CLICO Bailout NOT Forgotten

Posted to Afra Raymond’s website

On Friday 30th January 2009, the CL Financial (CLF) bailout started, so today – 30th January 2019 – is the ten-year anniversary of that fateful decision to commit Public Money to bailout the Caribbean’s largest conglomerate. The companies which were to be bailed-out were: CL Financial Ltd (CLF); Colonial Life Insurance Company Ltd (CLICO); Caribbean Money Market Brokers Ltd (CMMB); Clico Investment Bank (CIB) and British American Insurance Company (Trinidad) Ltd (BAICO).

The mismanagement of this bailout has exceeded any mismanagement which led to the collapse of CLF, that is my view.

Follow full text on Afra Raymond’s website.

45 thoughts on “CLICO Bailout NOT Forgotten

  1. David

    Today, there is a report that a Japanese pension fund has lost 136 billion. We have previously told you that all pension systems are in real problems and are likely to be things of the past.

    However, this may represent the mole which becomes catalytic, triggering contagion and the recession now well-forecasted for this year. Let’s watch it!

    May have implications for your BERT.

  2. but didnt that fund gain 12% in 2014 made 70 billion in 2016 they have been on a tear so why the sky falling attitude, they ( pension funds ) invest long term dont they . Is this a paper loss or a real loss

  3. @ Lawson at 11:33AM

    Since it is a pension fund it will be a paper loss OR should I say a digital loss.

  4. So Vincent if they havent sold the stock they have not lost anything but the valuation of it. The problem arises if things are bought on margin or speculation and it drops then if you are forced to sell or pay up to hold on to the stock you may be in trouble.

  5. That is what portfolio management is about. It is about nerves. But surely the the technical analyses, on which the decision to buy was based , was backed up by a fundamental analysis of the company/ government. A pension fund should have a longterm horizon and hold onto the stock. Of course I do not have an intimate knowledge of this particular pension fund nor its investment goals. So we may both be wrong.

  6. They changed the way they did business investing in riskier investments to maximize profits to compete with other players that were enjoying the stock market rise instead of the steady investment of bonds. But it’s all good I do not see pension plans collapsing everywhere Canada’s pension plan is very secure.

  7. @ Lawson at 5:33 PM
    By definition a pension plan’s objective is to reduce the risks of a beneficiary losing his flow of income in his old age. What is the rationale for the investment managers to engage in high risk speculative investments? It is not about large profits it is about a smooth ,guaranteed ,steady flow of income to meet future pension liabilities.
    Historically Canadians avoid speculative risk management.

  8. It is high time that pension risk management is practise and methodologies placed to mitigate from such risk exposure.

  9. vincent is competition if you are returning 3.2 % and the next guys fund is returning 9% the money is going there., you have to compete to grow. Slow and steady wins the race is lost in boom times.As for canadians not having risky investments we put money into barbados lol

  10. @ David BU

    In the referenced article the share prices fluctuate. At the end of the quarter, the accounts reported a fall in value of the shares in the portfolio. If the fund managers do not sell at this low price it is quite possible that next quarterly report the values may rise again . If the fund manager does not sell at the going price ,the loss is a paper or accounting loss at that point in time. A real loss only occurs if the Fund manager sells.

    • @Vincent

      Thanks for the explanation. From an accounting requirement to reflect the value of the pension fund in the general ledger the profit and loss based on market value of the shares need to be recorded?

  11. there is a couple other things that can effect the fund there bylaws may cause the to get rid of a stock if it hits a benchmark drop or they may want to have losses to offset gains this stuff can get very complicated certainly above my pay grade.

  12. @ Lawson

    Are we still talking about a pension fund where the pensioner is guaranteed a fixed sum per month? If he earns the agreed average return why is there a need to chase a speculative 9%?

