The story of the CL Financial Group of the Republic of Trinidad and Tobago has been occupying our fullest attention since January 2009 when the Central Bank Governor of that country informed the region of the potentially fatal financial distress that had befallen what was at the time the largest privately owned company in CARICOM.
At the time of the Governor’s announcement most of the attention was centred on Colonial Life Insurance Company, British American Insurance Company and CLICO Investment Bank. What was evident at the time was that the three entities – two of which are insurance companies and the third a commercial bank – are financial institutions.
As financial institutions, insurance companies and commercial banks are permitted under specific legislation to solicit life, annuity, health, pension and medical premiums from the public.
In turn, financial institutions are required to invest what amounts to millions of dollars each month in high-quality performing assets to achieve a number of goals.
Insurance companies pay death, dental and health benefits to policyholders. If they are managing pension plans, they are expected to meet commitments under the plans to retirees. Commercial banks pay interest on savings and deposits and seek to have adequate cash flows on hand to repay deposits on demand. Ultimately, these financial institutions seek to pay a reasonable return to their shareholders out of net earnings.
A delicate trait of most financial institutions is that they are highly leveraged. That is, their debt-to-equity ratios are very high and if not managed competently or astutely, could result in cash-flow problems and trigger a run on the institution or worse, catastrophic failure.
To provide greater insurance against these evils, governments usually put in place enabling legislation and regulations to protect policyholders and depositors.
In the case of Barbados, there is the Insurance Act, 1996 Cap. 310 that sets out the criteria for persons wishing to carry on insurance business.
It stipulates the minimum amount of capital that a company is required to have before it can commence operations.
The act provides for the appointment of actuaries. It also deals with the establishment of statutory funds and spells out restrictions on the use of those assets. It also provides for a Supervisor of Insurance and sets out his duties and responsibilities. Space does not permit me but suffice it to say, the powers of the supervisor are vast and wide.
Here is the foreword to the 1996 act: “An act to revise the law regulating the carrying on of insurance business in Barbados in order to strengthen the protection given to policyholders under the existing act; to increase the capital and solvency requirements of insurance companies; to expand the existing regulatory framework to include the regulating of all insurance intermediaries; and to give effect to matters related thereto.”
What a mouthful. With all of this, is there any available forensic evidence to explain categorically the reason(s) for the failure of Colonial Insurance Company Limited in Trinidad and CLICO International Life Insurance Company in Barbados? If not, these two governments must ensure this is done post-haste and that the public of both countries are told the truth. No whitewash, please!
Before we consider any restrictions or changes to the legislation, let us first get to the bottom of these two failures. Then and only then should we craft new measures to ensure this debacle does not happen again in the region.
