Another CLICO

IMF CONCERNED ABOUT POOR SUPERVISION OF SAGICOR

A new report by the International Monetary Fund (IMF) paints a frightening picture of the impact that “the failure or near failure” of this island’s most dominant insurance company could have on Barbados and the Caribbean, hinting that it could be worse than the CLICO collapse.

And while stating that “a brief review” of the Sagicor’s financial statements and actuarial reports “did not reveal any untoward or serious financial or risk-related issues”, the IMF warned that the Sagicor group (SG) “poses systemic risk” for Barbados and the Caribbean region.

The IMF is concerned about ‘weak’ supervision of Sagicor by the Sir Frank Alleyne-led FSC.

“The size and complexity of the SG operating in 21 countries throughout the Caribbean, and holding assets equivalent to about 50 per cent of the GDP [gross domestic product] of Barbados, is larger than CLICO before it collapsed,” it said in the 16-page report from an October 9 -13 mission here by its monetary and capital markets department.

Worryingly, the Washington, DC-headquartered international organization, which was invited here by the Financial Services Commission (FSC) to review the current supervisory framework which it uses to supervise Sagicor Life Inc, found that the FSC was not in a position to conduct group-wide supervision, “and solo supervision is weak”.

“The group structure, business philosophy and operations are in many ways similar to those of the CLICO Group, another Caribbean financial conglomerate which failed ten years ago, and resulted in substantial losses. Notwithstanding the acknowledgement of the systemic relevance of the group resulting from its size and interconnectedness, no formal college of supervisor exists, nor is the group subject to basic group-wide supervision,” it said in the executive summary of the report, a copy of which was obtained by Barbados TODAY.

It said engagement in non-insurance activities, in particular real estate investments, imposed challenges for risk management oversight, while pointing out that “the complexity of the group could potentially masks significant risks, critical correlations, and assessment of contagion risk arising from interconnectedness”.

“The Sagicor group poses systemic risk for the Caribbean region, which should be monitored on an ongoing basis,” the draft report stated of the company, whose holding assets total $13.1 billion.

The report comes against the backdrop of Government’s decision to shell out $91 million to pay thousands of CLICO policyholders.

The study found that the FSC, which was established in 2011 and is assumed to be the group supervisor of Sagicor, has neither developed, not implemented group-wide supervision processes and practices since its establishment.

“Notwithstanding that the FSC is the home supervisor of the SG, the FSC conducts supervision of the group on a solo basis with focus, though not comprehensive, on the entities domiciled in Barbados. Group supervision is absent from the regulatory and supervisory frameworks, which is considered a major weakness, and also at variance with the expectations of the International Association of Insurance Supervisors (IAIS) Insurance Core Principles,” the report states.

“International standards require, and other regional supervisors will reasonably expect, that Sagicor’s overall operations are being overseen by the FSC, and that Sagicor risks are being evaluated on a region-wide basis, which is not the case.”

Sagicor last year re-domiciled its holding company, Sagicor Financial Corporation (SFC), to Bermuda. However, until a reinsurer under the holding company is established in Bermuda, home supervision would likely remain here.

In this regards, the IMF found that home supervision for Sagicor was unclear, and made even murkier by the fact that the company has not disclosed the type of operation it envisions to establish in Bermuda.

It said because of the size of the group, “it is quite possible that emerging risks or potential vulnerabilities exist or have not been detected.

“Having successfully navigated and survived past crises and major catastrophic events appears to have created a false sense of security, and could potentially desensitized managerial assessments with regard to potential threats to the strength and resilience of the group,” it said.

The three-member mission team of Ralph Lewars, Lawrie Savage and Rodolfo Wehrhahn identified several key concerns, including that the group has had the same external actuary over 26 years, depriving it “of a fresh look at the reserve requirements”; the absence of a consolidated actuarial report for the whole group, which “makes it difficult to ascertain a comprehensive assessment of the actuarial valuation of the group” and that the last on-site examination was conducted between July and September 2013 with an exclusive focus on Barbados operations.

The report also said there had not been much in the way of ongoing monitoring and assessment since that time, and it pointed out that the FSC “does not receive any material supervisory information from the regulatory authorities in other jurisdictions where Sagicor operates”.

The team found that the FSC “lacks the resources to undertake the effective supervision of the group”, with the regulator operating with a staff of 56 to fulfill a range of responsibilities, including an off-site insurance supervisory team of seven officers who are responsible for over 200 companies, and six specialists to conduct on-site supervision of over 100 registered entities.

“The FSC’s current human and IT resources for insurance supervision are inadequate to effectively undertake the task of consolidated supervision of a large, and complex financial conglomerate such as Sagicor. Further, the Insurance Act does not include a provision for consolidated supervision,” the report said.

