Home' Trinidad and Tobago Guardian : June 13th 2013 Contents Many an insurance com-
pany fancies itself as
being both an insurer
(that is, a risk manager)
and an investment man-
ager of sorts.
The main reason for this tendency is that
they use the pre-paid portion of insurance
premiums (both short-term and long-term)
to invest. In some aggressive cases, they price
their products very competitively and hope to
fill the underwriting gap (loss) by delivering
high investment returns.
For this strategy to work, the public must
have a high level of confidence in the firm;
this would tend to ensure a steady increase in
annual premium income. Needless to say, their
investments must perform at above-average
levels on a consistent basis; a tall task even in
the best of times!
A more recent and less risky development
is insurer s tendency to sponsor and manage
a variety of collective investment schemes;
even if these mutual fund products produce
mediocre results, the sponsors, which are often
subsidiaries, are usually assured of a steady
stream of fee income.
and higher costs
One noticeable feature of Clico s accounts
is the continuous decline in net premium rev-
enues over the period 2009 to 2011. Starting
at a level of $789.1 million back in 2009, Clico s
net premium income contracted to $339.7 mil-
lion in 2010 and, in 2011, further declined to
$277.3 million. It was quite possible that this
downward trend continued into 2012. If that
proves to be true, one might reasonably con-
clude that Clico s days as an insurance company
are numbered. More likely than not, these
declines parallel the public s loss of confidence
in its ability to provide traditional insurance
protection. Or, more precisely, its perceived
lack of ability to honour claims when they
Having acquired a particular level of pre-
mium, the onus is now on the company to
pay benefits and claims on a timely basis, con-
trol its acquisition costs for new insurance
contracts and, to the extent possible, ensure
that the value of the insurance contracts are
guarded and maintained at acceptable levels.
How did Clico deliver in each of these areas?
In 2009, with the possible exception of
claims and benefit payments, Clico scored
poorly in the two other areas.
For that year, claims and benefits of $338.4
million amounted to 42.9 per cent of the net
premiums written of $789.1 million. Acquisition
costs for new business consumed $147.6 million;
this would probably have included high "run-
off" commissions for the EFPA products. Mean-
while, there was a negative adjustment of $581.1
million to the value of insurance contracts.
These changes resulted in an underwriting loss
of $278.1 million.
In 2010, we see some significant changes.
Its net premium income contracted to $339.7
million, reflecting a 57 per cent reduction from
the previous year.
Also declining was acquisition costs, which
closed at $18 million. The value of insurance
contracts showed a positive change, contribut-
ing $136.6 million to the underwriting results.
Despite lower premium income, benefits and
claims rose dramatically to $405.9 million.
This figure exceeded its premium income by
Based almost entirely on the positive swing
in the value of its insurance contracts, Clico
managed to report an underwriting profit of
$52.3 million for 2010.
In 2011, we observe what might be the start
of a trend, which is, declining premium revenue
and increasing claims and benefits. Premiums
declined by $62.4 million to close at $277.3
million. After allowing for small amounts of
premiums ceded, total premiums for long-
term contracts fell by $65.9 million while those
for short-term contracts increased marginally
by $3.9 million.
Claims and benefits reached $393.2 million,
exceeding current premiums by $115.9 million.
Acquisition costs fell to $12.6 million and
seemed to be in line with lower levels of busi-
ness. The biggest change, however, was due
to negative adjustment in the value of insurance
contracts; this item consumed $708.9 million
and precipitated an underwriting loss of $837.4
Unless the trend of lower premiums and
higher claims was reversed in 2012, Clico s tra-
ditional insurance business seems doomed to
die a natural death.
On the investment side, Clico seems to have
done much better in the more recent past.
Investment income rose from $368 million in
2009 to $872.7 million in 2010 and a more
robust $1.21 billion in 2011.
Going back a bit, in 2008, the year when its
accounts were substantially restated, it incurred
a $6.1 billion impairment loss; this figure rep-
resented a significant portion of the $9.51 billion
loss recorded for that year.
In the transition year 2009, the company
suffered a further impairment charge of $3.12
billion. Primarily on that basis, it incurred a
loss on its investment activities of $2.7 billion.
In 2010, the high level of investment income
($872.7 million) was more than sufficient to
offset impairment charges of $469.6 million.
Of its total investment income, $571.5 million
was due to dividend income while $204.6 mil-
lion was interest on government securities.
Also contributing to a better result was net
gains on fair value assets through profit and
loss of $73.7 million.
For that year, investment activities recorded
a profit of $503.9 million.
In 2011, dividend income rose strongly to
reach $977.8 million while interest from gov-
ernment securities fell marginally to $198 mil-
lion. For the entire year, investment income
rose to $1.21 billion.
Helping the 2011 result was a write-back of
$434.6 million on previously impaired items.
