One of the Clico portfolio of companies

Authorities have been scrambling to keep a lid on the fall-out since the Trinidad and Tobago government moved to bail out the Port of Spain-based regional conglomerate in January.

Eastern Caribbean governments have just announced a rescue plan for the main sub-regional subsidiary of Clico - British American Insurance.

The proposal came in a statement from the Eastern Caribbean Currency Union, the monetary authority of the Organisation of Eastern Caribbean States (OECS).

Most of the governments had moved to put British American outlets under judicial management, effectively getting the courts to ring fence them.

This allowed the authorities some breathing space to come up with a plan to avoid a financial sector meltdown.

	OECS leaders have wrestled with the problem for months

According to the statement, the liabilities of British American branches in the Eastern Caribbean total EC$1.05billion (US$391million).

But the statement said the British American Insurance Company itself is insolvent - with deficiencies of EC775million up to 30 June, according to unaudited statements.

Liquidation

And there is only EC$30million of assets set aside in the Eastern Caribbean.

So, should the business be wound up, or saved?

The governments have opted for a rescue plan, arguing that the alternative would be too unpalatable.

"In the event of a liquidation, policyholders will not be paid in full," the statement said. "Indeed, it is probable that if British American was liquidated, policyholders will only get 10 cents on their dollar."

	Grenada's Prime Minister wants more regional collaboration on Clico

Member governments of the Currency Union said they had therefore accepted the recommendation of judicial managers that a new company be set up to take over some of the assets and liabilities of British American in the Eastern Caribbean.

Even under the rescue plan, losses seem inevitable with the governments warning that the new company would not be able to cover all benefits and interest to which policyholders are entitled.

But they have an opportunity for greater recovery over time, the governments believe.

The proposal is subject to more work, more funding and the approval of the courts but it is hoped the process can be completed within six months.

'Risky' real estate

The key aims are to "ensure that British American does not become a systemic risk to the financial system" and to protect depositors and investors as far as practicable.

The statement appeared to suggest that the Eastern Caribbean operation was put in danger by the parent company's transfer of EC$301million from the sub-region to fund "risky" real estate investments in Florida and elsewhere.

Just last month, two divisions of the Barbados unit of Clico - which is closely allied to the Eastern Caribbean - were reported sold to local interests, to the relief of authorities in Bridgetown.

Consumers Guarantee Insurance looks set to gain control of the general insurance arm of Clico in Barbados.

The Barbados Public Workers Cooperative Credit Union should get a hold of Clico Mortgage and Finance Company.

The Prime Minister of Grenada, Tillman Thomas, said the issue still required a regional solution.

He pointed out that under Trinidad and Tobago law, the Clico statutory fund (an indemnity fund) is for the benefit of residents of the two-island nation only, even though Clico had spread across the region.

Unpaid claims

Mr Thomas said: "This is where the inequity comes in so we need a regional framework to deal with this matter."

	The Clico affair was made worse by the financial crisis

One policyholders group in Antigua and Barbuda called in September for Currency Union governments to put pressure on Trinidad and Tobago to provide a bail-out regional investors.

Antigua was owed US$32.5million in unpaid Clico claims, the highest among the $91.6million arrears in the sub-region, up to 25 June, the Caribbean Media Corporation reported then.

The Trinidad and Tobago government has pledged as much as TT$5 billion (US$809million) to cover Clico's local liabilities after rescuing CL Financial in January.

CL's financial services companies had included Clico Investment Bank, Clico Insurance Company, British American Insurance Company and Caribbean Money Market Brokers.

It has other interests such as banking and manufacturing, for example Republic Bank and Methanol Holdings in Trinidad and Tobago.

Takeovers

These may be sold when the global economy strengthens, according to officials.

Analysts said the problems at the conglomerate may have stemmed in part from the sharp drop in methanol and real estate prices, but also from risky practices that included excessive related-party transactions.

Subsidiaries in other countries, such as Guyana and the Bahamas, have since then faced regulatory takeovers due to low capital levels.

The Eastern Caribbean plan is just the latest.