The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Hurricane Matthew’s fiscal impact means the Christie administration was “obviously incorrect and wrong” to cancel the Bahamas’ disaster insurance, the Chamber of Commerce’s chief executive said yesterday.

Edison Sumner urged the new government to “reconsider and review” the decision to exit the Caribbean Catastrophe Risk Insurance Facility (CCRIF), a move that ignited political controversy following suggestions the Bahamas could have been eligible for a $32 million payout.

He spoke after the Chamber itself described the Christie administration’s decision as “most unfortunate”, given that such a payout would have reduced the Government’s $150 million emergency borrowing post-Matthew in return for a $900,000 premium payment.

“It was most unfortunate that the Government made a decision to cancel its catastrophic insurance coverage with the Caribbean Catastrophe Risk Insurance Facility (CCRIF) only months before the hurricane,” the Chamber said in a statement responding to the Bahamas escaping a Moody’s ‘downgrade’.

“As a result, the Government cancelled a known and calculated expense of an insurance premium for an unknown expense from damages caused by Hurricane Matthew, which cost the Government in excess of $150 million in capital and other expenses. This was a revelation that was not disclosed until after that fact.

“It would be advisable for the Government to reconsider its position regarding securing catastrophic insurance coverage to ensure that its capital assets are protected and covered in the event of a natural or other disaster, and to mitigate its risk exposure. Government should be encouraged to work along with the general insurance industry to ensure the insurance coverage is accessible and affordable to all persons.”

The Chamber added that the 2016-2017 deficit, and other projections, has been substantially blown off course by Matthew’s impact, which both reduced revenues and economic activity and increased spending.

The Christie administration had initially forecast just a $100 million deficit for 2016-2017, which Matthew turned into $350 million under its cash-based accounting methods. Its successor added to that figure by including its pre-election spending splurge in that year’s calculations.

Mr Sumner yesterday argued that what the Bahamas would have spent with CCRIF paled into comparison with Matthew’s repair budget, as the storm was estimated to have inflicted some $600-$700 million in actual damage.

“It’s better to know for financial management and planning what your costs are,” he told Tribune Business. “It’s small compared to what we have to pay now in terms of the outlay for the hurricane we have to deal with. The Government had to borrow $150 million.

“I think it’s more prudent to pay an insurance policy that assist in deferring the expenditure incurred in these kinds of disasters.... It would be prudent for the Government to reconsider and revisit the insurance policy and pay the amount, so that if these events occur again we will not have such a strain on the Treasury.”

Controversy over the former administration’s decision to exit the CCRIF facility was stoked during the Budget debate, when Prime Minister Dr Hubert Minnis read out a letter from its chief executive suggesting the Bahamas had missed out on a $32 million Matthew payout.

Dr Minnis told Parliament: “He (the CEO) wrote: ‘We are pleased that the Bahamas has been a member of CCRIF since its inception in 2007. We are pleased that the Government purchased tropical cyclone (hurricane) policies every year between 2007 and 2014, and also purchased policies for both tropical cyclones and excess rainfall for the 2015-2016 policy year.

“However, we deeply regret that the Government decided not to renew its CCRIF policies for the 2016-2017 year, resulting in the Bahamas missing out on two CCRIF payouts from Tropical Cyclone Matthew.’”

Dr Minnis added: “I note that the annual policy for this insurance facility was approximately $900,000. I was shocked by what the CEO of the Caribbean Catastrophe Risk Insurance Facility went on to say in his letter.

“He stated: ‘Based on the registered losses, it means that had the Government of the Bahamas renewed its tropical cyclone policy for 2016-2017, using the previous year’s policy conditions, the policy would have triggered, resulting in a payout of approximately $31.8 million, equal to the coverage limit’.”

This would have been the single biggest payout, according to the Prime Minister, ever made by CCRIF to any country.

The Bahamas’ excess rainfall policy would also have been triggered, resulting in a payout of $855,874.Those payouts would have been larger depending on the coverage purchased, Dr Minnis said.

CCRIF made payouts totalling $29.204 million to its other four CCRIF member countries affected by Hurricane Matthew - Haiti, Barbados, Saint Lucia and St Vincent & the Grenadines - within 14 days of the event.

However, Philip Davis, the Opposition leader, said the Christie administration only withdrew from CCRIF on the advice of several government agencies.

And Tribune Business sources said it ceased paying the annual $900,000 premium after it was advised that the likelihood of ever receiving a payout was “almost zero”.

Following Hurricane Matthew’s passage, Michael Halkitis, then-minister of state for finance, said the Government had ceased the annual premium payments because the Bahamas would only have received compensation in the event of a Category Five hurricane.

Matthew came through the Bahamas as a Category Three/Four storm, and Mr Halkitis said the Christie administration had decided to drop CCRIF participation and establish its own disaster fund as “the threshold was just too high”.

And a source familiar with the matter told Tribune Business: “We have been a part of this thing for 20 years, and could never get a claim. Our information was that the likelihood of us getting a claim was almost zero.

“A committee had been put together comprised of persons from the Met Office, Ministry of Finance and other agencies. They submitted a report suggesting that the Government drop it.

“After Hurricane Matthew, the guys from the CCRIF commented on what would have happened if the Bahamas had kept it. That was taken with a grain of salt. It was almost impossible for us to have gotten anything.”