Letters to the editor - ChrisRam.net - Page 42

Category: Letters to the editor

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The Insurance (Supplementary Provisions) Bill 2009

I note that the Minister of Finance Dr. Ashni Singh has introduced legislation [The Insurance (Supplementary Provisions) Bill 2009] that will bring the functions of the Commissioner of Insurance (CoI) under the Bank of Guyana (BoG). The Explanatory Memorandum states that the “Bill seeks to pave the way for the Bank of Guyana (not the Commissioner of Insurance) to administer the Insurance Act and for a person nominated by the Bank to be appointed by the Court as judicial manager.” Because it was the first reading of the Bill, the Minister was not required to nor did he otherwise give any reason for this move which is not without considerable significance. Such a move would however have been helpful in alerting parliamentarians and the public of the thinking behind the legislation and directing their minds to the kind of preparation they should begin in order to contribute meaningfully to the progress of the legislation.

The Clico meltdown exposed in a rather dramatic and disastrous fashion some of the weaknesses of the existing legislation and its operations. But it also emphasised the need for a more exhaustive examination by an impartial body of the causes of the debacle and the steps necessary to better regulate the insurance sector and prevent similar failures in the future. Without the benefit of that exercise, I can only rely on my experience of the Insurance Act in relation to audits, revelations about Clico as well as – let’s not forget – the GuyFlag/Fidelity story in offering any opinions. Those suggest that what we need are fundamental changes both to the regulatory framework as well as how it operates. The proposed Bill falls very short.

The only change being made by the Bill is the transfer of responsibility for the supervision of the Office of the Commissioner of Insurance from the Commissioner of Insurance to the BoG. This raises the obvious question whether the Minister really believes that that is all that is necessary to fix the system that certainly failed us in the case of Clico and serves us poorly in the case of GuyFlag/Fidelity. One assumes that the Minister would have been kept fully informed by the Commissioner of Insurance that the breaches of key provisions of the Insurance Act by Clico were putting policyholders and depositors at considerable risk. Are those addressed by this Bill? I think not.

There is only one Commonwealth Caribbean country that I know of where the insurance industry is supervised by the Central Bank – Trinidad and Tobago which coincidentally has also had the biggest failure to stakeholders, other than Guyana. In Barbados and Belize the sector is supervised by a Supervisor of Insurance operating under the Ministry of Finance. Jamaica has what I consider to be the best model and one which was recommended in Ram & McRae’s Focus on Budget 2009, i.e. a Financial Services Commission. Under that umbrella can fall responsibility for the supervision of such sectors as insurance, securities, prevention of money-laundering and even the financial institutions. That would allow the central bank to deal with its core objectives, namely “the fostering [of] domestic price stability through the promotion of stable credit and exchange conditions, as well as sound financial intermediation conducive to the growth of the economy of Guyana.”

While the Commissioner of Insurance has had to take responsibility for much of Clico’s regulatory failure, the Bank of Guyana too failed to detect that Clico was engaged in deposit-taking which required Clico to apply to the Bank for a licence under the Financial Institutions Act. In fact the disclosures surrounding financial/quasi financial institutions including Clico, the Hand-in-Hand Trust, the New Building Society and the National Insurance Scheme suggest that the Bank of Guyana has its own problems. To add to its mandate supervision for the insurance sector can compound those problems.

I hope that the Bill is a mere temporary measure until the President’s promised investigation into Clico makes more extensive and meaningful recommendations. I hope we do not have to wait too long.

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It’s not too late for President to honour promise to Globe Trust depositors

The Kaieteur News of Thursday April 9, 2009 reported the Office of the President (OP) as stating that I and other (sic) directors of Globe Trust blocked payout of up to $100,000 each to 5,404 depositors of the financial institution. Apparently OP produced a “critique” to support its allegation that it was certain that up to “$235M would have been recovered from the realizable assets of Globe Trust”. I will deal briefly with the allegation, indicate my role in the Globe Trust imbroglio and offer a possible reason for President Jagdeo’s breach of promise.

The allegation though malicious and misleading is not surprising. It is also a mathematical impossibility. Even a junior clerk in the Office of the President could have told the manufacturer of the allegation that 5,404 times $100,000 is $540.4M. Where would the balance of $305.4 M ($540.4 M – $$235 M) have come from? But even the figure of $235 M is what the Liquidator very recently said was actually collected to date.

The architects of the allegation obviously intended to divert attention from my assertion – which I now repeat – that Jagdeo on August 3, 2001 had promised that approximately 2,000 small depositors defined by him as those with savings “in the vicinity of about $10,000 each” would get back their money. Instead of responding to my factual assertion, they create this absurd allegation and spurious diversion.

Second, I never was a director of Globe Trust or had a direct role in the Globe Trust case. Ram & McRae was retained by the institution to advise on and prepare a restructuring plan to address the difficulties being faced by the company. I was not a party to the action No 429/P in which Bank of Guyana (BoG) was the petitioner and Globe Trust was the respondent. I appeared as a witness to explain what came to be referred to as the Ram & McRae plan. I should add that the plan itself had identified as a first step – partly for administrative reasons – the repayment of all the under $10,000 accounts. In other words, there was no opposition to Jagdeo’s pledge which by coincidence was consistent with the Ram & McRae plan.

