Clico Health Policies In Cancellation Danger


Tribune Business Editor


Hundreds of CLICO (Bahamas) policyholders are facing a fresh blow, after its liquidator warned yesterday he has no choice but to cancel all health insurance policies unless the Government delivers on its $30 million guarantee and related resolution promises by New Year’s Eve.

Craig A. ‘Tony’ Gomez, the Baker Tilly Gomez accountant and partner, warned in his latest Supreme Court report that it was simply unsustainable to maintain the insolvent insurer’s health policies because payouts exceeded annual premium income.

This, Mr Gomez explained, was steadily eroding the $11.607 million that CLICO (Bahamas) held in its bank accounts at year-end 2014, thereby undermining his court-ordered mandate to preserve the insurer’s assets for the benefits of creditors.

He added that Value-Added Tax (VAT), which levies 7.5 per cent on all health insurance premiums, had further contributed to the cancellation decision, as the liquidator/CLICO’s estate were having to absorb the tax payments.

As a result, Mr Gomez warned: “The liquidation can no longer continue to provide insurance coverage for the medical policyholders, and we have made a decision to discontinue all medical policies.

“Our expected date for cancellation of all medical policies will be December 31, 2015.”

Although Mr Gomez is still ‘gagged’ by the Supreme Court from speaking to the media, and in public, on the CLICO (Bahamas) liquidation, Tribune Business understands that the fast-approaching December 31, 2015, cancellation deadline remains in effect.

That is, unless the Government delivers on its long-awaited $30 million guarantee and proposed resolution structure, the latter of which was unveiled personally by Prime Minister Perry Christie during a meeting with several CLICO (Bahamas) policyholders and their attorneys in June.

Mr Gomez’s report, approved by the Supreme Court yesterday, effectively delivers an unwanted Christmas present to hundreds of Bahamians who may face having their health insurance coverage pulled out from under them.

And it creates another potential crisis for an increasingly beleaguered Christie administration. Already grappling with the Baha Mar impasse and Hurricane Joaquin damage, it is now faced with having to deliver on promises to thousands of Bahamians who have waited almost seven years to reclaim their life savings and long-term investments.

Figures supplied to Mr Gomez by insurance actuaries, Morneau Shepell, show that since CLICO (Bahamas) was placed into Supreme Court-supervised liquidation in February 2009, group medical claims payouts to policyholders exceeded premium payments by 40 per cent up until end-2014.

Over that six-year period, Mr Gomez had ensured CLICO (Bahamas) paid out $4.191 million in medical claims, yet only received $3 million in premium, creating an unsustainable health claims ratio of 140 per cent.

“The claims from the group health business have exceeded the premiums collected on these policies,” the actuaries warned in a report to Mr Gomez.

“The impact of the 2012 re-pricing can be observed in the 2013 experience. We understand from the liquidator that a decision was made to honour claims on compassionate grounds for persons who have ongoing medical conditions, even if the claim amounts have exceeded policy limits.”

The actuaries said this was reflected in the 179 per cent group health claims ratio, where payouts of $682,878 exceeded by 79 per cent some $382,314 in premium payments.

The report contrasted the 140 per cent group health claims ratio with the 60 per cent payout ratio for all other medical and accident claims.

Mr Gomez’s latest Supreme Court report illustrates the significant fall-out the impending discontinuation of all CLICO (Bahamas) health insurance policies will cause.

For he paid out a total $719,826 to cover some 961 policyholder claims in just six months between June 1 and December 31, 2014. Those persons’ access to potentially life-saving medicines and care may now be jeopardised unless the Government delivers.

Explaining that he has little choice but to take this course of action, Mr Gomez warned in his Supreme Court report: “As of the date of this report, CLICO (Bahamas) had $11.607 million in its bank accounts, which is a major concern in the liquidation.

“Professional fees, medical and death claims, coupled with the staff and building expenses, have to be paid on a regular basis (daily and monthly). There is a depletion of the available funds as a result of the payment of the aforementioned expenses.

“For the six-month period covered by this report alone, medical claims alone amounted to $719,826. For the year, medical claims of $1.142 million represented 96 per cent of the medical premiums collected.”

Mr Gomez added that efforts would be made to reduce operating expenses associated with the liquidation, but said VAT was another factor in the potential cancellation of the health insurance policies.

“As at July 1, 2015, VAT was introduced and must be included on all medical insurance premiums,” Mr Gomez warned. “Without an increase in premiums, this cost will be borne by the liquidation.

“The liquidation is not able to absorb this cost and increasing the medical premiums is not considered a viable option.”

As a result, Mr Gomez said CLICO (Bahamas) medical insurance policies were “not suited for the current situation” and had to be continued in the absence of the Government coming through on its promised solution.

He then added, with deft understatement: “I am hopeful that the funding by the Government will be approved and received shortly.”

The former Ingraham administration initially proposed a $30 million guarantee to cover the anticipated shortfall from CLICO (Bahamas) liquidation - a move viewed as essential to facilitating its remaining policy portfolio’s transfer to another underwriter.

However, during a September 15, 2014, meeting with Mr Gomez and the Insurance Commission of the Bahamas (ICB), a senior Ministry of Finance official revealed that the Christie administration proposed to restructure the guarantee.

Simon Wilson, the deputy financial secretary, said the guarantee would now “include cash payments in the amount of $10,000 to certain classes of creditors and a negotiable, probably seven-year paper, which will be issued for the full balance of the funds owing to certain of the other creditors. The new guarantee will settle, in full, certain classes of creditors”.

This is effectively the plan that Mr Christie, together with minister of state for finance, Michael Halkitis, and Mr Wilson offered in the June meeting.

Paul Moss, an attorney representing several creditors attending that meeting, said at the time: “They will pay out those annuity holders with annuities worth $10,000 or less. For those holding annuities worth $10,000 or more, they’ll get $10,000 up front and be paid the rest in Government bonds.”

Mr Moss added that former CLICO (Bahamas) employees would also be paid the severance pay due to them, while insurance policyholders would be transferred either to a new entity or special purpose vehicle (SPV) created by the Government.


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