By Vernon Khelawan Thursday, November 26 2009

TRINIDAD and Tobago will be partnering in the capitalisation of a planned new insurance company to replace British American Insurance Company (BAICO) in the OECS states, but the quantum of this country’s contribution has not been revealed.

The company, part of the failed CL Financial Group, which had its operations headquartered in Port- of-Spain, is under serious threat of liquidation and the judicial managers, backed by the governments of the Eastern Caribbean Currency Union (ECCU), have agreed on a strategy to assist in the structuring and funding of the proposed entity to take over certain of the assets and liabilities of BAICO in the Eastern Caribbean.

According to statement from the ECCU, “the proposed new company would have its headquarters in the Eastern Caribbean and would assume the traditional life insurance, medical insurance and annuity business of British American branches in the eastern Caribbean.”

The statement noted that the challenge posed by BAICO’s insolvency, was not only a concern for the Eastern Caribbean, “it is a regional problem”.

It added, “Questions relating to corporate governance and management by CL Financial Group certainly arise, especially in view of the apparent use of monies from BAICO policyholders in the eastern Caribbean to fund risky real estate investments in Florida and elsewhere.

“Indeed,” continued the statement, “the government of Trinidad and Tobago intervened into the operations of CL Financial earlier this year and entered into a Memorandum of Understanding with that company in an attempt to address some of these issues.”

The statement also warns that based on the extent of BAICO’s deficits, “some losses will be inevitable” and added policyholders should not expect the new company to cover all benefits and interest to which they might be entitled from BAICO, since intrinsic in the high returns offered by BAICO was a certain level of risk for which policyholders must accept some responsibility.

The judicial managers pointed out that the capital injection required to preserve even the principal amounts invested by policyholders was “daunting”, so “the goal in funding the new company will be primarily to cover as far as possible the principal amounts invested by ECCU policyholders and annuitants.”

Liabilities of the BAICO branches in the Eastern Caribbean total (EC)$1.05 billion and of this sum (EC)$842.4 million are annuities or investment contracts and as of June 2009, unaudited financial statements reflected a deficiency of (EC)$775 million, which can still increase as there are “significant concerns” regarding the values attributed to some of BAICO’s intra-group assets, for example a loan note due from CL Financial and its US property investments.

The statement revealed that (EC)$301 million were taken from the branches in the Eastern Caribbean to fund certain inter-company transactions including the purchase of property in Florida in the US.

The judicial managers have filed a petition in US court to be recognised in bankruptcy proceedings started by BAICO to obtain relief under Chapter 15 of the US Bankruptcy Code. Such relief, if granted, would stay all actions against BAICO in the US and would allow judicial managers to have a voice in any decisions regarding distribution of the company’s US assets.

The statement points out however, that much work remained to be done, but the ECCU governments wish to see the new company set up within six months of court approval of the new strategic plan.

BAICO branches are located in Anguilla, Antigua & Barbuda, Dominica, Grenada, Montserrat, St Kitts and Nevis, St Lucia and St Vincent and the Grenadines.