Letter to policyholders of British-American Insurance Company Ltd (“BAICO”)
in the Eastern Caribbean
As a policyholder or creditor of BAICO I am writing to you to provide you with a further update on the status of the Judicial Management, together with the progress that has been made in finding a solution to BAICO’s severe financial difficulties.
British-American Insurance Company Ltd (“BAICO” or “the Company”) was placed under Judicial Management in the Bahamas on 8 September 2009 and Juan M. Lopez of KPMG Restructuring Ltd. in the Bahamas was appointed the Judicial Manager (“Bahamas JM”) of the Company.
BAICO is incorporated in the Bahamas, although it has not written business or issued policies in the Bahamas for some time. All of BAICO’s business in the Eastern Caribbean (“EC”) was conducted through a branch network. This means that BAICO did not have separately incorporated companies in each EC territory; instead these branches were offices that were part of BAICO in the Bahamas.
The appointment of the Bahamas JM was preceded by the appointment of a Court appointed Judicial Manager, Agent or Administrator (collectively “the EC JMs”) over each of the BAICO branches located in the EC. The Bahamas JM and the EC JMs (together the “Office Holders of BAICO”) have been working in close coordination to agree the most effective strategy for dealing with BAICO.
This report seeks to update policyholders and creditors of BAICO on matters occurring since the last report was issued.
1 Actions taken by the Bahamas JM to date in respect of BAICO’s non-EC branches
At the date of appointment of the EC JMs, BAICO’s core business was broadly split between various non-EC Branches and subsidiaries (“the Outer Branches”), and BAICO’s EC Branches.
BAICO operated under 19 separate jurisdictions and this has created complex issues in the implementation of a restructuring plan for BAICO’s stakeholders. At the same time, BAICO’s key management operations including its accounting systems, policy database and records were located in Trinidad & Tobago.
Since the appointment of the Bahamas JM, and Court Appointees over the Outer Branches, significant progress has been made in restructuring the Outer Branches.
The restructuring of the Outer Branches is now virtually complete, which has resulted in the sale of the Cayman, TCI, Curacao, and Aruba branches and subsidiaries. At the same time, the agreement reached with the provisional liquidator of BAICO’s Bermuda branch, allowing the Bermuda branch to implement a Scheme of Arrangement for its Bermudian policyholders, has also been achieved. The restructuring of the Outer Branches has resulted in the removal from the BAICO estate of approximately 38,000 policies and associated liabilities of approximately EC$189 million.
The only remaining Outer Branch business is in Guyana (with liabilities of less than US$150,000) and Panama, where a local liquidator has been appointed.
2 Strategy for the EC Branches
The failure of BAICO is a significant issue for the EC region given that the Company was one of the leading providers of financial services in the EC. The Office Holders of BAICO have therefore worked in very close cooperation with the ECCU Governments in order to find a restructuring solution for BAICO’s EC business.
2.1 Current status of strategy for the EC Branches
By way of summary, the Office Holders of BAICO in conjunction with the ECCU Governments agreed on an alternative three-stage restructuring for the EC business. The plan consists of:
- Stage 1: Creation of a compensation fund to settle the claims of BAICO’s healthcare policyholders resident in the EC;
- Stage 2: The substantial recapitalisation, using ECCU Government funds, of BAICO’s traditional life insurance portfolio and sale of this portfolio to a third party; and
- Stage 3: The creation of a relief scheme for BAICO’s annuity and investment contract policyholders (and any other policyholders not addressed in Stages 1 & 2).
2.2 Status of the ECCU/BAICO Health Insurance Support Fund
In May 2011 an ECCU Government sponsored Health Insurance Support Fund (“the Health Fund”) was established. This Fund has been used to settle the claims of BAICO’s EC resident healthcare policyholders. The Trust was funded principally by contributions from the ECCU Governments in respect of health insurance and was administered by an Independent Trustee. All health insurance policies were cancelled on 18 May, 2011 and policyholders were then able to submit claims up to 18 June, 2011.
