The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

CLICO (Bahamas) liquidator has again warned that he will have to terminate all the insolvent insurer’s medical policies unless the portfolio can be “immediately” transferred to its proposed new underwriter.

Craig A. ‘Tony’ Gomez, the Baker Tilly Gomez managing partner, in his just-published 20th report to the Supreme Court, said it was vital that the Government fulfill its part with respect to Coral Insurance Company’s creation.

“The transfer of CLICO (Bahamas) life, health and pension policies to a new insurer, or the establishment of a new insurance company, continues to be in abeyance until the Government guarantee is secured,” Mr Gomez wrote.

“The actuary’s analysis of CLICO (Bahamas) current state, and along with the obvious financial impact of the medical policies on the insurance policies and available cash, [means] providing that a government guarantee is not received by the official liquidator shortly, the actuary advised that the medical policies should be discontinued immediately.”

The cause of Mr Gomez’s concerns, and the rationale for terminating the insolvent insurer’s medical policies, is contained in the actuarial report produced by Morneau Shepell at December 31, 2015.

This discloses that group health policy claims have exceeded premium income generated by these policies by 46 per cent, or more than $1.7 million, during the seven-year period from 2009-2015.

This means that CLICO (Bahamas), and the liquidator, have incurred a $1.7 million loss on these policies over that period, with the group health claims ratio standing at 146 per cent.

The consequence is that CLICO (Bahamas), with a near-$50 million solvency deficiency, is burning through scarce cash resources to pay group health claims and taking funds away from being able to pay ongoing expenses.

“As at the date of this report, CLICO (Bahamas)had $9.321 million in its bank accounts, which is a major concern in the liquidation,” Mr Gomez wrote.

“Professional fees, medical and death claims, coupled with the staff, building and operational expenses, have to be paid on a regular basis (daily and monthly). There continues to be a depletion of the available funds as a result of the aforementioned expenses.”

Mr Gomez’s report shows that at end-June 2016, CLICO (Bahamas) had just $3.755 million in cash at Royal Bank of Canada (RBC), with the remainder of its liquid assets - some $5.577 million - held in short-term deposits at the same bank.

Mr Gomez is gagged from speaking publicly by the Supreme Court, but a source familiar with CLICO (Bahamas) situation said of its current plight: “The liquidator believes it is a must that he either reprices or gets rid of the [health] portfolio” if the Government fails to deliver.

It is likely that these concerns prompted Bishop Simeon Hall, himself one of the insolvent insurer’s victims, to last week urge the Christie administration “to make good on its promise” over the second - and final - payout to former policy and annuity holders.

The Government unveiled its proposed resolution in early October 2016, with promises of payment by November, but this has yet to happen some four months later.

“The Ministry of Finance will be making a serious mistake if they allow the election to come without some resolution to this matter,” Bishop Hall told Tribune Business last week.

“I understand some good progress has been made, but by now I would have expected this thing to be resolved.”

CLICO (Bahamas) was placed into Supreme Court-supervised liquidation more than eight years ago in February 2009, and amid an ongoing general election campaign and other policy priorities, Bishop Hall is concerned that he and other victims may be forgotten once again.

“I want to encourage the Government to make good on its promise,” he said, “and to do more for the more than 10,000 persons affected by this.

“Whatever they do, they should follow the Biblical injunction Jesus told his disciples: ‘Whatever thoust do, do quickly’.”

The second phase payout to former CLICO (Bahamas) clients is supposed to be triggered by the creation of a new insurance entity, a special purpose vehicle (SPV) to be called Coral Insurance Company. This is being formed to hold CLICO (Bahamas) insurance policies that remain in effect.

The SPV, which will be licensed and regulated by the Insurance Commission of the Bahamas (ICB), was supposed to be set up by the second week of November 2016, and hold the remaining insurance portfolio until it is purchased by another insurer.

Tribune Business sources last week suggested that Mr Gomez and others have been working to develop a feasible business plan for Coral Insurance Company.

However, before the plan and Coral’s formation can proceed any further, Tribune Business understands that the Government has to determine how to structure the financial support it will provide to Coral.

Several sources familiar with developments suggested that progress on this issue had slowed down recently on the Government side, thereby delaying the promised payout.

The Government has agreed to provide “capital support” to plug the holes in Coral’s original balance sheet, and cover the ‘gap’ between its asset and policy liabilities that will be inherited from CLICO (Bahamas) and the liquidator.

This will likely take the form of a promissory note, and the Government (taxpayer) will also cover any annual operating deficits incurred by Coral. It is the structuring of these requirements that now needs to be concluded.

This will pave the way for completion of Coral’s business plan, and its licensing and creation. This, in turn, will lead to the $45 million bond issue that will compensate CLICO (Bahamas) former Executive Flexible Premium Annuity (EFPA) holders and those who surrendered their pension policies.

Mr Gomez’s report to the Supreme Court confirmed that in the first phase CLICO (Bahamas) payout, which took place in March-April 2016, almost 75 per cent of the policyholders had been compensated -and 79 per cent of the sum available paid out - by mid-2016.

“It was agreed that approximately $14.3 million would be made available to some 4,728 policyholders,” Mr Gomez said of his discussions with the Ministry of Finance.

“Payments to policyholders commenced on March 30, 2016, in New Providence, and April 8, 2016, in Grand Bahama. At the date of this report, some 3,533 policyholders had received approximately $11.3 million of first interim payments.”

The second phase payout’s bond issue, as previously revealed by Tribune Business, will be handled by Leno Corporate Services. The bonds will be issued in exchange for, and replace, the pledges issued to former CLICO (Bahamas) clients owed more than $10,000, and who received their first cash payments in February 2016.

That collective payment ultimately totalled some $13.1 million.