Judicial manager costs failed insurance company $13m
It cost British American Insurance Company (Barbados) Limited (BAICO) $2 million a year in fees to the judicial manager since the failed company was placed under a court-supervised rescue plan over five years ago.
At the same time, as at the valuation date the collapsed insurance company owes $26.7 million in outstanding claims, including 150 death claims totaling $6.7 million.
In its detailed final report, the judicial manager, KPMG, said its fees amounted to $13 million “in respect of time charged by the judicial manager and its staff on a time cost basis”.
This is half of the total spending since the insurance company was placed under judicial management on September 30, 2010.
During the period BAICO made over $30 million but spent more than $26 million, according to the report.
It said other “significant payments” during the management period included $5.7 million to BAICO employees who were retained by the judicial manager; actuarial fees of $2.9 million, Value Added Tax (VAT) of $3.1 million and $2.2 million in legal advice fees “relating to case-specific legal issues associated with the judicial manager, including preparing legal opinions, preparing court documents, attending court, drafting the insurance substitution agreements, drafting the sale and purchase agreement and drafting the transfer scheme”.
At the time of the judicial manager’s appointment, the company had $2.5 million in its account, which was supplemented by $1.1 million from rental of property the company owned; $5.4 million in interest and dividends from the various shares, bonds and cash investments and $2.3 million in interest on the segregated premiums.
The judicial manager said it was also in talks with the Barbados Revenue Authority regarding outstanding VAT refunds of $2.3 million as at December 31, 2014.
Policyholder premiums are not recorded in the judicial management receipts and payments account as they are held in a separate segregated account.
“Financial asset realizations of $24.5 million were received since the appointment date. These assets were realized following court approval and with the consent of the FSC [Financial Services Commission], and were used to fund the expenses of the company during the judicial management. And there was a balance of $1.4 million [$2.5 million less $1.1 million] related to the segregated premium for the health, property and personal accident trading period that was used to replenish the Statutory Fund,” it explained.
According to the report, in about four months from now BAICO’s assets are expected to be transferred to insurance giant Sagicor, as agreed under the restructuring plan late
It added that a bar date and lapsed policy offer deadline were expected to be set after three months, with the bar date helping to achieve certainty over the value of BAICO’s liabilities as well as “to ensure that every potential life and annuity policyholder has the opportunity to be included in the solution.
“It will also enable a crystallized position with regards to BAICO’s assets and liabilities to be ascertained as at the court approval date,” it said.
These liabilities include 915 claims against the company with a total value of $26.7 million, of which there are 150 death claims totaling approximately $6.7 million; 647 policy maturities totaling approximately $18.5 million; and 118 policy surrenders totalling approximately $1.5 million, it said.
As at September 30, 2010 there were 1,692 policyholders who had taken loans against their policy fund and cash values. Consequently, the loans were treated as an asset in the transaction and set against the policy liabilities.
The report stated that all premiums received after the appointment date had been held in a segregated account for “the protection of these deposits in the event that a solution to transfer the policies was not achieved.
“Notwithstanding, where policyholders requested a refund of the premiums paid post appointment date they were returned. However, subsequent to the signing of the sale and purchase agreement between the judicial manager, BAICO and Sagicor on December 21, 2015, no further refunds have been permitted as the judicial manager has identified a solution which requires the value of the segregated premiums to remain at a certain level to be transferred to Sagicor,” it explained.