The Health Fund is now closed to applications in accordance with its terms. The bar date for all applications submitted to the EC Health Fund was 31 December 2011. A total of over 1,300 applications were received and it is estimated that over EC$2.9 million will have been paid out for admitted claims. There are a small number of outstanding claims which are being finalised, after which, the administrator, based in Antigua, and subject to approval from the ECCU Governments Ministerial Subcommittee is likely to wind up the EC Health Fund.
2.3 Update on strategy for dealing with the EC traditional life insurance portfolio
2.3.1 Completion
Following the receipt of approvals from all nine Insurance Regulators and Courts within the ECCU and The Bahamas, where BAICO is incorporated, the transfer of BAICO’s traditional insurance business in the Eastern Caribbean (the “EC Traditional Business”) to Sagicor was finalised on March 15, 2013. This has been effected via a Transfer Scheme.
As a result of the transaction, over 15,700 former BAICO policyholders have had their policies recapitalised, and are once again able to rely upon their original policy terms and access their insurance benefits.
As part of the terms of the sale, Sagicor will also make payments to approximately 1,700[1] persons in the ECCU who are owed historical claim amounts, surrender payments, maturity payments, and bonuses by BAICO. The ECCU Governments have provided funding for these amounts to be paid.
The transaction represents the completion of a process that started in 2011 by the Office Holders of BAICO and the ECCU Governments for the sale of the EC Traditional Business.
The outcome is a significant success for the BAICO policyholders affected, as well as BAICO’s other creditors, resulting in both the successful continuation of BAICO’s traditional life policies in the EC, and the transfer of the policies’ related liabilities from BAICO to Sagicor (assisted through funding provided by the ECCU Governments).
2.3.2 Transitional Support
Sagicor has prepared an operational plan, approved by the EC Insurance Regulators, to manage the transfer of the EC Traditional Business before and after the Scheme Effective Date of 15 March, 2013. Key highlights of the operational plan include a communication plan covering, amongst others, notification to policyholders, conversion of the BAICO data onto Sagicor’s system, physical amalgamation of the operations and the establishment of a new ECCU entity.
As part of the transitional arrangements agreed between Sagicor and BAICO, the two parties have entered into a service level agreement with BAICO and, in addition, a service agreement with British American Insurance Company (Trinidad) Ltd (“BAT”) to continue the current policyholder administration services, until the system conversion and file transition is complete. It is anticipated that the entire conversion process will last 7 to 8 months.
2.3.3 Benefits to the BAICO Estate
The successful completion of the transaction has had a number of significant benefits for the policyholders of the Company:
- The transfer has allowed the Transferring Policies to continue with Sagicor under the same terms and benefits as their original BAICO policies;
- BAICO is manifestly insolvent. The assumption by Sagicor of these obligations, with no changes to the contractual terms or amounts of the Transferring Policies, has placed the transferring policyholders in a better financial position after the transfer. The alternative was to remain a policyholder of BAICO and claim in BAICO’s eventual liquidation, where the estimated liquidation dividend is anticipated to be a small percentage of the policy value;
- The transfer has resulted in the extinguishing of approximately EC$120 million of liabilities from the BAICO estate[2]. As a result, policyholders that have not transferred to Sagicor and instead remain in the BAICO estate are in a better financial position. This is because the policyholder/creditor base entitled to share in the distributions from BAICO’s assets in a liquidation process is smaller, therefore effectively increasing their percentage recovery;
- The transfer has resulted in a net cash inflow for the BAICO estate resulting from the net proceeds from the sale of the EC Traditional Business;
- The transfer has resulted in the removal of over half of the number of BAICO’s remaining policyholders in the EC. This will save the JM time and expense in managing BAICO in the future, as well as allow the JM to purely focus on the remaining creditor base; and
- Apart from the premiums that had been paid in respect of the transferred business, which were used to support the funding of the recapitalisation, the only other assets transferred as part of BAICO’s EC Traditional Business comprised certain loans secured by the Transferring Policies. Sagicor has paid BAICO the outstanding amount of these loans as part of the purchase price for the EC Traditional Business.