The basis of the intervention by Globe Trust in the legal action was that the BoG had acted outside of the law (the Financial Institutions Act) when on September 20, 2001 it took possession of Globe Trust “for the purpose of liquidation”. Then Chief Justice Carl Singh in his prompt, written judgment found that the decision by the BoG “manifested its misconception of its powers”; that the determination by the BoG that Globe Trust could not be restored to financial soundness was made “in a manner that was unfair to Globe Trust”; and that Globe Trust had been “unfairly treated”. The Chief Justice however did not hesitate to criticise the directors of Globe Trust for their “failure to act decisively in the face of lax, loose and grossly incompetent management.”

I should add that as set out in the written submission of Attorney-at-Law Stephen Fraser for Globe Trust, its intervention and proposed restructuring plan was not an objection to the Bank of Guyana assuming possession. In fact the point was made by Globe Trust director Professor Clive Thomas and emphasised by Mr. Fraser that the foundation of the Ram & McRae plan was that it would operate under the protection of the Financial Institutions Act. The premature and high-handed manner in which the Bank of Guyana acted leads inescapably to the conclusion that it did not want Globe Trust to survive.

Regarding the President’s failure to honour his commitment, it is possible that he forgot, which is human. But my belief is that when he made his promise on August 3, 2001 he hoped to neutralise popular opposition to an unlawful and politics-driven decision that had already been made but not yet announced – to liquidate Globe Trust. The liquidation announcement came seven weeks later. In the end he got both his wishes, i.e. the liquidation of Globe Trust and preempting any opposition. No need then to bother about any commitment.

A final thought. For years I have tried unsuccessfully to get the President not to make unlawful and unconstitutional spending out of the Lotto funds and more recently out of the Privatisation proceeds. Now OP would have the public believe that I prevented the President from meeting an obligation he made in good faith. Like their math, this just does not add up.

But it is still not too late. The President’s guarantee on Clico involving failures by his people is the equivalent of a blank cheque for billions and billions. He knows the exact and comparatively modest exposure on Globe Trust. It is far easier and clearly less costly for him to honour that commitment. I am not in his way.

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Information which was challenged in column came from Insurance Commissioner’s office

The tone of the March 3 letter of Commissioner of Insurance Maria Van Beek seems to suggest that she is reacting to the pressure from several quarters over her supervision of Clico. To accuse sections of the victims of the worst insurance failure in the country under her watch of making “reckless, uninformed and irresponsible pronouncements” (GINA release published March 1) might seem to indicate that Ms Van Beek is reluctant to acknowledge the scale of the problem or the extent of public concerns about potential personal and national losses of billions of dollars. Even if the government gives a complete bailout of Clico it is we the taxpayers who will pay it, while those who contributed to the crisis lecture us on how much they have done to protect us.

A number of persons have suggested to me that I should respond to the three issues she challenged me on: 1) the statutory fund/assets; 2) her reason for the approach to the court for a winding up of Clico; and 3) the name of the company, Clico.

1. I never claim to be an expert on insurance, accounting or indeed on any subject. However Ms Van Beek can rest assured that the provisions of the Insurance Act, including the difference between statutory assets and the statutory fund, would not escape any practising accountant. It is Ms Van Beek who has some explaining to do for apparently missing the assertion in Clico’s 2007 financial statements that the company had a “statutory fund” of $46 million and not the $9B she says it should be! As the expert and regulator of the sector, Ms Van Beek should tell the public what steps she took to have such an error in the audited financial statements rectified in a timely manner.

2. Ms Van Beek claims that I accused her of saying that it was Clico’s business model and investment strategy from which its problem stemmed. I did not invent that. Ms Van Beek said so in paragraph 10 of her affidavit. Ms Van Beek has insisted that it was the decision by The Bahamas authority to liquidate their Clico that triggered her move to the courts. It is not that decision which imperilled Clico Guyana’s investments.

Those unlawful and injudicious investments were impaired long before the move by The Bahamas authorities and required action, not excuse. But no, she waited until the property market in the US had collapsed taking with it huge amounts of Clico’s funds and then waited even further and longer on the Bahamian authorities.

3. Ms Van Beek writes that I wrote from an uninformed position concerning the name of the company. In her very affidavit she also refers to the company as SA!

In other words, everything Ms Van Beek accuses me of came out of her office.

Finally let me say that I welcome the press statement made by Ms Van Beek on the state of the company and note that she has taken several of the steps I advocated some weeks ago, including calling in the debts and guarantees of the related parties and giving specific advice to policyholders about the state of their insurance coverage. However she continues to repeat the vague promise she “attributes” to President Jagdeo that “no policyholder in Clico (Guyana) will lose their money.”

