After promising in November 2005 to pay 8.5 per cent interest to an investor in the Executive Flexible Premium Annuity (EFPA) financial instrument, CLICO Insurance Company Ltd halved the rate five years later amid a dramatic downturn in its financial fortunes.
Barbados TODAY was shown one of the contracts for the financial instrument signed by the former chairman of the parent company CLICO Holdings, Leroy Parris, and his former second vice president Terrence Thornhill, which clearly promised investors an interest rate of 8.5 per cent.
The document states: “This certificate for Executive Flexible Premium Annuity is issued to you in full acknowledgment of your EFPA contribution. The interest rate is 8.5 per cent per annum and will be guaranteed for five years from the date the policy was agreed to.”
“You will be advised of subsequent rates as declared by the company on your policy anniversary. Interest payments will be paid to you annually,” it added.
However, five years later as CLICO Insurance Co Ltd began to experience a run on its resources by policyholders and other investors following reports of an imminent collapse, management was forced to halve the interest rate on investments in some cases.
A letter dated November 16, 2010, signed by President Geoffrey Brewster, said: “As you may be aware, the company has been faced with high demands for payments from its policyholders since February 2009 which has created a challenge with meeting the demands for all payments on a timely basis.
“In light of the prevailing financial circumstances surrounding the company, payment of your maturity in full is not possible at this time. However, your investment will continue to earn interest until the company is in a position to make payment to you. Please note that our interest rates were regulated in keeping with the existing commercial rates,” Brewster added.
The correspondence went on to say that contributions less than $50,000 will attract a one year annual interest of 3.5 per cent; $50,000 and less than $100,000 will attract a one year annual interest rate of 4 per cent and $100,000 and above 4.5 per cent.
Brewster concluded his letter with an apology and requested the kind understanding and patience of investors as the company endeavoured to recover from the difficult period.
One elderly investor in the EFPA instrument told Barbados TODAY he had accepted his loss, but contended someone should be punished for this breach of trust.
He said he trusted the regulatory authority overseeing financial institutions like CLICO and placed his hard-earned money in the company.
Commenting on the position in which investors now found themselves, chartered accountant Douglas Skeete said the EFPAs were a misnomer, contending they were just deposits. Skeete contended they were not true annuities because investors deposited their funds for a period and then got back the money plus interest.
The chartered accountant pointed out that the management of CLICO would have offered an interest rate higher than what commercial banks were offering in an attempt to attract investors.
Skeete argued that CLICO’s operations in Barbados would have been affected by the collapse in Trinidad and Tobago and investors who had placed their money in the EFPAs would have staged a run on the insurance company.
Turning his attention to claims made by Opposition Leader Mia Mottley that policyholders and investors may now recover only 22 cents on every dollar invested, Skeete pointed out that this return was likely to fall even lower as time goes by and the company’s assets deteriorate.
Contending that the incumbent Democratic Labour Party (DLP) administration should have acted with more dispatch in dealing with the collapse of the company in 2009, Skeete said: “It is just a disgraceful scenario because Government took too long to deal with the problem.”
“I am not surprised that at one time holders of EFPAs were getting half the interest rate offered. If the revenue streams are being affected, there is no money to be invested to pay the high interest rates promised. In the early days of the collapse, CLICO may have paid major depositors 4.5 per cent interest, but for investments of $10,000, the interest rate could be as low as 2 per cent,” Skeete said.