It recommended that the state regulator be given adequate resources to address the current resource deficiency, and immediate enhancements in several key areas to improve supervisory oversight of the insurance sector, including liability valuations, risk-based capital adequacy standards, cross-border group supervision, and risk identification and assessment, as well as assessment of the effectiveness of corporate governance and risk management oversight practices.

“The findings of this mission confirm the need for urgent progress in these areas, and most relevant for this mission, the implementation of group-wide or consolidated supervision of the Sagicor group,” it stressed, while adding that given the size and complexity of the conglomerate “there is urgency to develop a consolidated supervisory framework for Sagicor as a regional systemically important financial institution.

“Given the size and complexity of Sagicor Life and its affiliated operations, and the enormously negative impact for the region and the economy of individual territories should Sagicor be unable to meet its obligations, FSC should designate Sagicor Life as a Regional Systemically Important Financial Institution (R-SIFI). The designation should entail additional, but necessary prudential requirements, and an intrusive supervisory regime to monitor its safety and soundness, and allow for its resolution in the event of failure,” the report said.

marlonmadden@barbadostoday.bb

37 Responses to Another CLICO

  1. hcalndre December 19, 2017 at 5:30 am

    This looks like another Ponzi Scheme in the making and a few more local millionaires, leasing Lear jets to go on escapades with their coterie. Most of these entities in Barbados are not monitored by the government, they let their friends do as they please with the people` funds and then accused the victims as greedy when they lose their money when the companies collapse.

    Reply
    • Rechelle December 19, 2017 at 8:10 am

      Before you put your mouth and pen in gear you should use your brain to think, if you have a brain. How could it be a ponzi scheme if they are preparing financials every year as a public company? CLICO was a private company doing as they like. All the IMF have said as far as I understand is that greater supervision is needed by the FSC and all like you jumping out and talking ***** about one of the best run Barbados and regional institution. If you can’t think and you are not analytical, shut up!

      Reply
      • gsmiley December 19, 2017 at 8:44 am

        I so agree with you Rechelle.

        These people don’t understand what they read.

        Reply
      • Anita Delph December 19, 2017 at 9:00 am

        I like your response. Some people lack critical thinking and analytical skills.

        Reply
  2. Tony Webster December 19, 2017 at 5:43 am

    As a dabbler in Banking and it’s accompanying sins, I am hugely proud of the BMLAS/ SAGICOR history, and it’s achievements over generations, and the fact that they were also outward-looking, with business across the entire Caribbean. However, in recent decades, they certainly didn’t impress me with their ill-fated adventures (and huge losses) in underwriting at Lloyd’s, and I think they could have done better at banking also. The jury is also yet out, at morphing into a limited liability company, ditching the sanctity – and safety- of a mutual company by Royal Warrant. Share value now, is paltry compared to to 2/3 decades back, but this also might be due to chronically weak “depth” of our capital markets- particularly so right here where they WERE headquartered. The latter of course being a monumental, humiliating pity that they were virtually forced to abandon Bim, by the incompetencies of this current administration.

    This report will not enhance current share values, but will remind us of the need for eternal vigilance in all things financial…and regulatory, and political….especially the paramount need to place competent and honest leaders in charge of our beautiful little, fragile little islands and societies of the Caribbean.

    Editorial comment awaited…yes…breathlessly.

    Reply
  3. Veronica A. Piggott
    Veronica A. Piggott December 19, 2017 at 6:43 am

    With insurance there seems to be no assurance, you are just mainly taking a risk or gamble.

    Reply
  4. Rawle Spooner
    Rawle Spooner December 19, 2017 at 7:19 am

    Not a fan of IMF but gine believe them on this occasion,is anyone from government listening about this Ponzi scheme call Sagicor.Clico recently in the 80s it was Trade Confirmers that scammed and rob Bajans outta millions now warning about Sagicor there is no real serious oversight about anything in Barbados simple folks assume the risk and hope for the best.

    Reply
    • gsmiley December 19, 2017 at 8:49 am

      Rawle Spooner are you really comparing Sagicor with Clico???

      Really?

      You obviously know very little about the financial sector here.

      Sagicors management team as well as its directorship are eminently qualified and capable quite unlike those who ran Clico.

      In addition they are men and women of integrity.

      Reply
  5. Max Carter
    Max Carter December 19, 2017 at 7:46 am

    always know this would of happen

    Reply
    • Rechelle December 19, 2017 at 10:08 am

      You’re not making any sense. What would happen?

      Reply
  6. Joan Crawford
    Joan Crawford December 19, 2017 at 8:13 am

    Get out fast

    Reply
    • Rechelle December 19, 2017 at 10:09 am

      Please explain Joan.

