When an insurance company goes under, it is essential that a buyer be found immediately. The company cannot be left in limbo. The reason why action is required ASAP is that the major value of an insurance company is its client portfolio and the company’s top sales force. The problem with clients and salespeople is that as time goes on many worried clients stop paying premiums and good sales people move to a competitor and they also take their clients with them. In other words, the company basically is worth less as each day passes—you must find a buyer ASAP.
Hence, while the Government would want to get a good price for the sale of the company, the most important factor is to sell the company because whatever you sell the company for today, it will be better than tomorrow, and the price tomorrow will be better than next month which will also be better than in six months time, etc. Regrettably, Government decisions almost always take too long.
Unfortunately, too much time was wasted in finding a buyer. Moreover, many of the company’s assets, such as real estate, did not receive proper management and analysis and it also seems that unrealistic valuations for sale were placed on many properties.
An example of the wayward valuation on one of the CLICO properties is Villa Nova. On August 9, 2017 I visited the site with the liquidator. I was shocked to see the very poor condition of the property. The asking price was US$10 million. I do not know if this is the book value of the property or an appraised value or some other figure. What I do believe is that it is a “dream” price as the property, in my opinion, is not worth half of the asking price.
A property like Villa Nova is best sold ASAP because the cost of upkeep is very high. The property has not been occupied for over ten years and with poor upkeep and depreciation of the buildings it only compounds the problem.
Your “best” loss is your first loss, especially given the economic challenges facing the country. The annual costs of keeping Villa Nova must be huge when one considers: insurance, house maintenance, grounds maintenance, security, utilities, administration of liquidator, property taxes, etc. When the dust settles on the sale of CLICO’s real estate assets, it is very likely that the monies realized will be substantially less that the original expectations.
I believe that there should be a clear distinction between the CLICO clients of normal insurance products such as the customers who were paying premiums for life insurance and pensions on a regular basis over years. These clients should be protected.
However, I do not have the same sympathy for the investors who invested large fixed amounts seeking the highest returns in the market. It was common knowledge that CLICO was paying the highest return compared to other comparable investments in Barbados. It is my opinion that the Government cannot guarantee these investments.
There is a lot of truth in the saying that “if something sounds too good to be true, then it is probably not true”. There is a cardinal rule in investing which says “the higher the return, the higher the risk”. Hence, the people who invested large lump sums with CLICO were looking to maximize their return on investment. Well, that comes with a price of more risk and these investors cannot expect anyone to finance their losses. It would make a mockery out of investment risk/return because no one would have to worry about the quality of the investment. They would simply look for the highest return and rely on the Government to cover their losses in the event of the company declaring bankruptcy. An investor cannot have his cake and also eat it.
Likewise, the Government and policyholders should hold the top management of CLICO responsible for improper management decisions that led to the company’s downfall.
The policyholders of CLICO were doomed by the forces of a “double whammy” – CLICO’s incompetent top level management followed by procrastination and poor decisions of the DLP administration.
John Beale is a former Barbados Ambassador.