British American Insurance Company (Trinidad) Limited (BAT) Synopsis of Ernst & Young report - As Prepared by Counsel to the
Commission
1. Ernst & Young Services Limited (EYSL) were appointed by the Central Bank of
Trinidad and Tobago on 20th July 2009. They produced their report on 25th
September 2009.
2.
At 31st December 2008 BAT was insolvent. Total liabilities exceeded total assets
by $822.3m
3. Statutory Fund Position - BAT's Statutory Fund Deficit on the long-term
insurance business, before any EYSL adjustment to the pledged Statutory Asset
and Statutory Requirement liabilities, equalled $(794.8)m as of 31 December
2008. After application of the EYSL adjustments, the total value of the Statutory
Fund Assets equalled $520.9m, while the total value of the Statutory Fund
Requirement equaled $1.411b. Consequently, the EYSL Adjusted Statutory Fund
deficit equaled $(890.5)m as of 31 December 2008.
4. Related Party Assets - BAT's total related party assets equaled $451m or 37% of
the Company's total assets as of 31 December 2008, before any EYSL
adjustments. These related party assets included a $304m intercompany
receivable due from BAICO and the other BA territories, $140.5m invested with
related companies, and $4m in mortgage loans to Company officers.
5. Significant transfers of cash from BAT to BAICO were used to fund BAICO's
real estate investments in Florida. BAT directly contributed $371m (US $59.8m)
in cash to BAICO between December 2003 and 2008. During 2008 alone, BAT
transferred $103.8m in cash to BAICO. The majority of these substantial cash
transfers were not repaid and are included in the $304m in intercompany
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receivable. This funding and subsequent non repayment contributed to BAT's
liquidity constraints and insolvent position.
6. BAT also provided cash to the territories which was subsequently routed towards
the funding of the Florida investments. During 2008 alone, BAT either transferred
cash to or made payments on the territories' behalves that amounted to $173m.
Therefore, the funding provided to the territories also contributed to BAT's
insolvency position.
7. The source of these cash transfers to BAICO from BAT was primarily the
premium receipts received from the sale of annuity policies offered by the
Company. These annuity products, which included the FPA, FPA II and EFPA,
provided guaranteed interest rates as high as 12.7% during 2008 with maturity
periods of three to five years. BAT also introduced short-term annuities with
maturities of less than one year in 2008 with an average interest rate of 6.5%.
8. BAT's business model was heavily dependent on the relatively high rate of
rollover or reinvestment of these policies upon maturity. This rollover rate
averaged 89% during 2008 but declined to less than 30% subsequent to the
January 2009 Memorandum of Understanding ("MOU") announcement by the
Government of the Republic of Trinidad and Tobago ("GORTT"). The total
mortgage balance as of December 2008 equaled $115.8m while the Investment
Property balance equaled $176.5m.
9. In contrast, the returns the Company earned from investing these premium
receipts in 2008 averaged 6.3%. This mismatch between the interest offered on
the annuities and the returns generated also contributed to BAT's insolvency
position, as asset growth has not matched the increase in liabilities. Most of these
funds were used to finance the real estate developments in Florida, the largest
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being the Green Island investment. There was no cash flow or investment yield
from this investment.
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