The recent confirmation by the Bank of Guyana Governor, Dr Gobind Ganga, that Guyana policy holders, who invested their monies in the Colonial Life Insurance Company Limited (CLICO) Guyana – a conglomerate insurance company that collapsed in 2009 – have begun to receive their monies and that the process has been ongoing is surely a welcomed remark.
Even though he noted that payments will be made in a tiered system and some policy holders may have to wait, the fact that every effort is being made to ensure that policy holders are being paid, has brought a sliver of hope to those persons who thought that the monies they invested would be lost.
Governments throughout the entire Caribbean, in addition to countries further afield, suffered at some point or the other, either directly or from the “contagion” effect, with the collapse of the CLICO, which is the subsidiary of the CL Financial (CLF). CLF is a multibillion-dollar company established in over 30 countries, with over 60 subsidiaries spanning the Caribbean, Florida, Europe, the Middle East and Asia. While it’s primary focus is on insurance, CLF is also diversified in the areas of financial services, real estate development, manufacturing, agriculture and forestry, retail and distribution, energy, media and communications, among other areas.
Because of its sheer magnitude, many were of the belief that, CLICO being a subsidiary of CFL, it was ‘too big to fail.’ However, the global financial recession of 2008 exposed some serious deficiencies in the armor of CFL. Deficiencies such as the ‘overly aggressive’ and ‘risky business model’ used by the CFL that invariably led to the collapse of CLICO, which had been established in several Caribbean countries inclusive of Trinidad, The Bahamas and Guyana to name a few.
According to the American International Journal of Contemporary Research “CLICO was the primary source of deposits that were used to finance CLF’s expansion through investments and acquisitions held in the name of other entities in the group. Some of these enterprises were wholly owned and managed by CLF, others were simply investments in which CLF did not participate in management, and some were a mixture of both. In some cases CLF borrowed from financial institutions to invest, and in most cases, it used CLICO, CIB, BA, and CMMB as the conduit to purchase investments or borrowed from them to do so. In short, CLICO became the guarantor for many of CLF’s assets most of which were heavily pledged and, therefore, limited in terms of the potential proceeds from asset sales.”
With the collapse of CLICO in Trinidad, the Government had no choice but to offer a bailout package to CFL, since that company was contributing significantly towards the GDP of that country. CLF then agreed to take steps to correct the financial condition of CLICO and its other subsidiaries by selling its shareholdings and assets in multiple companies to satisfy the statutory fund requirements for CLICO.
The American International Journal of Contemporary Research posits that “the corporate governance structure of the conglomerate CLF has to be factored into the analysis of CLICO’s collapse because although the business model was high risk and dangerously flawed, the regulators were not blameless. The evidence indicated that the ‘soft touch approach to regulation’ which was essentially based on moral suasion while aligned to the philosophy of the market mechanism had led to the excesses that caused the crisis.”
The corporate collapse of CLICO also highlighted the critical need for legislation and regulation to keep pace with the rapidly evolving operations of financial institutions. It was against this backdrop that many of the Caribbean countries have instituted legislative amendments to inter alia, their Insurance Act, the supervising authorities within their financial systems, among many other amendments aimed primarily to strengthen the financial sector.
The business model used by CFL led economists, scholars and governments alike to question its validity and legitimacy within the financial sector and it has been an occasioning factor for much of the legislative and supervisory amendments mandated by governing and international (Caribbean Financial Action Task Force) bodies throughout the Caribbean to ensure that the debilitating repercussions that the collapse of such as large interwoven organisation had, would not happen in the future.