      Reply
  7. Greengiant December 19, 2017 at 8:26 am

    I knew there was some unsound customer caring reason for them to move the head office registration to Bermuda. The IMF has blown this wide open, clico’s caved in under the nose of the BLP cabinet, now Sagicor financial is heading tentatively in that same direction under the DLP cabinet. Hope this revelation don’t create a cash run on the company, as that will lead to it’s destruction.

    On another note, this could be created to push our economy further in turmoil, forcing us to devalue the dollar, as the fund, and other global power brokers has been advising. We have been punching above our weight for too long in their opinion. Get Barbados devalued and they can control the entire caribbean, that’s the theory among the more dominant nations.

    Reply
    • gsmiley December 19, 2017 at 8:51 am

      Greengiant there would only be a run on the company if persons read the article like you read it.

      Reply
  8. Gerald Matthews
    Gerald Matthews December 19, 2017 at 8:29 am

    I wonder why?….LOL Bend up the economy to the breaking point and expect the people to foot the bill,.. Who got money to pay for insurance these day, when you can hardly buy a christmas dinner this season…Bah Humbug Sagicor you scrooge…LOL

    Reply
    • Rechelle December 19, 2017 at 10:22 am

      Please please guys be more responsible with your comments in order to avoid panic. Much confidence is needed at this juncture of our development.

      Reply
  9. Alex Alleyne December 19, 2017 at 8:34 am

    Let us lock up some people before they “take the money and run”.

    Reply
  10. Richard Johnston December 19, 2017 at 8:48 am

    Once burned, twice shy? Maybe not.

    Reply
  11. Kearn Williams
    Kearn Williams December 19, 2017 at 8:59 am

    Blame David Thompson

    Reply
  12. Carson C Cadogan December 19, 2017 at 10:19 am

    I always thought that there was something fishy about Sagicor.

    Reply
    • Rechelle December 19, 2017 at 10:24 am

      Did you read the article?

      Reply
  13. Carson C Cadogan December 19, 2017 at 10:22 am

    The Govts. of the Caribbean need to act fast against Sagicor. That is why they moved to Bermuda so that they can scam the people of the Caribbean.

    Reply
  14. Rechelle December 19, 2017 at 10:26 am

    Carson, I am now convinced that you are stupid.

    Reply
    • gsmiley December 20, 2017 at 8:51 am

      Only now Rechelle?

      Reply
  15. Anthony Wilson December 19, 2017 at 10:27 am

    If it is anything, the IMF report on the lack of regional, holding company supervision of Sagicor Financial is a call for immediate action by Barbadian and Caribbean regulators to ensure that there is group-wide supervision, which would mitigate the likelihood of a reoccurrence of the very costly collapse of a systemically important regional financial institution.
    Having said that, I believe that the IMF’s analysis of the similarities between Sagicor Financial and CLICO is fundamentally and dangerously flawed, displaying an ignorance of Sagicor that is frightening.
    The IMF document, as reported by Barbados Today, states: Sagicor’s “group structure, business philosophy and operations are in many ways similar to those of the CLICO Group, another Caribbean financial conglomerate which failed ten years ago, and resulted in substantial losses.”
    With respect, there is absolutely no comparison between the “group structure, business philosophy and operations” of the two companies.
    In terms of group structure, Sagicor is a publicly listed holding company on the stock markets of Barbados, Trinidad and London with about 36,000 shareholders.
    CLICO was a subsidiary of a holding company, CL Financial, which was privately owned by less than 400 shareholders.
    Also in terms of group structure, Sagicor’s largest and most profitable subsidiary is Sagicor Jamaica, of which the parent owns 49.11%.
    CL Financial’s main subsidiaries were CLICO, which was 100% owned and Republic Bank, which was 55% owned. CLICO was used as the cash cow, with its sale of attractively priced EFPA’s that did not have the required assets backing them.
    In terms of business philosophy, CL Financial main focus before its collapse in January 2009 was over-priced asset acquisition, using borrowed funds and monies generated by CLICO and CLICO Investment Bank through the sale of deposit-like “annuities.” instruments. One outstanding example of CL Financial’s over-priced asset acquisition is Lascelles deMercado, which was acquired for US$676 million in mid-July 2008, just before the Global Financial Crisis.
    If Sagicor has a business philosophy, it is organic growth and consolidation after its ill-fated (and ill-timed) UK expansion.
    CL Financial was operated like a hedge fund with minimum capital and very weak internal controls.
    Sagicor is conservatively operated with a debt to capital ratio of 31.4% (2017 3Q) with only 25% of its income being paid out in dividends.
    If the board and management of Sagicor can be challenged, it would be for its pathetic timing—one great example of which was the calling in of the preference shares before the redomiciling to Bermuda from Barbados.
    Another good example of the pathetic timing (and lack of transparency) is the decison, ratified at the 2017 annual meeting, to increase its share capital with absolutely no guidance to shareholders (actual and prospective) on when, how or the extent, if at all, of dilution.

