Tag: National Insurance Scheme

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Clico and immunity

Introduction
Perhaps it is the constant stream of news coming out of Trinidad about Commissions of Enquiry, referring files to the Director of Public Prosecution or about police investigations in that country. Or perhaps it is the knowledge that Clico Guyana is partly responsible for the sorry state in which the NIS finds itself, or that the individual who directly contributed to the loss to this country of close to seven billion Guyana dollars walks free, or the unsatisfactory conduct of the liquidation of the company, or the fact that so far my request to the courts for access to relevant files has come up with nought.

Then we have the rounds of telephone interviews being given by politicians to the newspapers and speeches made at hugely expensive dinners in which words like crisis at the NIS or the resolution of the Clico debacle are regarded as taboo. After all, the self-employed could not care two hoots about whether the NIS sinks or swims or whether anyone is held responsible for the failure in which so many authorities are in an incestuous game to protect each other.

To square the circle we have the political opposition which has spent inordinate energy on the “symbol” of Rohee. It is now close to four years since I wrote an open piece in which I said that the parliament must do something about Clico and suggested a number of measures they should consider.

In that call I noted that the National Insurance Scheme (NIS) alone is exposed to Clico for well in excess of six billion dollars or more than 20% of the funds accumulated by the NIS over its forty years of existence. I pointed out that members of Parliament ought to be aware that under the National Insurance Scheme Act any temporary insufficiency in the assets of the (NIS) Fund to meet its liabilities has to be met from appropriations by Parliament. In other words, they would have to approve the money to be funded by taxpayers. The politicians’ response has been less than adequate.

Red ink
Shortly before the call on the National Assembly, I had written about the widening financial instability enveloping Guyana as a result of Clico and Stanford and wrote that when the dust settles, the taxpayers, NIS contributors and beneficiaries, members of pension and medical schemes and depositors in Clico and potentially in Hand-in-Hand Trust (HIHT) and the New Building Society could lose collectively several billions from the fall-out in the financial sector. Of these only the NBS came out largely unscathed since its own $70 million loss had nothing to do with the Clico or Stanford.

Let me briefly fast-forward to today. As of now, while several pension funds and the NIS are still holding anywhere between six and seven billion dollars of worthless paper, the majority of Guyanese including the several politicians have quietly recovered most of their money and some of them began counting their blessings around this time last year. They are not going to open their mouths, while when they do it amounts to nothing, and the private sector is only willing to repeat all kinds of platitudes or safe criticisms sent with signals to the government that this is for show only.

Part of the problem with Clico is that the approach to Clico from the very beginning has been without resort to facts, a point made ad nauseam over the years. Some of it was clearly carelessness or laziness. For example, when the President assured the nation on February 5, 2009 shortly after the collapse began that Clico’s assets were sufficient to meet its liabilities he was repeating a company line without having read the December 31, 2007 analysis showing that 81% of the company’s assets was invested in related parties, all of which were under various degrees of threat (SN February 7; Business Page Feb 8 2009).

Collective failure
But it was partly skin-saving as well since Clico was a collective failure of a number of institutions and individuals. In transactions that came under the supervisory lens of both the Commissioner of Insurance and the Bank of Guyana, no one it appeared noticed or felt competent to deal with a company that issued “insurance policies” with premiums running into billions of dollars having a statutory fund of less than fifty million dollars. As pressure mounted on the President and on those with direct responsibility for the sector, the President in his typical style threatened prosecution against the directors and management of Clico if fraud were found. That threat could not be serious for the simple reason that the President knew that the sole Guyanese director and officer was the company’s CEO who would have been the decider over who should be favoured in getting their money back from the fast sinking ship. That is one secret that never saw daylight.

We knew from the newspapers here that the government of Trinidad and Tobago had moved against CEO Lawrence Duprey and finance specialist Andre Monteil for civil and/or criminal conduct in the collapse of the insurance giant Clico and its parent CL Financial. I reported that a civil lawsuit was brought by Trinidad’s Central Bank and Clico against Duprey and Monteil for alleged mismanagement and misappropriation of Clico assets and that Attorney General Anand Ramlogan had directed that all files coming out of the probe into the collapse of insurance giant Clico should be forwarded to Director of Public Prosecutions (DPP) Roger Gaspard to determine if criminal charges should be laid against Duprey and Monteil.

