
Section 4.(e) of the Financial Services Act 2010 states that the Financial Services Commission (FSC) was established “to promote stability, public awareness and public confidence in the operations of financial institutions”. The last five years have wreaked havoc on the economies of countries all over the world, Barbados being no exception. It is therefore not unreasonable to expect that companies operating in Barbados are currently managing declining balance sheets and are therefore under financial stress.
BU believes that in the current environment the dearth of financial analysis has accentuated the risk for the general public. There seems to be the acceptance that if Company X meets its legal obligation to publish its Balance Sheet and Profit and Loss in the newspaper all is well. Unfortunately BU does not have the expertise and resources to effectively fill the void although we have sensitized our readership from time to time of the need to be vigilant in these matters.
The reality if there is a heavy reluctance to rigorously analyse balance sheets by relevant stakeholders in society, the FSC mandated under the Act must be seen and act as the entity of last resort on behalf of citizens. BU is willing to be corrected but there is no sense that the FSC has projected itself since its establishment to promote stability, public awareness and public confidence in the operations of financial institutions.
In the last two years BU has been alarmed at the balance sheets of a few financial entities, and this includes insurance companies. Capita, formerly CLICO Mortgage and Finance raised the eyebrow, and of late CGI Consumers Guarantee Insurance (CGI). CGI Insurance continues to pique the interest of many because one of the principals has been aggressively investing in the private healthcare sector. One must assume that CGI represents the core business which is funding the expansion.
To be fair, CGI’s financials which were published recently do not support deep analysis. It is a conservative snapshot and limited by its year over year comparative. What must be concerning CGI management though is the precipitous fall in premium receivables to the tune of about 20%. The concern is reflected in Chairman’s Bruce Bayley commentary. Not sure if this means that Bayley will be forced to sell of his polo horses like Sir Cow. In the absence of a fuller operating history we are left to speculate if the Profit and Loss fully supports the 20% drop. For example, is net premium income getting ‘smoothed’ out year over year by how management is structuring their reinsurance contracts? How are the agreements being negotiated to help to show ‘consistent’ performance?
What would be interesting is if the public had a view of historicals for new accounts by CGI post 2008. It is not unreasonable that CGI has benefited from the demise of CLICO and the time it took CLICO General Insurance to transition to Sun General. In fact Chairman Bernie Weatherhead of Sun General recently acknowledged this fact in his Chairman’s report. Sun General’s recently published financials is another ‘nasty’ view of a performance of a local insurance company but it is early days yet for this company. If CGI has benefited from the bounce in performance derived from CLICO now that this opportunity is gone how will CGI sustain its business? Hopefully the regulator (FTC) will be vigilant to ensure risk standards to boost premium income are not being compromised. But how will we know anyway.
It is unlikely CGI’s Accountants BDO Barbados or CGI will declare the level of detail required for the public to apply good analysis, it is a private company. BU welcomes submissions which can give at least a five year analysis. This way changes in the key performance indicators can be better assessed. It is unfortunate that CGI has not seen the need to undergo the rigour of acquiring an A.M BEST rating for the benefit it brings.
What we expect is that this is when the FSC should be stepping up to paint a truer picture of performance for the public. The summary accounts of CGI which satisfies legal obligation is opaque and impossible to support any narrative of worth. This is doubly so where valuations are an art and not a science as collapses of companies perceived to be strong has shown.