Canadian energy company Emera has landed a $67 million windfall after reducing the insurance covering its subsidiary Barbados Light & Power (BL&P) against catastrophe.
The company made the disclosure last week when it released its second quarter performance report and in a conference call with international financial analysts.
The financial injection allow BL&P’s immediate parent Emera Caribbean to boost its second quarter profit to $89.7 million. Overall, the Caribbean operation’s net income for the year was $104.8 million compared to last year’s $21 million.
Twenty-three years ago, BL&P established a special self insurance Fund (SIF) to cover its transmission and distribution assets against hurricanes and other natural disasters. Such coverage from commercial insurers was limited.
But Emera chief executive officer Chris Huskilson revealed that following an analysis by “third-party risk advisers”, and with the “support” of Government, SIF trustees and the Central Bank, the SIF contingency funding was reduced to $44.1 million, giving Emera “an after-tax gain of [$67 million]”.
“In Barbados, we maintain a self-insurance fund or SIF to cover the risk to customers against the damage and consequential loss to certain Barbados Light & Power assets. Early in our ownership and with our experience as utility operators, we [recognised] that the fund was likely overfunded to provide risk protection for customers,” Huskilson told analysts.
“We engaged third-party risk advisors to do a detailed analysis. They identified the ability to recapitalise [$67 million] after-tax to Emera, while still maintaining adequate funding to cover the risk for customers. Support was secured from the Government of Barbados, the Trustees of the SIF and the Central Bank and the cash has been received.”
SIF operates under the Insurance Act and the Insurance Regulations. In addition to perils such as hurricanes and tropical storms, it covers “tornado, volcanic eruption, earthquake, flood, overflow of sea and rain accompanying these perils, fire, explosion, riot, strike, malicious damage, machinery breakdown and financial loss (business interruption)”.
The facility is administered by trustees and is regulated by the Financial Services Commission. Emera said the SIF “is periodically reviewed by a risk consultant who makes recommendations to ensure the continued security and solvency of the fund”.
Also, “where the fund is utilised for any other purpose any monies withdrawn shall be subject to corporation tax”. (SC)