By now she should have sought written confirmation from the Minister of Finance to whom she reports, and not the President, of the precise nature and scope of the guarantee which in my view has to have parliamentary approval. Perhaps Stabroek News can clarify their report that Ms Van Beek “re-emphasised the assurances given by President Bharrat Jagdeo and Finance Minister Dr Ashni Singh, that no one with investments in the company will lose their money.” That goes well beyond policyholders and was not contained in the statement issued to the press. It would however naturally raise the hopes of investors including the NIS. It would be painful if that assurance turns out to be false.

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Most of major issues were avoided

Dr Misir avoided most of the major issues raised by me in the exchange of letters I have had with him over the past couple of weeks, while my hint to him that he should be guided by Eleanor Roosevelt’s classic quote about ideas, events and people appears to have escaped him in his letter of February 17 (‘Excessive nitpicking,’ SN).

Dr Misir and his fellow team member Mr Kwame McCoy in particular, seem fascinated by my politics. Fortunately or unfortunately, I have no tale to tell of personal heroism, revolutionary activism or political association to whet the appetite of Dr Misir and his “huge team of… significant players,” all serving a political cause paid for by taxpayers which would make the Value-For-Money practitioner recoil in horror and despair. For the information of Dr Misir and Mr McCoy my major contact with the PNC of the PPP’s critical support days was having been part of the group including Lou Bone, Eddie Dewar, Valerie Holder, Clairmont Kirton and Freddie Kissoon whom Burnham had decreed should get no work from the state. At no time during the PNC regime was I ever employed by or received any work from the state. Indeed, during that period I was close to the WPA, NAACIE and FITUG – hardly associations that would appeal to the PNC. There were people, some now feeding at the trough of the PPP government, who were strongly pro-PNC or anti-PPP then. But those are personal choices for which each must be respectively responsible. I offer no judgmental view of them.

Since Dr Misir seems determined to avoid or devalue any discussion such as his citing Ms Gail Texeira’s “observations” in a newspaper article as his constitutional authority on the propriety of presidential actions; or using the excuse of the accomplice and joint offender (the Ministry of Finance) as justification for the misuse of the Lotto Funds by the President and improper accounting therefor by the Ministry of Finance; and since Dr Misir seems more interested in personalities than in facts, issues and shortcomings affecting our society, I consider that any further engagement or exchange with him will serve no useful purpose and will be an imposition on readers.

If, however, Dr Misir would like some real and serious discussion on such issues as the constitutional right to information, a long term economic strategy for the country, electocracy versus democracy, politicisation of the public sector and campaign financing reform, I am sure there are many who would like to engage him. The ball is now in his court – but then he claims to be a batsman, not a tennis player.

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Insurance Commissioner should be addressing the public on Clico

Ms. Maria van Beek expressed surprise (SN letter of February 14, 2009) at what she describes as Business Page’s unspecified “assertions and suppositions” (February 8, 2009) on the role of her Office in the Clico issue. She claims that I did not seek her comments on it. She is wrong on both counts.

What did Business Page say about her Office? That it has been silent on the Clico issue (fact then and now); that it is very important for her Office to ask the right questions and to get hard information from the company (vital then, more so now); that the responsibility for supervising Clico’s operations falls entirely under the Commissioner of Insurance (is she disputing that?); that her Office should have been far more proactive than it has been in this matter (is that not a given?) and that the Office of the Commissioner of Insurance simply does not have the resources to properly regulate the sector (fact, just visit her room at the Privatisation Unit in Barrack Street).

But let us set the records straight. When I returned to Guyana on Friday, February 6th, to begin our firm’s preparation for the Budget 2009, I drove straight to Ms. van Beek’s office hoping to meet her in connection with Clico. She was not in office but her secretary spoke to her in my presence. She did not however call me until days later, after the column on Clico had appeared. To say therefore that I did not seek her comments is misleading for someone who regulates an industry subject to the principle of “utmost good faith”. I even had to do some special arm-twisting to get a copy of the 2007 annual report of Clico for which I had to pay her Office $5,400, at the prohibitive charge of $100 per photocopied page.

Almost as if there is nothing unusual about the Clico issue, Ms. van Beek expressed satisfaction that insurance companies have been addressed in BP, adding that she hoped that “this examination of an insurance company’s financials is one of many more to come.” There is no room for banality when $7.5 billion of people’s money in Clico is invested in related parties owned by the CL Financial Group, Clico’s parent which is facing serious liquidity and other difficulties. But yes, Ms. van Beek, just send me the financials and I will review them. Her office should be doing the same and providing informed periodic reports for the benefit of the public.

Too many public bodies are more concerned with protecting their image than in carrying out their mandate. Now that the Governor of the Central Bank of Trinidad and Tobago is claiming that the situation with the Trinidad group is more serious than first thought, Ms. van Beek should be addressing the public on the substantive issue instead of making small and wrong points about Business Page.

I appreciate Ms. van Beek’s offer of assistance and will be writing her for information to do a follow-up to the February 8 article.