Latest update September 18th, 2026 10:25 AM
Lessons of the CLICO fiasco
In his Budget presentation on Monday, the Minister of Finance observed, “Recovery from the current global recession will be long in coming, and no country will be spared the accompanying trauma.”
Alluding to the CLICO meltdown, he continued, “Events in the Caribbean’s financial sector over the past week have certainly driven home this reality…”
He noted, “… the avoidance and containment of similar risk going forward will be critical to the safeguarding of the Region’s growth prospects.”
We agree and would like to continue with our discussion of the CLICO debacle and attempt to identify some lessons – even at this early stage – that may help us with the latter goal.
One of the major reasons for the group’s collapse was its business strategy – which was aided and abetted by a loosening of several of the old standards of prudence that had controlled the financial sector for a long time. Chomping at the bit of regulations that had ensured that banks and insurance companies stuck to safe, low risk – and inevitably low return – investment of the funds entrusted to their safekeeping, clever ruses were invented to bypass these restraints.
Funds were directed into less heavily regulated areas – controlled by the same financial institutions – in the quest for higher – and inevitably, riskier – returns. As with the meltdown in the US and EU financial sectors, the problems by and large were not generated in the traditional banking institutions but in their new investment vehicles.
In T&T, the Central Bank of T&T’s Governor Williams spoke of CLICO’s “Excessive related-party transactions which carry significant contagion risks.” In Guyana, insurance companies including CLICO are soliciting what, in all but name, are certificates of deposits from the general public.
CLICO misleadingly dubs these short term deposits “Flexible premium annuities” and “executive flexible premium annuities” although they are not truly insurance policies.
CLICO was used as a cash cow to finance the long term and high risk investments of the CL Financial Empire. Misstatements of cash transfers as has been shown between CLICO Guyana and CLICO Bahamas are indicative of the subterfuges used.
In the more measured tones of Governor Williams, CLICO pursued: “An aggressive high interest rate resource mobilisation strategy to finance equally high risk investments, much of which are in illiquid assets and also a very high leveraging of the Group’s assets, which constrains the potential amount of cash that could be raised from the asset sales.”
The timing mismatch between liabilities and assets caused the house of cards to collapse once the investments could not generate the necessary liquidity. What is the situation here?
Insurance companies are not subjected to the same level of reserve requirements (8%) and scrutiny as imposed on Banks? We have rules as to the percentage of locally accumulated cash that can be invested overseas by insurance but these were routinely violated. Where is the breakdown in enforcement located?
The Governor of the Central Bank of T&T announced that they had concerns about CLICO’s operations since 2004 but they did not have the statutory powers to do what was necessary. What is the state of our regulatory scheme over the insurance and other non-bank financial institutions?
A very high priority ought to be given to this task. Simultaneously, the government must revisit the innovations in the financial and accounting rules – intended to facilitate the high-flying, low prudence approach – that originated in Europe and have spread even into our region through new rules in banking and accounting.
For instance, exactly how are our institutions allowed to record the value of their assets? Are we satisfied with the expansive new IAS rules?
Enquiring minds, concerned with their NIS funds invested in CLICO, want to know.
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