    Disclosure: The author, a Trinidadian business editor, recently acquired acquired Sagicor shares.

    Reply
    • Haskell Murray December 19, 2017 at 1:40 pm

      I have read all the comments and yours is the only one that makes any financial sense which told me that you knew what you were talking about before is read that you are a business editor. However with regard to the IMF report and its issue of the lack of region wide regulatory oversight this in my opinion is because there is no federal government in the west indies if there was there will be one regulator , now you are looking at 20 regulators and this makes no sense.
      The other issue raised is the investment in real estate, this is the same investment that brought down confederation life insurance
      Sagicor should stick to its core business which is insurance. I was recently in Jamaica and to my surprise there is in Jamaica a Sagicor Bank.

      Reply
  16. Joy December 19, 2017 at 10:35 am

    Rechelle, you took long to work that out.

    Reply
  17. Nathaniel Samuels December 19, 2017 at 11:18 am

    Rechelle, CCC is not stupid. He is very, very ignorant.

    Reply
  18. Donild Trimp December 19, 2017 at 5:16 pm

    @ Rechelle –

    Are you concerned by the following statements or are you so overwhelmed with self denial that you are prepared to ignore the facts by burying your head in the sand?

    The three-member mission team of Ralph Lewars, Lawrie Savage and Rodolfo Wehrhahn identified several key concerns, including that the group has had the same external actuary over 26 years, depriving it “of a fresh look at the reserve requirements”; the absence of a consolidated actuarial report for the whole group, which “makes it difficult to ascertain a comprehensive assessment of the actuarial valuation of the group” and that the last on-site examination was conducted between July and September 2013 with an exclusive focus on Barbados operations.

    The report also said there had not been much in the way of ongoing monitoring and assessment since that time, and it pointed out that the FSC “does not receive any material supervisory information from the regulatory authorities in other jurisdictions where Sagicor operates”.

    Reply
  19. Helicopter(8P) December 19, 2017 at 5:32 pm

    For the benifit of the general Caribbean public the main issue is not about integrity, or transparency it’s about the operating system style of the identified company.

    Reply
    • Carson C Cadogan December 19, 2017 at 6:49 pm

      That is why they moved to Bermuda, they were running away from integrity and transparency.

      Reply
  20. Carson C Cadogan December 19, 2017 at 6:59 pm

    A man who wanted to run for office on a Barbados Labour Party ticket, stole tens of thousands of dollars from Sagicor and it went on for a long time and NO ONE at Sagicor noticed that any thing was wrong.

    Which demonstrated that Sagicor’s scontrol ystems were very weak indeed.

    Sagicor is a disaster waiting to happen.

    Reply
    • Rechelle December 19, 2017 at 7:10 pm

      I am coming to you to get my future read and save $4000.00.

      Reply
  21. Carson C Cadogan December 19, 2017 at 7:28 pm

    This is really interesting.

    As soon as Sagicor relocated to Bermuda, S & P upgraded their financial status.

    Now we have the erudite IMF saying that Sagicor is a clear and present danger to its clients and to Govts. of the Caribbean.

    Go figure.

    Reply
    • gsmiley December 20, 2017 at 9:05 am

      Carson you really cant help. You mean to tell me that members of the DLP employed in their private capacity don’t steal?

      Your comment had nothing to do with corporate governance but more to do with taking cheap political shots.

      Employees steal from even more reputable companies and it isn’t discovered for years and sometimes in the millions of dollars.
      And if you had thought before posting you wouldn’t have even gone there since your good mate Leroy got away with millions for over 20 yrs

      Reply
  22. Baz December 22, 2017 at 12:49 pm

    With all due respect this article is not saying anything derogatory about Sagicor; the criticism is levelled at the FSC, which has done nothing to exercise group supervision of Sagicor companies, but of course all Bajans love to moan about insurers rather than boring entities like the FSC….

    Reply
  23. Donald December 31, 2017 at 5:33 pm

    Eternal vigilance should be an ongoing and intensive activity..the main gist of the IMF review is the lack of comprehensive oversight over Sagicor. I’m a Jamaican and shareholder in Sagicor and I am concerned about the report.even if Sagicor is a well run company which I hope it is,we should look at the salient points raised by the reviewers and implement those which are relevant. The region cannot sustain the failure of an entity as large and important as Sagicor.Too big to fail is not an option.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *