WHERE WILL THE MONEY COME FROM?

Mar 15, 2009 Features / Columnists, Peeping Tom

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A guarantee is only as good as that with which it is supported and therefore, without the backing of funds, the guarantee which the government of Guyana is offering to policyholders of CLICO (Guyana) is worthless.
The big question therefore is how does the Government of Guyana intend to guarantee that no policyholder would lose his or her funds? By what means does the government intend to back this guarantee?
This was the question that I had hoped would have been answered during the press briefing held by the Judicial Manager, and by the Minister of Finance in his statement in the National Assembly. I did not get an answer in either.

I had anticipated that by now the financial status of CLICO (Guyana) would have been determined, and that the press conference would have been able to pronounce on the actual size of the deficit (if any) of the statutory fund of that entity. My own assessment is that if in excess of 50% of the assets of the company are impaired and if, as is now being confirmed, there were significant surrenders and closures of policies just before Feb 25, then it is inescapable that there has to be a deficit in the statutory fund.
That fund would normally have been adequate to take care of what is now being described as event-driven claims, and thus there would have been no need for CLICO (Guyana) to seek an injection of funds to pay off that aspect of its liabilities.

I am still confident that there are sufficient funds held in Guyana in the statutory fund to guarantee those event-driven claims, which we are told can now be applied for by claimants. But the question remains whether CLICO would be able ever to honour the maturities of those who have short-term annuities, which some persons like to refer to as their savings.

From all indications there was a run on CLICO (Guyana) just before the Commissioner of Insurance moved to place the company under judicial administration. Adam Harris, the editor of this newspaper, anticipates that some three billion dollars were withdrawn by policyholders during this run. Judging from the revelation made by the Judicial Manager that the sale of CLICO (Guyana)’s share in the Berbice River Bridge Co. was used to pay claims, this three billion dollar figure would seem to be a reasonable estimate.

And that is where my concern begins about the funds to secure the guarantee given by the Government that no one will lose their monies in CLICO (Guyana). We are told that close to seven billion dollars was invested by CLICO (Guyana) in CLICO (Bahamas), and this represents just over fifty per cent of the assets of the local company. Therefore it would mean that, if there was a run of three billion dollars on CLICO (Guyana), this would represent another significant chunk of the assets of the company which are impaired.

Despite what the Minister of Finance may have reported in the National Assembly as to what the Government is doing to retrieve the investments in CLICO (Guyana), I am not confident that Guyana would see much of that money. Even if it does, it is likely to take years. Collectively, therefore, what we are dealing with is a major impairment of CLICO (Guyana). In this scenario, I doubt whether the company can avoid liquidation. I doubt it very much.

The multi-billion dollar question is, therefore, where the Government is going to find the money to back its guarantee to policyholders. I am not at all impressed with the long-winded statement made by the Minister of Finance in the National Assembly.
And I certainly believe that all this talk about a regional solution to the crisis is rhetorical. Guyana is wasting time seeking a regional solution to the financial crisis in the region. By the time the assessment of the region is completed, the crisis would have ended.
I find no hope therefore in anything that was mentioned in the statement issued in the National Assembly, mainly because the crux of the matter boils down to the financing of the guarantee promised by the government.

Instead of being hopeful, I have become more worried by what was said by the Minister of Finance. He made the shocking revelation that in 2004 as much as 40% of the funds of the National Insurance Scheme (NIS) was invested with CLICO, but that this has now been reduced to 20%.
I am shocked because what this tells me is that the NIS investments were heavily concentrated in CLICO (Guyana), and the NIS ought never to have had this level of concentration in one company. It also tells me that, given the asset base of CLICO (Guyana), in effect what we had was the NIS effectively floating CLICO (Guyana).

And it is based on this that I believe that the Parliament of Guyana must demand more than just an oversight role into what is now taking place with CLICO (Guyana). There is now a need for a thorough investigation into the government’s dealings with this company dating back beyond 2004.

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