  13. Vincent a pension fund from what I think needs more people paying in and a increase on overall investments to survive. If more people are taking out money than paying in it will collapse. If more people are paying in and the investments are tanking again the plan will collapse So what you want is more people and a good return to make it viable diversity is the secret My plan owns the Chunnel
    License for instance

  14. @ Christopher Hunte

    Investment is about risks and uncertainty. We can develop 101 mathematical models,but in the final analysis human behaviour and decision making is unpredictable. Yes. We do have guidelines and they track for a while but unexpected changes can cause a systemic collapse.

  15. @ David at 9 :37 PM

    You are quite right.The market value at the end of the financial year must be used. The narrative accompanying the Financial Statements may include mitigating factors that the BOD and the public need to know.

  16. vincent I got my pension statement recently , apparently I paid 250000 into it over the years thats principal and interest in the last 5 years I have collected 420000 and so have many of my friends and much more so if a plan is not growing members as well as a rate that can guarantee sustainability it will collapse. That is why japan I would think japan would take on riskier investments because of an aging population, and low reproduction.

  17. May I place on record the apparent irresponsibility of Sagicor, encouraged by the insurance regulator, in investing in the illiquidity of property development.
    It was this model that led to the Clico fiasco; now we have the minister of finance breaking the ground for the Sagicor development in St George. This may come back to haunt us – although it is almost certain by then Prime minister Mottley would have retired and I would have departed this world.
    The business model of an insurance company differs from those of banks and fund managers in that insurance companies have long-term obligations. If a 21 yr old man or woman takes out a life insurance policy, they do not expect to die the next day; most probably they will live for a further 70 years. It is then that their surviving relatives will try to make claims on the policy. If the company has been badly managed, they will be disappointed.
    The same with annuitants. An annuity is a life-long contract to provide an income to the annuitant. They do not want to know that 20 or 30 yrs in to the contract the company goes bust. That is why we have insurance regulators to make sure these provisions are in place.
    Did the foreign-owned Sagicor clear this investment with the regulator?

  18. @Hal
    I’ll play the devil’s advocate and like you do, ask questions.
    WHERE should Sagicor invest? In Government bonds or T-Bills? In their corporate cousins? In the plethora of publicly traded companies, in which Sagicor already own 10-15% in most cases, and get a very minimal return? Such shares in any quantity are also essentially illiquid. WHAT do they do with the $BDS they have and cannot use beyond Bim’s shores?
    I “believe” this project has been knocking around for a while, and while offered up in many forms, that $9B in savings mentioned by the PM, wasn’t investing.

  19. @ Northern Observer

    You are making assumptions about where a locally domiciled insurance company (well, a formerly domiciled one) should invest. That the $64000 question.

  20. @Northern Observer,

    Any restrictions on Sagicor’s investment universe are superficial – imposed by the government/central bank or its board. But the world is its oyster. Just look at the returns on the S&P 500.

  21. @Hal
    So restrictions imposed by GoB/CB are superficial? How does Sagicor invest on the NYSE with Barbadian dollars? Does this also mean that insurance regulations,imposed by some “governmental agency” are similarly superficial?

  22. @ Northern Observer,

    Yes. If the government/central bank imposes restrictions on the investment universe of the insurance company, that is a political decision, not an investment one and so is superficial. But, as you know, any investments must be cleared with the regulator/supervisor.
    I do not understand the question about investing using Barbados dollars. Is that a serous question? Regulations are restricted to the jurisdiction, they do not extend outside their area. Regulations are not superficial. They are the backbone of good governance.

  23. @Hal
    It must be a lovely ivory tower in which you exist?
    The reality I cannot exchange my $BDS into Fx is superficial. The Insurance Regulator should prohibit such investment, because ???? Sagicor has exceeded its limit “(b) more than 25 per cent of the accepted value of its total assets in Barbados in
    real estate or leaseholds for the production of income;”??, meanwhile the same regulator allows “(a) the bonds, debentures, stocks or other evidence of indebtedness of or guaranteed by the Government of (i) Barbados,” even though “5. An insurance company shall not invest (c) in bonds, debentures or other evidences of indebtedness on which payment
    of principal or interest is in default.” How can the regulator effectively regulate when his/her hands are tied by the Insurance Act, which allows GoB bonds as an acceptable investment?
    I would be more than open to a rejection of the Sagicor investment in the LT Care business, if they had a safe alternative.

