Recovering $6B from CLICO, political will, critical to NIS survival

May 07, 2012 News

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–  Chartered Accountant

By Gary Eleazar

This past week, Head of the Presidential Secretariat Dr. Roger Luncheon, who also serves as the Chairman of the Board of Directors of the National Insurance Scheme (NIS) announced that there will be a move to amend legislation with a view to bringing additional contributors to the scheme.
He spoke of persons such as taxi drivers, who upon a move to be re-licensed, would have to be NIS compliant.
Dr. Luncheon suggested that this would increase the voluntary contributions for self employed persons.

The move has been hailed by eminent Chartered Accountant Christopher Ram as helpful, only for short term measures.
The Accountant said that there is need for “Political Will” to effect the necessary “structural changes” necessary to rescue the Scheme.
He ruled out the need for any type of a brainstorming retreat with persons knowledgeable in the field to come up with measures.
Ram pointed to Actuarial Reports which have been completed and have pointed to the necessary reforms needed.
An Actuary is a business professional who deals with the financial impact of risk and uncertainty.
Actuaries provide expert assessments of financial security systems, with a focus on their complexity, their mathematics and their mechanisms.
Actuaries mathematically evaluate the likelihood of events and quantify the contingent outcomes in order to minimize losses, financial and other, associated with uncertain undesirable events.
He pointed to improvement necessary in the way the scheme manages its affairs in terms of balancing the books and managing its investments.
Ram said that at present the single biggest hindrance as it relates to financial viability for the National Insurance Scheme is the $6B impaired in the Colonial Life Insurance Company (CLICO) Guyana liquidation process.
During the Finance Minister Dr. Ashni Singh’s 2012 Budget presentation, he pointed to the CLICO (Guyana) Liquidation order but made no mention of the almost $6B ($5.748 billion) impaired for the NIS.
Dr. Singh reported to the House that in 2011, the task of resolving the domestic chapter of the Caribbean-wide CLICO saga continued.
“I am pleased to report that following the granting of a liquidation order by the Court, some 7,744 policyholders were paid a total of $4.1B.

He said that the repayment process will continue, and the liquidator intends to garner additional funds through sale of company assets and legal actions with respect to the parent company and other regional subsidiaries.
This leaves the cash-strapped NIS, still banking on the State guarantee for the safe and timely return of its investment, even as its expenditure this year threatens to exceed its revenue.
The most recent (2010) audited NIS report was recently laid in the House by Dr. Singh.
Its findings revealed that the Scheme’s expenditure is dangerously close to exceeding its annual revenue.
The scheme has reportedly already commenced tapping into its reserves to make good on payments.
The report also underscored the institution’s heavy dependence on short term investments.
One such investment is the one impaired in CLICO (Guyana).
According to the NIS report, in 2010, the total expenditure as it relates to pension was some $9.1B, while the income was only pegged at $7.8B. Old-age benefit was responsible for some $6.7B of the payout. On the income from short term benefits, it was reported that the Scheme raked in some $2B while expending just over $1B.
While the total income for the scheme rose to $11.2B in 2010 up from 10.2B in 2009, the report revealed that total expenditure accounted for some $10.8B as against $9.6B the previous year.
The report also revealed that the administrative costs associated with running the Scheme is some $1.4B.
According to the independent auditor’s report for NIS, prepared by TSD Lal & Co. Chartered Accountants, “the actuaries reported several matters of concern, among which were that annual expenditure is projected to exceed the year’s contribution income beginning in 2014 and reserves are expected to be exhausted in 2022…The actuaries made certain recommendations to ensure the future viability of the Scheme, but so far these have not been fully implemented.”
The independent auditors also said that investments of $28.8 billion in the statement of financial position include an amount of $5.748 billion for CLICO Life and General Insurance Company Ltd.
CLICO Life and General Insurance Company Ltd., was put under judicial management in 2009.
“Due to uncertainties regarding the future of CLICO Life and General Insurance Company Ltd and its ability to honour its debts when due, a unanimous Parliamentary Resolution was passed guaranteeing State support for the recovery of this investment.”
An independent expert had said that the nation’s coffers will soon be affected adversely by the investment of NIS in CLICO (Guyana).
According to the source, based on the projections of the figures as they relate to expenditure and revenue, the latter will soon be less than the required expenditure and the $6B investment in CLICO will not be available for use at any time in the near future.
The national coffers will be affected, given that once NIS is unable to make its payments, the company, by law, has to move to the National

Assembly seeking monies to be approved from the Consolidated Fund.
This position was agreed to by the Shadow Finance Minister Carl Greenidge who had stated that he is expecting the government to move shortly to the House seeking a Supplementary provision for the NIS.
The Former Finance Minister said that based on information available, the Scheme at present is in grave financial difficulty, which is a phenomenon NIS’ Head, Dr. Luncheon, seems not to be au fait with.
Greenidge said that the time has come for a serious, structured reassessment of the Scheme “to have it evolve to reflect the current environment in which it operates.”
The APNU finance expert said that the opposition will be calling soon on the Finance Minister to provide answers to the House as it relates to the Government’s plan to resuscitate the Scheme.
He lamented the fact that the actuarial reports over the years have all been making relevant recommendations as it relates to resuscitating the Scheme, but they have not been taken on board by the Cabinet.
Greenidge said that given the circumstances, they expect to see a bailout package being requested in the short term, but the Scheme will have to ensure that decisions are taken to ensure the industry’s long term viability.

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