FS defends insurance deal

(CNS):  Explaining the circumstances surrounding the poor value for money which government received in the Cayman General Insurance deal following Hurricane Ivan in September 2004, Financial Secretary Ken Jefferson said it was “hard to swallow” but was done in the best interests of the country. Attending Public Accounts Committee (PAC) as a witness on Wednesday morning, Jefferson said that the deal, which saw government receive only $50 million in cash and 24% of the company, was never about getting back government’s true claim but about protecting the whole of the Cayman National Group and the country’s economy.

Although it was PAC members that used the term "bail out" to describe the deal, Jefferson also admitted that the deal was as much about maintaining confidence in Cayman National as a whole and protecting the wider economy than it ever was about what government was truly owed.

Although government’s original assessment of its losses was more than CI$108 million, it accepted Cayman General’s assessment that $70 million was fairer because it was not in a position to back up many of the claims that were being made by departments about the true value of losses. Then, when the insurance company said it could only afford to give $50 million in cash, government also accepted a share in place of the $20 million that equated to a mere $2-3 million at best.

During the committee’s discussions based on Auditor General Dan Duguay’s special report about the Cayman General deal (Cayman Islands Government’s Property Insurance Settlement – Post Ivan) the financial secretary said the share part of the deal was never meant to equate to the $20 million and government was well aware of that, but it was not faced with many options.

He noted that as Cayman General was not just government’s insurer but was also the insurer for many other private claims, it was in the best interest of the Cayman Islands as a whole for government to accept it and take the loss in order to ensure the insurer would not only survive but so it would be able to meet its obligations to claimants across the wider community. Jefferson also said there was a belief in government at the time that if Cayman General was left to go down then the confidence in the Cayman National group could also be undermined, which would have had far reaching implications.

“The ultimate decision was made in the wider interests of the Cayman economy,” Jefferson added. “The loss of Cayman General could have caused a loss of confidence in the bank itself.”  He also explained that as part of the deal Cayman National injected some $30 million into Cayman General to help it meet its wider claims.

Speaking about the lessons that were learned, Jefferson explained that government’s insurance is now spread over a number of different firms rather than one major policy, that the Risk Management Unit is tasked with monitoring and assessing the financial stability of the firms it uses, and the insurance law has been changed to ensure that insurance firms can demonstrate their ability to meet claims in the event of a catastrophe along the lines of Ivan.

It was revealed that the government no longer uses Sagicor, the company which emerged from the post Ivan restructuring of Cayman General and the firm which government now has a 24% share, because it does not meet the new criteria.

Committee member Dwayne Seymour asked rhetorically, but not without irony, if that meant government is a part owner in a company that it can’t even use. The problem of government not really being in the business of insurance was also discussed, and it was clear government has still not established any kind of exit strategy from this arrangement. Jefferson said that government had received some dividends on the shares but he did not reveal how much, and as the shares are not in the market place they are in reality only worth whatever someone would be willing to pay for them.

The PAC also heard that the issue of government being unable to substantiate its claim has not been addressed either, as it still has no real idea of what its assets are worth. Michael Nixon, Senior Assistant Financial Secretary, confirmed that to date no evaluation of government property and other assets has been done. In his report Duguay had recommended that government undertake a full evaluation at the earliest opportunity so that the discussion about under insurance would never arise and the financial implications of over insurance would be addressed. Duguay told PAC that while the various government departments involved, i.e. risk management and lands and survey, are all geared up to do the work, the evaluation has been stalled over and again because of funding.

Ezzard Miller, the PAC chair, said that the committee would be strongly encouraging government to address this in its report to the Legislative Assembly on the issue. 

Although the committee acknowledged the findings of the auditor general’s report, in the absence of Moses Kirkconnell, the only opposition member of PAC, the other members were looking for ways to exonerate the previous United Democratic Party government, which had made the deal, and seized on the message from many witnesses that the deal was made against the backdrop of Ivan and in the country’s best interests.

“I think we can ask if government made the right decision in making this bail out and against the background it probably was a wise decision,” said Cline Glidden, one of the three UDP PAC members on the five-man committee.

During its consideration of the report PAC also heard from a number of witnesses during the day’s session, including Cindy Scotland, MD of CIMA, who explained the changes to the insurance law; representatives from Lands and Survey; the chief secretary and the attorney general.

Miller adjourned the committee until Wednesday 12 August when the PAC will meet to discuss the AG’s reports on the police helicopter, Matrix and the government scrap metal deal, and the gasoline systems at Pedro St James.