By NEIL HARTNELL
Tribune Business Editor
The Prime Minister may have prevented the cancellation of medical insurance for hundreds of Bahamians yesterday by confirming the Government has finally approved a ‘rescue plan’ for CLICO (Bahamas).
Tribune Business can reveal that Perry Christie’s ‘11th hour intervention’ in the House of Assembly has halted, for the moment, the dispatch of letters advising the insolvent insurer’s health policyholders that their coverage has been terminated.
Sources close to developments confirmed that Craig A. ‘Tony’ Gomez, the CLICO (Bahamas) liquidator, had been due to send out these notices - and accompanying newspaper advertisements - this week.
However, Mr Christie’s confirmation that the Cabinet has approved a plan to transfer all the insurance policies - life and medical - to a newly-created special purpose vehicle (SPV) means there is no reason for Mr Gomez to pre-empt this and proceed with the health insurance cancellation.
“He’s going to hold back on that now. I think he’s going to hold off. It doesn’t make sense,” one source familiar with the situation said of Mr Gomez.
While the Prime Minister’s intervention has temporarily staved off disaster for hundreds, Tribune Business understands that much work remains to be done before the CLICO (Bahamas) policy portfolio can be transferred to the new SPV.
While the Government has approved the basic structure and framework for the switch, the details now have to be fine-tuned between Mr Gomez, the Insurance Commission of the Bahamas and the Government (the Ministry of Finance and Attorney General’s Office).
And Tribune Business sources have also revealed that the guarantee required from the Government to underwrite the transfer has increased sharply, from $30 million in 2009-2010 to somewhere between $40-$50 million.
The Government has never provided funds to cover the guarantee in any of its subsequent Budgets, including this year’s, so it is unclear where the monies will come from.
This newspaper also understands that while senior Ministry of Finance officials have backed the liquidator’s plan for some time, the wait for formal Cabinet approval has delayed the process.
Mr Christie, in his House of Assembly address, spent some time implying that the resolution proposed by the former Ingraham administration was inadequate before addressing the most important issues for CLICO (Bahamas) policyholders.
“The liquidator [Mr Gomez] has proposed, and the Government has agreed, a plan to make all existing policyholders whole,” the Prime Minister said.
“ This plan involves the creation of a special purpose vehicle (SPV) to assume the insurance operations of CLICO, and to pay out the policyholders who have been unable to receive the full pay-out of their benefits subject to the policy not lapsing during the period of liquidation.”
Mr Christie said Mr Gomez, the Baker Tilly Gomez partner, and the Insurance Commission would announce the plan’s specifics and any “pay outs” shortly.
Acknowledging the concerns expressed by CLICO (Bahamas) policyholders and annuity holders, who have waited seven years to recover their life savings and long-term investments, the Prime Minister added: “ I know that there are many persons impacted by CLICO, and these persons have grown impatient waiting for a solution, but rest assured a solution is at hand.”
He argued that the SPV resolution was “complex”, and achieving a “consensus” between all parties involved required time.
Tribune Business, though, revealed the proposed CLICO (Bahamas) solution back in June 2015.
Rather than the Ingraham administration’s initial $30 million guarantee, the current government is dividing CLICO (Bahamas) clients into annuity holders and insurance policyholders.
The last proposed resolution was to pay out annuity holders with products worth less than $10,000 or less. Those holding annuities worth $10,000 or more will get that sum up front, and be paid the rest in government bonds with a seven-year maturity.
Former CLICO (Bahamas) employees also will be paid the severance pay and pension benefits due to them, while insurance policyholders will be transferred either to a new underwriter or the SPV created by the Government.
It is only now, more than six months later, that the Government is putting this into effect.
Taking a swipe at the former Ingraham administration, Mr Christie said yesterday: “The previous administration, at the onset of the liquidation of CLICO, proposed to provide a conditional guarantee of $30 million to any entity which would have purchased the insurance operations of CLICO.
“This guarantee was conditional on the sale of the book, and while affording comfort to a potential purchaser, did not actually guarantee that the policyholders would be made whole.
“For two main reasons, namely concerns with respect to the information system [of CLICO Bahamas] and the conditional nature of the guarantee (i.e. it was unclear what event would have triggered the calling in of the guarantee), [the liquidator] was unsuccessful in the sale of the portfolio.”
Tribune Business revealed in November 205 how Mr Gomez planned to cancel all CLICO (Bahamas) medical policies on New Year’s Eve if the Government failed yet again to deliver on its resolution promises.
He held off until the New Year so that hundreds of Bahamians and their families were not greeted with bad news over the festive period, but the cancellation notices were due to be issued to policyholders this month.
Mr Gomez said he had little choice but to cancel the medical insurance policies unless the Government came through because high claims payouts were eroding the $11.893 million in CLICO (Bahamas) bank accounts. This undermines his duty to preserve and maintain the asset for the benefit of creditors.
Figures supplied to Mr Gomez by insurance actuaries, Morneau Shepell, showed 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.
“Upon the completion of the actuarial valuation and the actuary’s analysis of CLICO (Bahamas) current state, and along with the obvious financial impact of the medical policies on the insurance operations and available cash, and providing that a government guarantee is not received by the official liquidator shortly, the actuary advised that the medical policies should be discontinued immediately,” Mr Gomez wrote in his last report to the Supreme Court. “I have scheduled the discontinuation date at December 31, 2015.”
CLICO (Bahamas), at end-June 2015, had a $46.876 million solvency deficiency, with $33.399 million in assets dwarfed by $80.275 million in liabilities.