Also, fair value gains through profit and loss
contributed a further $91.5 million. In total,
investing activities produced a profit of $1.73
billion for 2011.
Other expenses and net (2011) result
For 2011 operating expenses showed a pos-
itive balance of $179.1 million. This compares
with a negative figure of $1.07 billion for 2010.
The main change was in the movements in
investment contracts, particularly EFPA accept-
Following the announcement of a settlement
plan for EFPA policyholders in the 2010/2011
budget, exchanges began in 2011. Consequently,
movements in investment contracts changed
from a negative figure of $927.3 million in
2010 to a positive $429.4 million in 2011. In
2012, as exchanges continued, another positive
figure should be recorded.
For 2011, the net figure from insurance,
investing and operating activities amounted
to a profit of $1.07 billion. After deducting
$352.5 million in finance costs, the pre-tax
profit came in at $720 million. After allocating
$18 million to taxes, the net profit was $701.9
million. This compares favourably with a loss
of $910.9 million recorded for 2010.
Changes in financial position
The company has seen some significant
changes to assets, equity and liabilities. Total
assets increased from $17.4 billion as at year-
end 2010 to $19.7 billion as at December 2011.
Bank balances and short-term deposits grew
to $448.9 million from 2010 s $259.6 million.
Of this total, cash at bank represented $160
Both investments in associates and sub-
sidiaries registered strong increases. The major
contributor to the increase in the value of its
associated companies was the improvement
in Republic Bank Ltd, which rose from $3.95
billion as at the end of 2010 to $5 billion as
at year-end 2011. The total value of its invest-
ments in associates advanced from the 2010
level of $4.83 billion to $5.81 billion as at Decem-
Meanwhile, the increases in the values of
both Methanol Holdings Trinidad and Methanol
Holdings International contributed $775 million
to the improvement in the values of its sub-
sidiary companies. The total values of all its
subsidiaries increased to $6.54 billion from the
2010 figure of $5.56 billion.
The company s negative equity position
improved from a negative $9.8 billion as at
year-end 2010 to a negative $7.3 billion at the
end of 2011. Helping this change was the 2011
profit of almost $702 million. However, a larger
contribution was due to the improvements in
valuation reserves by a strong $1.8 billion; this
item moved to $8.4 billion from 2010 s $6.6
Borrowings declined to less than $1 million
from the 2010 figure of $407 million. This was
due to its repayments to Unit Trust Corporation
(US$19 million), First Citizens bank (US$32
million) and First Citizens Investment Services
Ltd (US$13 million).
On the other hand, insurance contact lia-
bilities increased to $6.1 billion from $5.4 billion
as at the end of 2010. The difference of $0.7
million negatively impacted its underwriting
results, as stated earlier.
and the future
Over the last 18 months or so much has hap-
pened that has positively impacted on the
accounts of Clico. As at the end of 2012, it was
stated that 90 per cent of policyholders have
accepted the government s offer with respect
to the EFPA/GAAP/GAP policies. In addition,
acceptances of 87 per cent of the total value
of the CSI Series 6 portfolio were done as at
the same date.
Two significant assets were sold before the
end of 2012. Campari bought out Lascelles de
Mercado. Clico s ownership of 2,494,310 shares
in LdM would have generated some profit;
also, Clico owned US$40 million in notes and
had charges over Lascelles shares through its
subsidiary CL Distillers. When the Campari
sale was completed in December 2012, these
notes and charges were repaid in full.
In October 2012, 40 million shares in Repub-
lic Bank Limited were sold to Clico Investment
Trust for which settlement in the form of Gov-
ernment Bonds was received. Given the low
prices at which Clico would have acquired
RBL s shares many years ago, this transaction
would also have generated a huge profit.
The sale by CL World Brands of its subsidiary
Burns Stewart in April 2013 coupled with the
impending sale of Hine Cognac would add
additional profit to Clico s investing activities.
Given that the end of July 2013 would see
the expiration of the government s current
agreement with CL Financial/Clico, one might
expect to see a flurry of activity on divestments
and/or reorganisations within the group.
Despite all these positive and headline-catch-
ing developments on the investment side, one
needs to look at the core insurance business
to make a judgement as to the company s
Will premium income continue to fall? Will
claims and benefits continue to increase? If
the answers to both these questions are "yes",
then Clico (or its likely successor, Atrius) has
the huge task of rebuilding confidence and
attracting new business.
If Workers Bank, Trinidad Co-operative Bank
and National Commercial Bank could re-emerge
as the very profitable First Citizens bank, per-
haps a similar evolution is possible from the
remnants of Clico?
What does the future hold for Clico?
BG16 | STOCKS
BUSINESS GUARDIAN www.guardian.co.tt JUNE 2013 • WEEK TWO
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