  24. @ Northern Observer,

    Stop trying to be rude and discuss sensibly. I said the only restrictions would be political. The Insurance Act is political and we know our politicians and senior civil servants know nothing about finance – see the NIS debacle..
    An international organisation can meet (has to) its cross-border obligations through any number of mechanisms, including the currency or futures markets. In some countries they buy foreign currencies from the central banks.
    Remember also, Sagicor was once listed in London, the biggest currency market in the world. Bermuda is one of the three leading insurance markets in the world.
    I am talking about investments – investment style, asset allocation and stock picking, all of which are the concerns of the regulator, not political interference. How does the Canadian-owned, Bermuda-based Sagicor meets its cross-border obligations at present?
    To put it in simple terms: the investment policies of the Sagicor Holding company are no longer of concern to the Barbados insurance regulator. All the local regulator is concerned about is the smooth functioning of the group/firm’s subsidiary in Barbados ie that its conduct of business accords with local regulations. Neither Canada nor Bermuda would object to Sagicor investing in the S&P 500.

  25. Given your response at 3.17pm, let’s recall your opening statement
    “May I place on record the apparent irresponsibility of Sagicor, encouraged by the insurance regulator, in investing in the illiquidity of property development.”
    and your concluding statement
    “All the local regulator is concerned about is the smooth functioning of the group/firm’s subsidiary in Barbados ie that its conduct of business accords with local regulations.”
    Hence unless we can show that by undertaking the project in St.George, the conduct of Sagicor does NOT accord with local regulations, this entire discussion is ‘without need’.

  26. @ Northern Observer,

    This is my last contribution. The investment is in Barbados, on the patch of the local regulator AND IS THEREFORE OF CONCERN TO LOCAL OFFICIALS. I am assuming the investment was cleared with the regulator. However, whether or not it was cleared it is still a bad investment.
    Again, an insurance company investing in illiquid property development is prima facie regulatory failure. Another Clico waiting to happen. That is why we need to learn lessons from the Clico debacle.
    On the other hand, if the Bermuda-based, Canada-owned parent company invests in the S&P 500 it is irrelevant to the Barbados regulator. That is another business. I cannot explain this any simpler.

  27. @NorthernObserver
    The smooth functioning of the Barbados subsidiary includes it being solvent if there is a catastrophic crash in real estate values in Barbados. We know that if that happens the parent company will attempt to cut its losses and leave the Barbados subsidiary to collapse to the detriment of Bajan policyholders and insured persons. Therefore a prudent regulatory regime will constrain the subsidiary from maximizing profit in order to reduce the risk to Barbados.

  28. Perhaps I should have written WHEN there is a catastrophic collapse of real estate values in Barbados.

  29. @PLT
    I appreciate allowing Sagicor to further invest in real estate is tantamount to regulatory failure. They lost their butt at the Ft.George development, then acquired a more pure real estate play in Barbados Farms, and are back again. One might think they had learned their lesson without regulatory intervention?
    You see this as ‘maximizing profit’, I see it as more finding something to invest in. Is this any riskier than GoB paper? Or several of the regions publicly traded companies with shaky business models? [In which Sagicor already own near the max allowable] They all have very poor liquidity.

  30. @ David Blogmaster

    I’m wondering why do you put up with Hal Austin’s abuse and can’t ban the pompous ass?

    Yet, you caution certain contributors and delete their comments, sometimes over silly issues.

  31. As promised, insurance giant Sagicor Financial Corporation has launched the first phase of a multi-million dollar senior citizens retirement village project in St George.

    The Estates of St George retirement community is being seen by officials as a vote of confidence and a main earner of revenue for the local economy.