2.3.4 What should policyholders do?
Policyholders whose policies have transferred need not take any action at this point, except to continue to pay any premiums that are due via the BAICO office in order to maintain their policies.
Sagicor is in the process of notifying policyholders of the transfer of the portfolio. If you have not already received this communication, you should expect to receive it soon. This notification will advise you how and where future premiums should be paid.
2.3.5 Lapsed policies
The ECCU Governments are mindful that, during the past four years, due to the uncertainty about BAICO’s future, many policyholders may have stopped paying their premiums. In many cases, this will have resulted in them allowing their policies to lapse.
The ECCU Governments, Sagicor and the Office Holders of BAICO are currently considering whether it will be possible to offer a solution for policyholders whose policies have lapsed in this period, and further information regarding this issue will be communicated to affected policyholders as soon as it is available.
2.3.6 Policyholder Queries
Many policyholders may not be aware if their policy is current (for example, they may have ceased paying premiums some time ago, but the automatic loan feature of their policy may have been triggered, meaning essentially that the accumulated value of their policy was used to pay their premiums).
If policyholders have queries, they should contact their local BAICO branch to find out what the status of their policy is. Once the system conversion and file transition to Sagicor is complete, policyholders will then be required to direct any queries to the Sagicor office.
2.3.7 Sagicor’s Commitments to the ECCU Region
Sagicor has demonstrated its commitment to the ECCU region by:
- Agreeing to set up an ECCU Consultative Committee, whose role will be to play an oversight role (including compliance, anti-money laundering, capital adequacy and corporate governance) in relation to the performance of the Portfolio;
- Placing its ECCU business into a separate ECCU-based entity within one year after completion of the transaction; and
- Listing the ECCU Entity on the Eastern Caribbean Securities Exchange.
2.4 Update on strategy for the EC Branches investment and annuity contract holders
Following the disposal of the EC Traditional Business, the remaining significant BAICO liabilities in the EC consist of the annuity and investment contracts.
These annuity and investment contracts were generally sold in the years leading up to BAICO’s collapse, and were offered at high interest rates. There are about 10,000 annuity and investment contracts, and the liabilities associated with these contracts are expected to exceed EC$850 million of BAICO’s liabilities. The EC JMs understand that agreement has been reached with the Government of the Republic of Trinidad and Tobago (“GORTT”) for the provision of funding to assist these policyholders through an ECCU Policyholders Assistance Programme.
In December 2012, the EC Governments initiated Phase 1 of its Relief Programme, targeting holders of BAICO’s Flexible Premium Annuity (‘FPA’) type policies with a fund balance at August 1, 2009 of less than EC$30,000. The Phase 1 FPA policyholders are estimated to comprise approximately EC$25.2 million. This Phase was largely completed over a two week period, with approximately 4,000 policyholders receiving approximately EC$18.7 million of relief payments prior to 31 December 2012. The difference between the EC$25.2 million and EC$18.7 million, represents policyholders who did not apply for a payment during the scheduled application period. Phase 1 concluded on 31 March 2013.
The EC Governments commenced Phase 2 of the Relief Programme in March 2013, under which EFPA and FPA II type policyholders with a principal balance of less than EC$30,000 are expected to receive payments of up to EC$30,000. There are approximately 2,625 policy holders with an estimated value of EC$31.2 million who are able to benefit from this phase of the programme. The programme was due to close at the end of June 2013, but was extended by one month till the end of July 2013. At present some 1,825 applications have been approved with a value of nearly EC$21.8 million.
The Office Holders of BAICO understand that the EC Governments are currently working towards Phase 3 of the Relief Programme, and further details as to which policy holders this applies to will be released in the near future.
