BAICO: Letter to Plan Members – Jun 5th 2019

BRITISH-AMERICAN INSURANCE COMPANY LIMITED

(In Judicial Management)

P.O. Box N-123
Montague Sterling Centre
East Bay Street Nassau, Bahamas

Tel: 242-393-2007
Fax:242-393-1772

June 5, 2019

Dear BAICO Pension Plan Members

Re: British-American Insurance Company Limited (“BAICO”) – Employee Pension Plan

Purpose and disclaimer

The purpose of this letter is to provide you with an update on the status of the BAICO Employee Pension Plan (“Plan”).

The members of the Plan were primarily former employees based in the following jurisdictions: Anguilla, Antigua & Barbuda, Barbados, Dominica, Grenada, Montserrat, Panama, St. Kitts & Nevis, St. Lucia, and St. Vincent and the Grenadines, Aruba and Curacao. There were also four expatriate employees in Cayman and Panama. It is unclear whether the former expatriate employees participate in the Plan or have a separate Pension plan.

All amounts included in this letter are presented in United States dollars (“US$”), unless otherwise stated. In addition, the procedures which I have performed to date in connection with the Plan, do not constitute an audit, examination or review in accordance with standards established by any accounting and auditing professional standards setting body. Accordingly no opinion or any other form of assurance is made concerning the accuracy or completeness of the information presented in this letter. Where indicated, certain figures in this letter are estimates, which may be subject to change, including possible significant adjustment.

Previous communications

In a letter dated December 28, 2009, I explained that BAICO is insolvent. In addition, I explained that the Employee Pension Plan is also insolvent as the Plan’s assets are significantly less than its liabilities. I also informed Plan members that the funds which ought to have been put into a trust (kept separate from the assets of the company) had instead been comingled with the assets of BAICO by the former management of BAICO. While the Plan operated, Plan members who received pension payments prior to BAICO entering into Judicial Management had been paid from BAICO’s funds and the funds of individual subsidiaries, rather than from a properly managed trust.

I filed a report with the Supreme Court of The Commonwealth of The Bahamas (the “Court”) dated November 27, 2009, explaining my findings from research performed on the Plan up to that point. By Order of the Court dated December 17, 2009, I was ordered to further investigate the assets and liabilities of the Plan. As communicated to Plan members in my letter dated December 28, 2009, I recommended that Plan members continue to make contributions until this investigation was complete. I made it clear in my letter that these contributions would be set aside in a separate bank account. I asked that the Plan members confirm to BAICO’s management whether they would continue making contributions.

In a letter dated May 20, 2011, I informed the Plan members that I had completed my investigation into the Plan and that my key conclusions were as follows:

1. The Plan was manifestly insolvent. As at 31 December 2009, the estimated realizable value of the assets allocated to the Plan by former management of BAICO were approximately US$1.6 million and the actuarially estimated pension liabilities are estimated to be between US$19.5 million to US$23.2 million, resulting in the Plan being in a deficit position of between US$17.9 million and US$21.6 million. A deficit position means that the Plan is insolvent, with insufficient assets to pay its liabilities.
2. The former management of BAICO did not segregate pension contributions into separately identifiable accounts outside of BAICO’s operating bank accounts, nor did the pension contributions made remain identifiable within these accounts. As a result, the Plan members are unlikely to be able to establish any proprietary interest in BAICO’s assets either in respect of contributions from their own salary deductions, or over other contributions that ought to have been paid by BAICO.
3. After receiving legal advice, I determined that certain specific assets informally allocated to the Plan by former management of BAICO, with an estimated total value of US$1.6 million, are likely to be deemed to be held on trust for the Plan members.

