Governments of The Eastern Caribbean Currency Union (ECCU) Agree on Strategy for Branches of British American Insurance Company on The Eastern Caribbean
EC$1.05 billion in liabilities
Nov. 4, 2009
Introduction: For several months, the Governments of the Eastern Caribbean Currency Union (ECCU) have carefully monitored growing public concern about the financial situation of British American Insurance Company Limited (BAICO) and other subsidiaries of its Trinidadian parent company, C.L. Financial. BAICO itself is a private, limited liability company incorporated in the Bahamas. Nevertheless, the sheer size of BAICO and the significant exposure of the Eastern Caribbean have made it imperative for the ECCU Governments to adopt a proactive and collective approach to this challenge.
At the end of July/early August of this year, regulators in the ECCU and The Bahamas intervened in the operations of BAICO and applied to Courts in the several jurisdictions to appoint Judicial Managers. Consequently, Judicial Managers were appointed in all ECCU countries with branches of BAICO except Dominica. Since Dominica's law does not provide for the appointment of a Judicial Manager, the Judicial Manager for BAICO (The Bahamas) appointed an agent to take control of the affairs of the branch in Dominica.
To facilitate cooperation, expedition and reduce costs, these "ECCU" Judicial Managers were all appointed from among professionals of a single group, namely the highly respected firms of chartered accountants known as "KPMG". Except for Dominica, the full reports of these Judicial Managers were filed with the respective Courts last Friday, October 30, 2009. Dominica's report will be filed soon.
Key Findings of Judicial Managers
The reports of the Judicial Managers reveal that:
The liabilities of the BAICO branches in the Eastern Caribbean total EC$1.05 billion. Of this sum, EC$842.4 million are annuities or investment contracts.
There are branches in Anguilla, Antigua & Barbuda, Dominica, Montserrat, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines.
British American Insurance Company Limited, a Bahamian company operated out of Trinidad, with branches throughout the Eastern Caribbean is insolvent. As of June 30, 2009 (unaudited financial statements), the deficiency was EC$775 million. This deficiency may 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 C.L. Financial and its US property investments.
The branches of BAICO in the Eastern Caribbean are not stand-alone legal entities. As a result, the liabilities of these branches are the liabilities of BAICO and the assets of these branches are the assets of BAICO unless such assets have been legitimately set aside for the benefit of local policyholders.
There is only approximately EC$30 million of assets set aside (pledged) in the Eastern Caribbean.
An amount of EC$301 million was taken from the branches in the Eastern Caribbean to fund certain inter-company transactions including the purchase of property in Florida, United States of America. The Judicial Managers have filed a petition in US Court to be recognized in bankruptcy proceedings started by BAICO to obtain relief under Chapter 15 of the US Bankruptcy Code. This relief, if granted, will stay all actions against BAICO in the US and will allow the Judicial Managers to have a voice in any decisions regarding the distribution of the US assets.
In the event of a liquidation of BAICO, policyholders will not be paid in full. Indeed, it is probable that if BAICO was liquidated, policyholders will only get 10 cents on their dollar. This means if you have an annuity of $1000, you would only receive $100.
The facts revealed in the Judicial Managers reports are troubling to say the least. However, they are not entirely unanticipated, for over the past few months many of the grim facts concerning BAICO's financial status have become public knowledge. Moreover, the Governments of the ECCU have actively sought to obtain a better understanding of the situation with a view to becoming part of the solution. After considerable discussion and planning, a new entity was proposed to salvage the ailing ECCU operations of BAICO and we have worked for several months to make this a reality.
Mindful of the grave consequences if British American is liquidated, and having consulted with ECCU Governments, the Judicial Managers' Reports have now endorsed this approach for the creation of a new entity and we are optimistic that their recommendations will be accepted by the Court. In that event, the ECCU governments stand ready to participate in the proposed new entity with a view to protecting the interests of regional policyholders and annuitants.
It is clear from the Judicial Managers' Reports that BAICO is insolvent and that without a substantial capital injection, policyholders and investors would suffer tremendous losses. It is with this in mind that the ECCU governments are pleased to announce that we have agreed upon a strategy to assist the Judicial Managers in the structuring and funding of the proposed new entity to take over certain of the assets and liabilities of BAICO in the Eastern Caribbean.
While the details of this strategy will require a great deal more work, both in collaboration with the Judicial Managers of the region and in collaboration with potential strategic partners, it is a real opportunity, perhaps the only real opportunity, to avoid some of the inevitable losses associated with liquidation and to offer policyholders and investors the potential for recovery of a greater portion of their assets and investments.