    Addressing a sod turning ceremony at the location on Friday evening Sagicor Group Chairman Stephen McNamara said with almost 13 per cent of the island’s population being over the age of 55, he believed the investment was timely.

    The $170 million investment, which was first made public in December last year, forms part of a wider $400-plus million planned investment for the company. This phase will consist of just over 328 units on about 19 acres of land in Boarded Hall, St George.

    “When complete, this project will make a direct contribution to the economy from the generation of net foreign exchange earnings through direct investment. It will also generate employment not only in welfare, but in construction, tourism and in the general services and supply sectors,” said the Sagicor boss.

    “Essential to the operations of this facility is the requirement for trained medical specialists and caregivers,” he said, adding that key partnerships would be formed between Sagicor, operators of Origin Inc. in Canada and the Barbados Community College to constantly train and retrain caregivers.

    Minister of Small Business, Entrepreneurship and Commerce Dwight Sutherland turning the soil as Sagicor officials launch The Estates at St George retirement community on Friday.

    There will be 176 stylish independent living residences for sale, each with access to a range of amenities, 40 catered living one and two-bedroom apartments for rent, 28 respite care and rehab rental suits for rent with their own amenities, and 84 skilled nursing and memory care suites for rent, all of which will be done in phases.

    While infrastructure work will begin immediately, construction on the state-of-the-art Estates at St George community is scheduled for the first quarter of 2020, and officials are hoping that the first residents will be able to move in by the end of the next year.

    McNamara said the country stood to gain immediate tax revenues through job creation, adding that Sagicor would also create long-term investment instruments in both local and foreign currencies for local and international investors.

    “In short, the possibilities and the advantages are boundless,” he said.

    “This project therefore illustrates our confidence and commitment to Barbados and the wider Caribbean and we commit to the pursuit of opportunities where we can contribute to establishing the region as a force with which to be reckoned,” he added.

    Welcoming the project, Prime Minister Mia Mottley reiterated her call for investors to come forward and invest in major projects here, while insisting that Barbados is opened for business.

    She said the project “represents a perfect confluence of what Barbados’ future and immediate future must be about”.

    “I am happy that Sagicor has taken a lead in this area,” she said.

    “Barbados is open for business, and Barbados is not only open for business, but if you understand the essence of who we are the essence of the balance we want to bring towards making sure that there is a win-win situation for anyone, that we can create a development model and an investment model that make sense for each and every one,” said Mottley.

    “Barbados is here to tell Sagicor and everyone else that we want to work with you. We are open for business and we want you to help us in the model that allows us to carry as many people with us, recognizing that those who want to live where they love, they also want to live in Barbados even if they are not of here,” she said.

    Sagicor Group Chief Operating Officer Ravi Rambarran said Sagicor will be generating awareness and interest in the Estates at St George “among age and income-qualified individuals” within key audience categories.

    “Those categories include Barbadians home and abroad, neighbours within the Caribbean, and tourists from the UK, US and Canada,” said Rambarran.

    Stating that he hoped the model could be replicated in the region, the Sagicor official also pointed to the benefits of the project to the Barbados economy, saying besides revenue through payroll taxes, it would provide value proposition to Caribbean diaspora and opportunity to interest loyal and repeat visitors to the island, generate foreign exchange “and ultimately contribute to Barbados economic recovery and transformation”.

    Officials are hoping to start construction on a high-end medical complex in the same parish to offer a range of specialized care, once the necessary approvals were granted and the Estates at St George is completed. That phase should cost just over $200 million. (MM)

  32. I see it as more finding something to invest in*

    @ Northern. That is basically it.

    It would be interesting to see the business case for this ‘investment’.

    Take a step back for a moment and think about the assumptions needed to justify this move.

    Any number of extraneous factors could turn this investment into a dud.

    From a risk management perspective, Sagicor is exposed to too many risks and most of them are unhedged and unhedgeable.

    Poor move.

Leave a comment, join the discussion.