CLICO-Why Was Nothing Done Sooner?

Extract from Wikipedia: ‘Cyril Lucius Duprey (1897-1988) was a Trinidad and Tobago businessman. He founded the Colonial Life Insurance Company (CLICO, now part of the CL Financial Group) in 1936, the first locally-owned insurance company. The company was expanded into the CL Financial Group, which is run by his nephew, Lawrence Duprey. In 1956, Duprey […]

By Peter N. Boos

May 6, 2010

Extract from Wikipedia:
‘Cyril Lucius Duprey (1897-1988) was a Trinidad and Tobago businessman. He founded the Colonial Life Insurance Company (CLICO, now part of the CL Financial Group) in 1936, the first locally-owned insurance company. The company was expanded into the CL Financial Group, which is run by his nephew, Lawrence Duprey. In 1956, Duprey was awarded the Order of the British Empire.His nephew is now the chairman of CL Financial.

“Give a man value, give a man service and he will support you” – Philosophy of Cyril Duprey founding father of CLICO.’

Wikipedia needs updating for latest developments but the point here is the historical one.

Mr.Cyril Duprey was a man before his time and a businessman whose achievements need to be acknowledged beyond his OBE and beyond just Trinidad. There are far too few black business icons in the Caribbean and Cyril Duprey’s reputation needs to be kept intact now.

Regrettably those that followed him did not appear to understand the importance of what he had really achieved and succeeded in presiding over the demise of a once great Caribbean business.

It is indeed a shame that one of the oldest, most successful and respected indigenous,black owned and managed Caribbean Insurance and Financial Services companies has had to be bailed out by Caribbean Taxpayers and in particular the Government of Trinidad & Tobago.

Sure as night follows day, the same will be required from taxpayers in Barbados and the OECS in 2010 and well beyond.

Mr.Cyril Duprey must be turning in his grave.

The damage to Trinidad,Barbados and the wider Caribbean created by CLICO’s failure is going to be felt for many,many years and in many many ways. Not least of which will be brands and reputations.

“The collapse last year of Port of Spain-based conglomerate CL Financial will continue to challenge the recovery of smaller Caribbean islands, a new report by the International Monetary Fund said yesterday.

In its Regional Economic Outlook- Western Hemisphere report the Washington, DC-based IMF said: ’The January 2009 collapse of the Trinidad and Tobago-based CL Financial Group sent shock waves throughout the Caribbean that are continuing to reverberate.’

The report was launched yesterday in Montevideo, Uruguay.

Low debt and high reserves permitted Trinidad and Tobago to bail out three domestic subsidiaries at a cost of US$850 million (about 3.8 per cent of GDP), the IMF said.

This translated to the $5 billion provided by the Government and the Central Bank for the financial rescue of CL Financial and insurance subsidiary CLICO and British American.

’However, higher exposure combined with high debt levels in several countries in the rest of the Caribbean pose significant challenges in dealing with the problems created by the group’s insurance subsidiaries,’ the IMF report stated yesterday.

Estimates of exposure to the two companies range as high as 17 per cent of the Eastern Caribbean’s combined GDP, it added.

The extent of the subsidiaries’ financial distress varies across the region, the IMF noted.” Trinidad Express-5 May 2010.

Lets be clear and not seek to make excuses(as some already have) – CLICO is NOT a casualty of the 2008 recession. The recession simply brought into sharp focus the true state of affairs at CLICO and the business model its leadership chose to pursue. That was made very clear by the Trinidad & Tobago Government and The Central Bank of Trinidad & Tobago when they took over the running of CLICO in 2008. The record is there for all to see and read.

The full story is yet to be told but those who know a bit about the history of the rise and fall of CLICO will understand. Stay tuned and keep a close watch on this developing story. We need good investigative journalists to tell and record the truth of what really happened and to clearly identify the true reasons for this Caribbean scandal and put the responsibility for the failure in the correct laps. Libel law notwithstanding let the truth be told.

Media organisations need to invest in training of reporters on economic and business issues. Too many important business stories are unfolding behind closed doors and without adequate public awareness and scrutiny.

Investor communications is sadly lacking in most public companies in the Caribbean and management is not being sufficiently held to account.

That was clearly the case with CLICO, which, although owning a controlling interest in a large indigenous publicly traded banking group,Republic Bank,it was allowed to keep the full picture of the CL Financial Group obscure from public scrutiny.

