By G.A. Dwyer Astaphan

Let me preface by stating that I am a shareholder in a local company which sells insurance, and that what follows is not an attempt to promote said company or to bring harm to any other.

I am also a citizen of St.Kitts & Nevis, an elected Member of Parliament and a social commentator.

That said, the British American Insurance Company (BAICO) issue is of critical importance to the citizens and residents of this Federation, as well as to our counterparts in the OECS and CARICOM.

I am told that in St.Kitts & Nevis alone, BAICO has about 4,000 life policy holders, and another 4,000 property policy holders and annuity holders. Over 8,000 holders exposed in total in the sum of $135 million.

It is possible that of that $135 million, about $25 million would represent life and property policy exposure, and the remaining $110 million would represent annuities.

And bear in mind that it is not just individuals who have invested and are directly exposed. Institutions such as credit unions, benevolent societies and Social Security have also invested some of their members’ cash in BAICO’s annuities. Maybe, even a bank or two would have sought to capitalize on the high interest rates which were being offered through BAICO’s annuities.

There is a lot is at stake here. Folks are worried sick abut this. Their life savings are on the line here. And what is to become of their property and life policies?

There is no question in my mind that this is one of the most serious issues facing the people of St.Kitts & Nevis today.

So I have the right and, I think, a duty, to weigh in on it.

Let me repeat something that I have said on earlier occasions.

When first I heard of these annuities years ago, I raised the matter in Cabinet. It was referred to the Ministry of Finance (MOF) which advised that BAICO was not breaking any law. It is possible that the MOF had consulted the Eastern Caribbean Central Bank (ECCB) before reporting to Cabinet.

None of that gave me any comfort. And over the years, I never stopped expressing my concern and asking these questions: How could an insurance company accept deposits like a bank does? Is it licensed to do that? How could it offer interest on its annuities at rates of 2% and more above the commercial banks? Where was it investing its customers’ money? Yes, where is the money? Did the ECCB and the MOF know? Did this arrangement constitute a possible threat to our banking system, taking out all of that money which itself could have been used for on-lending by the banks and to stimulate much economic activity?

And more recently, as the problems with CLICO ( the parent company of BAICO) started to emerge, I asked: Is it true that in 2007 CLICO had paid over TT$500 million  in bonuses to its high-level officers? Was CLICO in trouble even then? Was its corporate rating steady or was it showing signs of decline? Was it accounting for payments to its member companies by annuity holders as premium income rather than as deposit liabilities? Did the greed-driven credit crisis in the USA have anything to do with the calamity at CLICO and BAICO? Were the Central Banks and Ministries of Finance of the region being sufficiently vigilant on an ongoing basis? And again, where is the money?

And even more recently, I have been asking: How on earth have BAICO officials, with a straight face, been able to tell the people of St.Kitts & Nevis that the company is strong and sound, and that while there were problems with CLICO in Trinidad, BAICO fell, not under CLICO, the company which owns it, but under BAICO Barbados, which itself is owned by CLICO? And, of course, I have also asked the recurring question: Where is the money?

This is serious!

I know that our Minister of Finance, Dr. Timothy Harris, and his ministerial counterparts in the OECS have been making an earnest effort to find a way to deal with this issue, with the ECCB playing a pivotal role.

One thing that has been done thus far is that out of their profits as members of the Eastern Caribbean Currency Union (ECCU), the OECS Governments have paid the US$2 million (EC$5.4 million) reinsurance premium for the property insurance portfolio of BAICO in the OECS.

This was done with the intention of providing reinsurance coverage for BAICO’s property policy holders in the sub-region, given that the hurricane season is upon us.

However, as I understand it, when a risk materializes and a claim is made by an insured person (the policy holder) to the insurer (in this hypothetical case, BAICO), it is from the insurer’ (BAICO’s) funds first that settlement of such claim is to be made. And only after that step is completed, can the insurer (BAICO) go to the reinsurer to seek settlement of the claim.

So BAICO would have to have sufficient funds to make its contribution to the claim settlement. Failing that, the policy holder is up the creek without a paddle.

As I stated above, my sense is that of the $135 million about $25 million represents property and life policies. Of that $25 million, I will guess that $12 million makes up the property portfolio, which means that BAICO would be exposed to about that amount (factor for deductibles).

Let us say that BAICO’s probable maximum loss would be 30% of its $12 million exposure, which would be $3.6 million.

And let us say that BAICO would seek reinsurance coverage for, say 12% of its $20 million exposure which would be about $1.4 million.

It is that reinsurance coverage which the OECS Governments decided that they would contribute to the cause. And, as I said, they paid US$2 million (EC$5.4 million).

The territories in the north, such as Antigua & Barbuda and St. Kitts & Nevis, for example, were called upon to pay higher sums because we are regarded as being more vulnerable to hurricanes than the Windward Islands.

Antigua & Barbuda agreed to pay the largest sum (I don’t know what that was) and we paid the second largest: US$500,000.00 (EC$1.35 million), which is fairly close to the $1.4 million which I posited above.

So I ask again: Where is the money? Does BAICO have $3.6 million to cover the probable maximum loss?

And before agreeing to put up the US$2 million to pay for BAICO’s reinsurance premium, did the OECS Governments assure themselves that BAICO had the $3.6 million (or whatever the right amount is)?

If not, did they throw good money after bad money? Because, remember, the reinsurance money cannot be accessed until the insurer (BAICO) has made payments on the claim(s). And if BAICO is unable to come up with the $3.6 million, then what good would the OECS Governments have done by parting with their US$2 million? So, does that US$2 million remittance represent a real and tangible solution?

Can someone assure property policy owners of BAICO that their properties are properly insured? What would happen to those people if a hurricane struck St.Kitts & Nevis?

Look, I want to be wrong in everything that I am saying here. I want to be shown that all of these property policy holders are being protected.

I am waiting to know. More importantly the policy holders themselves are waiting to know.

Also, what will come all of those persons with life policies? And the people who, and institutions that, have invested over $100 million in BAICO’s annuities?

I suppose we will find out the full story in the next 2-5 years, which, of course, brings no joy to the thousands who are at risk.

Even now, where is the cash flow? Are policy holders paying their premiums? How are operational expenses being paid? How are the employees being paid? If annuity holders have been paid, where has the money come from?

Questions, questions and more questions. And anxiety and fear.

It’s all very grim, and likely to get grimmer.