The letter also explained that on April 13, 2011, the Court issued an order which required the following to be done:

1. Take the necessary steps to terminate the Plan with effect from 8 September 2009. This meant that deductions would no longer be made to Plan members’ salaries in respect of the Plan.
2. Pension contributions made by Plan members would be refunded to Plan members after the date of the appointment of the respective country Judicial Manager / Administrator.
3. No pension payments to be made from the assets of BAICO.
4. The determination of the issue of the interest if any of the Plan members in BAICO’s assets be reserved until after a winding up order is issued in respect of BAICO.
5. Explore the inclusion of the pension obligations of BAICO in the reorganization and restructuring options presently being explored by the governments of the Eastern Caribbean and other jurisdictions.

Copies of the December 28, 2009 and May 20, 2011 letters are attached to this letter.

In the said May 20, 2011 letter, I notified Plan members that the Plan had been terminated with effect from 8 September 2009. In addition, I took the following actions as directed by the Court.

1. Where Plan members were current or former employees of BAICO’s branch and subsidiary operations, I instructed the respective Judicial Managers/Administrator in their countries to:
   • No longer deduct pension contributions from current employees;
   • Refund all Plan contributions made by Plan members since the date of the appointment of the respective country Judicial Manager/Administrator.; and
   • Not make pension payments from the assets of BAICO.
2. I continued to realize the assets allocated to the Plan and deposited the proceeds thereof in a separate US$ bank account, pending a determination by the Court as to the owner of these assets; and

3. I continued to attempt to find other restructuring options for the Plan obligations.

The term “assets allocated to the Plan” has been used in this letter because the formal legal ownership of such assets had not yet been determined in May 2011, as referred to in item 2 above. However, the previous management had informally titled certain assets in the name of the Plan or its members, and while these assets were not formally vested in a trustee as they ought to have been, I have always treated them as assets held on trust for the Plan members.

Plan assets and liabilities

This section of the letter provides additional information on the estimated value of assets allocated to the Plan and Plan liabilities.

The table below shows the estimated value of the assets allocated to the Plan as at December 31, 2009 compared to the value actually realized.

The assets allocated to the Plan have all been realized and, except for the amount due from British American Insurance Company (Trinidad) Limited (“BAT”), a subsidiary of BAICO, have been deposited in a separate US$ bank account. Further details in respect of the amount due from BAT are provided below.

Barbados Port Bonds

This asset comprised US$715,000 (principal value) of Barbados Port Inc. bonds earning interest at 8.25% per annum for the first seven years with a floating rate thereafter, and maturing on December 31, 2014. The main reason for the difference between the value at December 31, 2009 and the amount actually realized is due to the interest earned up to the maturity date.

GORTT Bonds

This asset comprised bonds issued by the Government of the Republic of Trinidad and Tobago (“GORTT”), earning interest at 8% per annum and maturing in November 2014. The main reason for the difference between the value at December 31, 2009 and the amount actually realized is due to the interest earned up to the maturity date.

CLF Shares

The CLF Shares are shares in CL Financial Limited (“CLF”), the parent company of BAICO located in Trinidad and Tobago (“TT”). CLF has been placed into liquidation on the basis that it is insolvent. Given CLF’s insolvency, there will be no return to CLF’s shareholders and therefore the CLF shares in these situations, are worthless. Fortunately, prior to the insolvency of CLF, I was able to secure an amount of US$100,000 for the CLF Shares for the benefit of the Plan.

BAT Receivable

The amount due from BAT amounts to US$ 440,560, being the equivalent of TT$ 3,083,914 which is currently held in escrow by BAICO’s Trinidadian attorneys. The funds are expected to be released within the next 7 days, at which time steps will be taken to transfer the funds to the same separate US$ bank account. The sums due relate to interest and dividends from assets allocated to the Plan.

Corban Funds

The Corban funds reflect amounts advanced to an investment fund in January 2005, where our investigations revealed that the investment had been misappropriated by members of the Corban Funds. Litigation was commenced to recover these funds and a judgment was obtained against the fund manager, however this individual is now deceased and investigations into his financial affairs have not identified any significant assets. Accordingly, after obtaining legal advice, I decided not to incur any additional legal costs in pursuing this matter and therefore no recoveries are expected from this investment.

