The Clico Policyholders Group (CPG) is questioning Finance Minister Colm Imbert’s instructions to Central Bank to remove over $400 million from Clico’s Statutory Fund.
The letter dated July 13 also instructed Clico to “advance the process towards the eventual transfer of the HCL shares and the proceeds from the sale of its Methanol Holdings (International) Ltd shares towards satisfying GORTT’s claim of approximately $2.1 billion as assignee”.
The letter stated, “..the Minister of Finance by letter dated July 13, 2016 issued certain special directions to the Central Bank pursuant to section 44F(5) of the Central Bank Act Ch. 79:02.
“In furtherance of all powers invoked by the Central Bank by Legal Notice No 32 of 2009 and particularly the Central Bank’s powers under section 44D(1) of the Act to protect the interests and preserve the rights of all policyholders and creditors of Clico, and of the said special directions of the Minister of Finance, the Central Bank now directs Clico to...”
Chairman of the CPG Peter Permell said, however, “This represents a significant amount of the balance due to ‘resident’ assenting policyholders who accepted the government’s 2011 offer. But are being told by the minister that they ‘gave up their right to accrued interest and these individuals no longer have a contractual arrangement with Clico, and do not form part of the Resolution Plan.’”
Permell said this was money that belongs to the assenting policyholders.
However, documents obtained by the CPG and seen by the Sunday Guardian show that in order to facilitate an earlier settlement of liabilities to “non-resident” (non-assenting) policyholders and mutual fund holders who did not accept the government’s 2011 offer, the minister has instructed the Central Bank by same letter dated July 13 to make full payment of all outstanding liabilities due to them (ie, 100 per cent of their principal plus contractual interest).
Permell said this was “morally and legally wrong” since these policyholders should only be paid from assets that do not form part of the statutory fund.
Insurance Act does not protect
non-resident policyholders
He said according to the Insurance Act this category of policyholders is not protected in law by the assets of the statutory fund. Section 37(4) expressly states, “Every company carrying on long-term insurance business in Trinidad and Tobago shall place in trust in Trinidad and Tobago assets equal to its liability and contingency reserves with respect to its Trinidad and Tobago policy-holders as established by the balance sheet of the company as at the end of its last financial year.”
Section 38(1) states, “Subject to subsections (2) and (3) the assets representing each statutory fund of a company shall not be applied directly or indirectly to any class of business other than that in respect of which the fund was established and is being maintained.”
Permell said, however, “there is a loophole,” in that Section 38(2) states, “Where the value of the assets mentioned in subsection (1) is shown on an actuarial investigation made under this Act to exceed the amount of the liabilities attributable to the class of insurance business referred to in section 37, the restriction imposed by subsection (1) shall not, subject to Section 116, apply to so much of those assets as represents the excess.”
And finally Section 115 states, “A company shall not pay, apply, allocate or transfer any part of the assets of its statutory fund except with the approval of the Supervisor (Inspector of Financial Institutions) and on the certificate of its actuary.
Permell said this means that the only way assets could be ‘legally’ taken out of the statutory fund (in keeping with the minister’s instructions) to pay individuals other than resident policyholders “is if Clico is able to obtain an actuarial certificate from a qualified, independent actuary certifying that the total resident policyholder liabilities are less than the total market value of the assets in the statutory fund. Clico then has to write to the Inspector of Financial Institutions (IOFI), the fund’s trustee, requesting the release of the relevant assets.”
More questions than answers
“Accordingly, it means the actuarial certificate is key and therefore begs several questions: Was an actuarial certificate issued? When was it issued? Who issued it? What precisely did it state?,” Permell said.
Permell said, “The Central Bank has already instructed Clico the next day by letter dated July 14, and Clico has made the relevant requests from the IOFI on July 19, for the release of assets from the statutory fund. Interestingly, an actuarial certificate was issued on July 15, two days after the minister’s letter to the Central Bank, by Clico’s external actuary, Mr Paul Ngai, principal and consulting actuary of the firm Prescience Consultants and Actuaries.”
Ngai’s actuarial certification states, “I have been advised by the management of Clico that the assets pledged to the statutory fund based on the Central Bank of Trinidad and Tobago, December 31, 2015, quarterly submission total TT$17,106,118,326. In addition, I have also been provided the short-term policy liabilities calculated by the company as at December 31, 2015, and have relied on the company on the accuracy of these figures. I have valued the long-term insurance policy liabilities as at December 31, 2015.”
Permell questioned whether Ngai failed to do his own valuation or verification of the total assets pledged to the statutory fund and to value the short-term policy liabilities relative to the statutory fund. Permell wants to know if Ngai relied instead on Clico’s, his client’s, valuations.
Permell said that curiously the long-term insurance liabilities was only valued as at December 31, 2015. “This is unprecedented and contrary to what has been done in the past and best practice,” Permell lamented.
Halt the release of funds
Permell also questioned whether Ngai failed in accordance with actuarial standards of [best] practice to state whether: “(a) the methods and procedures used in the verification data are sufficient and reliable and fulfil the acceptable standards of care; (b) the valuation of policy liabilities has been made in accordance with generally accepted actuarial principles with such changes as determined and directions made by the Draft Insurance (Caribbean Policy Premium Method) Regulations; (c) the methods and assumptions used to calculate the consolidated actuarial and other policy liabilities are appropriate to the circumstances of the company and of the same policies and claims; (d) the policy liabilities represented in the balance sheet of the company amounting to TT$13.8 billion makes proper provision for the future payments and meets the requirements of the act and regulations.”
Meanwhile, Ngai states without reservation in his certificate: “‘In my opinion and based on unaudited financial and source data information provided to me by the management of Clico: the amount of short-term policy liabilities TT4.6 billion together with the total amount of long-term policy liabilities for residents (TT$9.1 billion) is less than the total market value of statutory fund assets (TT$17.1 billion)’ and, therefore, further opines that there are adequate assets to fund the final settlement of short-term liabilities so as to comply with the directions of the Central Bank.”
Permell says, “The CPG is therefore calling on the IOFI to initiate a probe into whether the actuarial certificate complies with the relevant actuarial standards of the Insurance Act and Regulations. And in the interim to immediately halt the release of any further assets from the statutory fund pending the outcome of the probe.”