3 Actions to recover assets for BAICO’s policyholders
3.1 Litigation in Trinidad and Tobago
3.1.1 Loan Note due from CL Financial Limited (“CLF”)
BAICO is owed over US$50 million by CLF under the terms of a Promissory Note dated 31 December 1998 (and amended on 1 January 2000). The Promissory Note had a maturity date of 31 December 2010, although, under the terms of the Promissory Note, the principal became due and payable in the event that CLF failed to settle the interest due on the loan.
On 28 December 2010, BAICO through the Bahamas JM issued a letter before action to CLF demanding payment of the outstanding amounts due under the Promissory Note, including unpaid accrued interest. The letter was a pre-cursor to formal legal proceedings.
CLF did not make payment to BAICO following this demand. As a result, BAICO’s attorneys in Trinidad and Tobago submitted a formal Claim Form in the Trinidad High Court of Justice on 17 June 2011. The Claim Form included a claim for US$39.575 million in principal and US$10.75 million in accrued unpaid interest under the CLF Promissory Note.
A number of case management conferences have been conducted and at the recommendation of the High Court of Trinidad and Tobago, BAICO and CLF entered into mediation discussions, which are continuing.
3.1.2 Director’s loan
BAICO is also seeking recovery of an amount loaned by BAICO to a former Director of the Company, in the sum of TT$3.8 million (EC$1.6 million) under the terms of a promissory note signed in 2005.
Following a series of unmet demands, BAICO through the Bahamas JM commenced legal proceedings against the former director for recovery of the amounts due. On 13 March 2013, BAICO obtained judgment against the former director for the said sum, together with costs and interest of 3% per annum. The former director has now filed a notice of appeal to this judgment.
3.2 Litigation in the United States of America
3.2.1 Recognition under Chapter 15, United States Bankruptcy Code (“USBC”)
On 22 March 2010, the US Bankruptcy Court in the Southern District of Florida granted recognition of the Judicial Management proceedings over BAICO-St. Vincent and the Grenadines as a “foreign non-main” proceeding pursuant to Chapter 15 of the USBC. It was found that BAICO has an establishment in St. Vincent and that the Judicial Management process in St. Vincent is a foreign proceeding as defined under the USBC and therefore granted recognition of the BAICO Judicial Management in St. Vincent as a “foreign non-main” proceeding.
In summary, the effects in the USA of the US Bankruptcy Court judgement include:
- Staying the commencement or continuation of an individual action or proceeding concerning the Company’s assets, rights, obligations or liabilities to the extent they have not already been stayed;
- Staying execution against the Company’s assets to the extent it has not already been stayed;
- Suspending the right to transfer, encumber or otherwise dispose of any assets of the Company to the extent this right has not already been suspended; and
- Providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the Company’s assets, affairs, rights, obligations or liabilities.
3.2.2 Litigation against the Directors of BAICO
Using his powers obtained under Chapter 15, on 21 December 2011, the JM of St. Vincent and the Grenadines filed a civil law suit, on behalf of BAICO, in the United States Bankruptcy Court, Southern District of Florida (“USBC”), demanding compensatory damages against the former Directors of the Company and certain connected parties.
The Complaint sets out a number of allegations against all named parties, including breach of fiduciary duties against the former directors as they entered into substantial transactions involving the purchase of land in Florida which caused harm to BAICO including rendering it insolvent, and breach of fiduciary duty generally.
The key developments to date are summarized below.