Due from Bermuda Pension Plan

In my 27 November 2009 report, I indicated that the accounting records included an amount of US$619,178 which was described as being an amount payable by the Bermuda Pension Plan (which operated as a totally separate plan to the Plan described in this letter) to the Plan. Based on further investigations, the amount receivable from the Bermuda Pension Plan represented payments made from BAICO’s assets in respect of Bermuda Pension Plan members. Accordingly, this receivable was due to BAICO and not the Plan.

Liabilities of the Plan

As mentioned in the May 20, 2011 letter, an independent actuary was engaged who estimated the Plan liabilities using two methods and produced a range of values. The following table shows the estimated Plan liabilities at December 31, 2009 based on the analysis done by the actuary:

As part of the restructuring initiatives completed during the Judicial Management process, the Plan members from Aruba and Curacao (Netherlands Antilles) no longer participate in the Plan. The above table reflects that adjustment. Plan members should note that the Netherlands Antilles liabilities were removed without a corresponding reduction in Plan assets.

Due to the fact that the Plan is insolvent and in a significant deficit position, an actuary will need to perform another assessment to determine the current value of the Plan liabilities.

The table below shows the estimated number of Plan members as at December 31, 2009 compared to the estimated current number, the difference being the Netherlands Antilles Plan members:

Current financial position of the Plan

(1) Consists of: US$2,410,450 held in a separate US$ account and US$440,560 (TT$ 3,083,914) held in an escrow account in Trinidad.

As a result of the realization of the assets allocated to the Plan and reduction in Plan liabilities explained above, the estimated Plan deficit reduced from US$17.9 million – US$21.4 million in 2011 to US$13.8 million – US$16.3 million, as shown in the table above. As previously explained however, due to the fact that the Plan is insolvent and in a significant deficit position, it is likely that an actuary will need to perform another assessment to determine the current value of the Plan liabilities and consequently the current amount of the Plan deficit.

Subsequent Court decisions

In late 2017, a Plan of Arrangement was approved by the Court and the policyholders of BAICO. The Plan of Arrangement is a process by which the assets of BAICO are distributed to policyholders on a consistent basis.

In anticipation of the Plan of Arrangement coming into force, in July 2017 I sought directions from the Court on the following two matters:

1. The underlying (equitable) ownership of the proceeds of assets which had been allocated to the Plan, and which I had liquidated and held segregated from the estate of BAICO; and

2. Whether any provisions ought to be made for any further hypothetical claims that might be made against the BAICO Estate by Pension Plan members, before I proceeded with the Plan of Arrangement.

In July 2017, the Court ordered that the funds realized from the assets allocated to the Plan (which I was holding in a separate bank account) were indeed to be deemed to be held on trust for the Plan Members. Accordingly, the funds in the separate account totaling US$2,410,450 have been segregated and were not included in the assets distributed to policyholders in the Plan of Arrangement. I continue to hold these sums on trust for the Plan members. Once the funds from the BAT receivable have been released from escrow, they will also be placed in this account.

Further, the Court authorized me to proceed with the Plan of Arrangement without making any provision for any hypothetical claim that might be brought by or on behalf of the Plan Members. I had previously sought independent legal advice as to whether there were any claims that could be made against the BAICO Estate that had any prospect of success. On the basis of that advice, I took the view, and the Court accepted, that there was no prospect of any claims being upheld in circumstances where the previous management of BAICO never set up a separate fund to receive pension contributions.

Next Steps

Now that all of the assets have been realized, I am considering an appropriate mechanism to deal with the distribution of funds to Plan members in accordance with the Plan Rules and I will provide a further update in this regard, in due course.

Sincerely,

British-American Insurance Company Limited

(In Judicial Management)

J.M. Lopez
Judicial Manager

Note: The affairs, business and management of British-American Insurance Company Limited are under the control of the Judicial Manager pursuant to an Order of the Supreme Court of The Commonwealth of The Bahamas dated 8th September, 2009.