Anthony Wilson
Monday, August 6, 2012
The judicial manager of Barbados-based Clico International Life Insurance Ltd (CIL) has proposed that the Government of Trinidad and Tobago commit to allocate $660 million (EC$300 million) as part of a proposal to resolve the status of holders of Executive Flexible Premium Annuities (EFPAs) in Barbados and the islands of the Eastern Caribbean.
The proposal by the judicial manager, Deloitte Consulting Ltd, is to float a bond whose proceeds would be used to acquire qualifying assets that would be transferred to the buyer of the insurer's traditional business as well as fund the partial payment and restructuring of the EFPA portfolio.
The rationale for the flotation of a bond is that a substantial majority of the Barbadian insurance company's assets are real estate or real estate-backed, which are limited to 20 per cent of the value of statutory funds in the region. The bond would be issued by a special purpose vehicle that would be established to hold the assets of CIL and its Barbadian holding company, Clico Holdings Barbados Ltd.
The assets of CIL in each of the islands (Antigua, Anguilla, Monsterrat, St Vincent, Grenada and Dominica) would be transferred to the special purpose vehicle and those assets, mostly land or real estate developments would be replaced by qualifying assets from the proceeds of the bond issued. It is proposed that the special purpose vehicle should be managed and controlled by the judicial manager.
Based on a preliminary market read from an investment bank engaged by the judicial manager, the attractiveness and hence success of the special purpose vehicle's bond issue will be highly dependent on a credit enhancement being provided by the Governments of Barbados and Trinidad and Tobago.
The credit enhancement can take the form of a guarantee or an equity call. The estimated amount of the credit enhancement for the bond to be successful is Bds$150 million from Barbados and EC$300 million (TT$660 million) from the EC islands/Trinidad.
According to the judicial manager, those governments not in a financial position to provide credit enhancement could support the solution by committing their state agencies to invest directly in the bond issue. Most of the islands in which CIL operates are highly indebted.
This means that the burden of the proposal is likely to fall on the T&T Government. Speaking with the Guardian last night, Finance Minister Winston Dookeran said: We have already incorporated all of the Eastern Caribbean citizens who purchased their policies in Trinidad in our bailout proposal. Those Caribbean citizens are receiving the same financial arrangements as T&T citizens as we are committed to honouring all policyholders wherever they are from, once their policies were issued in T&T.
Dookeran said that the previous administration had allocated US$50 million to resolve the issues of Eastern Caribbean citizens who had purchased non-T&T EFPAs. He said that at the recent heads of government meeting in Suriname, Prime Minister Kamla Persad-Bissessar had committed a further US$75 million to enhance the bailout on the condition that Eastern Caribbean countries provide similar support.
It is my understanding that the Caribbean Development Bank is working with the Eastern Caribbean countries to co-ordinate their US$75 million and that this, plus the sale of assets by the liquidators in the region, should be enough to satisfy the non-T&T EFPA holders.
Dookeran said he had not had any discussions with the Barbados government on the issue of Clico as he understood that they were handling that issue themselves. Asked whether the Government would be willing to consider the new Barbados initiative, Dookeran said he would not want to go so far but that what we have placed on the table, we would want to actualise.