- Certain defendants have challenged the sufficiency of BAICO’s claims against them. As a result of this motion, the USBC ordered that BAICO could proceed with its claims, except for the claims against certain parties on rescission and aiding and abetting the directors to breach their fiduciary duties;
- Two of the parties filed a motion to have the case dismissed for lack of subject matter jurisdiction. This motion was denied and the USBC will continue to hear the case with the United States District Court having the responsibility for entering the final orders in this case;
- The Clerk of the USBC has issued default entries against two of the defendants, for failing to respond or file a defense to the complaint by the required due date;
- One of the defendants has been dismissed from the case for lack of personal jurisdiction; and
- BAICO has identified a number of additional claims and parties relating to the real estate transaction known as “Green Island” which resulted in BAICO incurring significant losses. As a result, in June 2013 BAICO filed a motion to amend its claims against the directors and other parties and in July 2013 this motion was granted.
The trial in connection with this litigation is expected to take place during the final quarter of 2013 or first quarter of 2014.
3.2.3 Assets at Wells Fargo in the United States
The USBC has entrusted the JM of St. Vincent and the Grenadines, with all of BAICO’s assets located in the United States. The liquidator of BAICO’s Panama branch has recently asserted that the assets in the Wells Fargo accounts in Florida should be handed over to him to be administered as part of the liquidation proceedings in Panama, for BAICO’s Panamanian policyholders and creditors.
Mr. Glasgow has taken the position that the assets in the Wells Fargo accounts are for the BAICO estate for the benefit of all of BAICO’s creditors, where ever located.
Accordingly, BAICO, through the JM of St. Vincent and the Grenadines, has filed an adversary proceeding in the USBC, naming Wells Fargo and the BAICO Panama branch liquidator as defendants. This application requests that the USBC make a determination that the assets in the Wells Fargo accounts belong to the general BAICO estate, are under the control of Mr. Glasgow and instruct Wells Fargo to sell the assets and send the proceeds to a bank account designated by Brian Glasgow.
The USBC has set the pre-trial conference for 12 September 2013.
3.2.4 Investigation of the Corban Fund Investments
BAICO has investments in funds known as the Corban Fund II based and incorporated in the United States. Funds transferred by BAICO to the fund were valued at approximately US$10.9 million in 2009, and these assets were confirmed to be held in the name of BAICO.
On 27 January 2011 the US Bankruptcy Court ordered that the Corban funds be handed over by the fund managers to the JM of St. Vincent and the Grenadines. Subpoenas were also issued to other parties connected to the Corban Funds, including against the Corban Fund’s bank. The funds were not produced and information obtained via subpoenas indicated that the funds are no longer in the original Corban Funds accounts. A number of investigations and information requests have been conducted, including the issuance of further subpoenas to and depositions of, additional parties.
In August 2013 BAICO filed an adversary proceeding in the USBC against the Corban Fund II and various related entities, including their management and other connected parties. This legal action includes claims against the defendants for civil theft, unjust enrichment and fraud. The pre-trial conference has been scheduled for November 13, 2013.
3.2.5 Other potential causes of action
The Office Holders of BAICO continue to work with their attorneys to identify any other potential causes of action that may be available to BAICO.
4 Ongoing communication with BAICO’s policyholders and creditors
All policyholders should expect to receive further details in the next few months regarding the various restructuring initiatives set out in section 2 above. In the meantime, I appreciate that you may have a number of questions about the ongoing situation. Should you wish to discuss any aspect of this report please contact me at the following co-ordinates:
The Judicial Manager
British American Insurance Company Limited (under Judicial Management)
C/o KPMG Eastern Caribbean
The Financial Services Centre
Kingstown Park, P. O. Box 561
Kingstown, St. Vincent
Telephone number: 1-784-456-2669
e-Mail: brianglasgow@kpmg.vc
Yours faithfully
__________________
Brian A Glasgow
Judicial Manager for British American Insurance Company Limited
St. Vincent and the Grenadines
September 11, 2013
[1] Based on figures as at September 2012.
[2] Based on Eckler’s revised actuarial valuation in November 2012 and an estimate in September 2012 of the value of claims submitted in connection with the Transferring Policies.
Click to read: 2nd Letter to EC Policyholders on Progress Final 06sep2013 (Montserrat)
