The issue of British American Insurance Company
07.AUG.09
Editor: Much progress is being made towards a long-term resolution of the issue of survival of the British American Insurance Company (BAICO) consequent upon the collapse earlier this year of its parent company, CL Financial of Trinidad and Tobago.
From the very beginning, the Prime Minister of St. Vincent and the Grenadines, Dr. The Hon. Ralph E. Gonsalves, has been seeking to fashion a long-term solution to the BAICO matter.{{more}} His role has since been formalised in this regard on two institutional/organisational fronts: His Chairmanship of the Special Joint Task Force of the OECS-Eastern Caribbean Central Bank (ECC) to coordinate the overall sub-regional response to the global economic crisis and its effects; and his Chairmanship of an Insurance Sub-Committee of the ECCB to address specifically the BAICO and CLICO matters and the long-term future of the insurance sector in the ECCB member-countries.
The sub-regional policy framework for resolving the BAICO issue rests on four pillars:
The problem is regional and thus the solution must be regional in scope;
The interests of BAICOâs policy-holders, depositors and investors must be protected.
The risk that the failure of BAICO holds for the financial system in the ECCB must not be permitted to metamorphose into a real and imminent danger.
BAICO must be continued but as a new entity owned by the governments of ECCB member-states, public sector enterprises, and the private sector.
In a nutshell the situation regarding BAICO in the ECCB member-countries is as follows:-
There are liabilities of BAICO amounting to EC $1.6 billion.
The assets inside the Statutory Funds in the member-countries of the ECCB are insufficient to cover BAICOâs liabilities. These assets in the Statutory Funds represent one-half or thereabouts of the liabilities. In any event much of these assets inside the Statutory Funds are illiquid and not easily realizable. In St. Vincent and the Grenadines there are liabilities of EC $190 million and a shortfall in the Statutory Fund of some EC $50 million.
There are undetermined assets outside the Statutory Funds, including real estate in the USA, but the value of these and the extent of their easy conversion to cash are yet to be fully ascertained. The value of some of these assets approach zero given the extent of the encumbrances upon them. In any event litigation and competing interests are likely to tie these up for a long time to come.
Basically, since 1997, BAICO has been operating as an insolvent company, but was given comfort and protection by the balance sheet of CL Financial which at the end of 2008 turned out to be a veritable pack-of-cards.
Given the condition of BAICO and the policy framework outlined above, the following actions have been taken:
The appointment of an interim Board of Directors of BAICO by CL Financial consequent upon the resignation of BAICOâs original Board of Directors.
The appointment by the High Court last week in every member-country of the ECCB, save and except Dominica, upon the application of the Insurance Regulators and Attorneys-General, of the accounting firm, KPMG, as Judicial Manager. The full text of the Court Order is available to the public for inspection at the Registry of the High Court. Owing to the relatively undeveloped state of the insurance law in Dominica, that jurisdiction has to pursue a creative option, perhaps on the coattails of the Judicial Manager in the Bahamas, the judicial headquarters of BAICO.
The Government of Trinidad and Tobago has undertaken to pay for the time being, and continues so to pay, the administrative costs of the operational headquarters of BAICO in Trinidad at the cost of US $80,000 monthly.
The ECCB has approved the payment of US $2.2 million from its Second Fiscal Tranche (profits to be distributed) for BAICOâs premium on its catastrophic risk reinsurance. It has paid the first instalment of this sum on the due date of July 01, 2009 and will pay the second instalment on October 01, 2009. This represents a loan to BAICO and will be taken account of when the successor entity is established and its agreement with BAICO finalised. This payment by the ECCB protects policy holders, financial institutions which hold mortgages backed in part by BAICOâs property insurance, and insulates the financial system from risk in this regard.
The receipt on Thursday, July 30, 2009, by the ECCB on trust for the governments, which will participate in the successor insurance entity to BAICO, of US $50 million from the Petroleum Facility of the Government of Trinidad and Tobago. This will be part of the base of the capitalisation of a successor entity.
The recent decision of the ECCBâs Ministerial Sub-Committee on Insurance to borrow from this US $50 million a relatively small/manageable sum to pay BAICOâs policy-holders who are in urgent and critical need of medical attention to a life-threatening medical condition. A mechanism is being fashioned to indentify these medical needs and a âmodus operandiâ has been elaborated to access these funds from the ECCB. This, too, will be a loan to BAICO and will be part of the accounting process with the successor entity.
A Memorandum of Understanding (MOU) drafted by the Government of St. Vincent and the Grenadines concerning a range of steps to be taken immediately and on the structuring of the successor entity to BAICO, has been circulated to the member-countries of ECCB, Bahamas, Barbados, and Trinidad and Tobago. This MOU was drafted on the basis of two papers on the subject submitted by the Governments of St. Vincent and the Grenadines and Antigua-Barbuda. All ECCB member-countries and the Governments of Barbados and Trinidad and Tobago have indicated their approval in principle to participate in the successor entity on the basis of the MOU submitted by St. Vincent and the Grenadines. The Government of the Bahamas is yet to so indicate. All Governments are studying the MOU and some have already responded with comments. The targeted capitalisation of the successor entity is US $235 million. It is creatively formulated on the basis of certain realistic assumptions and premises.
A three-member technical team have been identified to be housed, within a week or so, at the ECCB to work with the ECCB Ministerial Sub-Committee on Insurance to manage the process going forward with the Judicial Manager and to shepherd the successor entity into being in accordance with the law and the recommendations of the Judicial Manager.
Every single one of these decisions/actions has been led by Prime Minister Gonsalves. He has been in touch, on a daily basis, with one or more of the relevant stakeholders: the Governor of the ECCB; the Prime Ministers of Bahamas, Barbados, Trinidad and Tobago; the Prime Ministers and Ministers of Finance of the member-countries of the ECCB; the Minister of Finance of Trinidad and Tobago; officials of CL Financial and BAICO, including those in St. Vincent and the Grenadines; the Insurance Regulators in the ECCB member-countries; and the Insurance Team in the Ministry of Finance, St. Vincent and the Grenadines. It is most time-consuming work at the highest level of decision-making.
This large, strategic matter of BAICO has been occupying a huge amount of the Prime Ministerâs time. So, too, has been his work as Chairman of the Special Joint Task Force of the OECS-ECCB; as the lead Prime Minister on the OECS Economic Union as the nexus between the OECS Union and Trinidad and Tobago; as the Chairman of the LIAT Shareholders; as the senior Minister of Finance on the ECCBâs Monetary Council; and as a senior Prime Minister in CARICOM. Each of these vital matters is of direct concern to the people of St. Vincent and the Grenadines! Each is most challenging at this time of global economic crisis!
Hans King
Press Secretary to the Prime Minister