Reports abound that audited financial statements for many subsidiaries in the CL Financial Group were often late in being issued and therefore not in compliance with Financial Sector regulatory requirements. Why was this situation allowed to persist? The public needs answers and facts.

To simplify it, the post Cyril Duprey leadership of CLICO took the company on a journey that no well regulated and properly managed insurance company ever can or would take.

Investments of insurance companies funds are regulated by law and are there to protect the people to whom the funds are owed.

In CLICO’s case, Insurance Funds, held in a fiduciary relationship for pensioners, policyholders and annuitants(depositors), were used to invest in high risk asset purchases,many of which made little or no returns. Sugar plantations and other distressed real estate in Barbados being  glaring examples. But the list of these inappropriate acquisitions is much longer.

Interest rates promised to depositors were well above normal commercial rates offered by banks or other insurance companies. That is always a red flag-remember Trade Confirmers?

This financial model is not a viable equation for any business far less for an Insurance Company. Policyholders,depositors and pensioners of insurance companies expect prudence,low risk,high security and integrity from their insurers and their managers. They also should be able to place confidence in Regulators to ensure compliance.

Yet this was allowed to happen right under the noses of the Financial Regulators across the Caribbean. Why did this happen? We must find out. CLICO began its inappropriate aggressive asset class diversification strategy more than 20 years ago.

Where were the politicians and business leaders when this was happening? Who raised the alarm bells? Why didn’t anyone listen? Informed investors were always aware of the risks CLICO was taking.

In Barbados we have the scenario of hundreds of millions of dollars in pension contributions,policyholder funds and deposits owed to thousands of Barbadians being at very serious risk. The exact size of the problem and the solutions are soon to be disclosed.

Without the support of taxpayers in Trinidad, Barbados and elsewhere in the Caribbean CLICO cannot continue to operate. CLICO as we knew it is finished. At least that fact is a blessing.

Governments of the Caribbean must be transparent and communicate properly with the public as the CLICO story unfolds. Let the chips fall where they must. If laws or ethical standards of good corporate governance have been breached lets find out and let the culprits face the consequences.It is time that we become more mature about such matters. Too often we hear of scandalous behaviour but little of consequence ever follows other than the mandatory enquiry.The list is long and the piles of reports gathering dust high.

Deterrence and real penalties are needed as well as stronger regulation which is enforced.

Conflicts of interest and lack of independence in small communities is endemic. But surely leaders in the private and public sectors in Barbados and elsewhere need to be more careful than ever in the current economic climate?

Mr.William Layne, a very senior and highly respected,experienced Civil Servant in the Ministry Of Finance, who is also Chairman of the Oversight Committee of CLICO in Barbados, must be congratulated and thanked profusely for publishing the statement that he did on 25 April 2010. Much more transparency like this is needed now.

In a financial failure of this magnitude, the role of the auditors is always likely to come into the spotlight.

In the interest of total transparency and to avoid any prospect of a charge of conflicts of interest being raised, the appropriateness of two former senior partners of the firm that is still the current auditor of the failed CLICO serving on the Oversight committee must be addressed.
The two gentleman in this awkward position are men of integrity and good reputation but surely they should excuse themselves from these duties in the circumstances ?

The issue of real estate asset valuations and the appropriateness of other complex financial and inter-group transactions, both prior to CLICO’s collapse but also now, is certainly going to become an issue as a rescue plan is promulgated.

If the Government of Barbados must save and protect depositors and pensioners let it be done in the right way and be open to public scrutiny and be on the appropriate commercial terms.

To do any less is to put the Barbados Business Brand at risk.

Much more is at stake here than the reputation of a few people.

Peter N.Boos FCA
Managing Editor

Peter N. Boos

Chairman Emeritus Ernst & Young Caribbean (since 2004); Founding partner Business Barbados publication (1999) and the Barbados business web portal (2009); Co-Founder, Chairman and CEO Substance Abuse Foundation Inc. (1996 to date); Founding Sponsor (2009) and First Chairman (2009-2014) Barbados Entrepreneurship Foundation Inc.; Founder of the Peter Boos Foundation (2004), (supporting youth development, entrepreneurship, education, addiction treatment, environmental protection, arts & culture development, relief of poverty and support of various community and charitable causes); Founder, Patron and first chairman ASPIRE Foundation (Barbados) Inc. - 'helping charities help' to strengthen and expand the Barbados Third Sector (2014 to date).

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