The story is different in Guyana because of the political and personal relationships that control Guyana. The key players in the Clico saga three years ago were President Jagdeo, Finance Minister Dr Ashni Singh, Clico’s CEO Ms Geeta Singh-Knight all of whom currently hold and enjoy various forms of public office, and Ms Maria Van Beek, former Commissioner of Insurance who left the country following an attempt on her life.

Complicity
They all knew but did nothing about the company breaching the provisions of the Insurance Act and compounded its unlawful conduct by failure to comply with a demand/request by the regulator to repatriate the Statutory Fund. They did nothing of consequence.

It is not as if there are no penalties. Section 19 of the Insurance Act provides that any person who contravenes any provision of the Act, or any of its regulations or any direction or requirement made by the Commissioner of Insurance, is guilty of an offence. Unlike the normal presumption in law where the prosecution has the burden of proving beyond reasonable doubt the guilt of the accused, the Insurance Act shifts the burden to the “person” to prove that s/he did not knowingly commit the offence of omission or commission.

In what in normal circumstances would be real noose-tightening, the law goes on to provide that where an offence is committed by a company – in this case Clico – and the offence is proved to have been committed with the consent or connivance of, or to have been facilitated by any neglect on the part of, any director, principal officer, or other officer or an actuary or auditor of the company, he, as well as the company, shall be deemed to be guilty of the offence. Ms Singh-Knight was both a director and principal officer of the local company and most certainly it would have been to Ms Singh-Knight that the Commissioner of Insurance would have been addressing correspondence and directions.

Playing a supporting role then was the Central Bank Governor who failed to appreciate the nature of the product that Clico was offering and the Bank’s responsibility to regulate it.

One big happy family
Now we have moved on to phase 2 in a liquidation that breaks many of the rules, some players have changed. Ms Van Beek has gone and her place has been taken by a lawyer Ms Tracy Gibson whose supervisory responsibility of the insurance sector is conflicting with her unlawful role as an assistant to the liquidator. Mr Jagdeo is busy with his accolades and ventures while Dr Singh remains as Minister. The Bank of Guyana has seen its Governor appointed liquidator over a company to the demise of which his Bank contributed in no small measure. Ms Singh-Knight has been promoted and for all practical purposes granted a pardon, Chartered Accountant Mr Maurice Solomon is another unlawful assistant liquidator to Mr Williams while Senior Counsel Ashton Chase is the attorney. Mr Solomon in turn has been appointed a liquidator of Caribbean Resources Limited, one of Clico’s big debtors. Given that tens of millions of dollars of fees are being paid out by cheques signed by Mr Solomon and Ms Gibson one might have expected some better accounting with the reporting of the transactions under the liquidation and compliance with the Companies Act.

Conclusion
It is not that some people are receiving moneys outside of the law that bothers me. It is that a responsible and competent liquidator has a duty to look for wrongdoings by the company prior to the order for liquidation. Mr Williams is an extremely decent man in the best tradition of that word. But inexperience alone does not explain his unwillingness to date to have pre-liquidation transactions and conduct reopened for examination.

I am sure our private sector leaders read the regional pages of the Stabroek News. The news coming out of Trinidad and Tobago must surely suggest to them that an enquiry into Clico for possible criminal conduct is long overdue. We have been duped before by President Jagdeo who responded to calls for action on Clico by insisting on a similar investigation into Globe Trust. When his bluff was called he changed tack – no investigation into Clico in consideration for no investigation into Globe Trust. What a clever deed!

Let us hope that the next leader of the private sector to speak at a function will at least recognise the twin issues of Clico and the NIS.

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Things we have not noticed

Introduction
Following, but not as a result of last week’s column addressing the parlous state to which Cabinet Secretary Dr Roger Luncheon has brought the National Insurance Scheme, I had two very interesting conversations, one with a business leader and the other with an MP. In advance of consultations to be held with the actuary on his draft report on the eighth five-yearly actuarial report on the NIS, they both wanted to know my thoughts on the report’s findings and recommendations. Both seemed not to be in the least bit uncomfortable to admit that while they had last week’s Sunday Stabroek they did not get around to reading the newspaper or the full-page column on precisely that topic. We can only guess about their contribution to a consultation for which they would have been so hopelessly unprepared on a matter of such grave national importance, a matter that has been the subject of several articles over a recent two-week period.

It is even worse. By now we all should have been aware that the government of which Dr Roger Luncheon is the Cabinet Secretary and the Board of the NIS of which he is the Chairman, did not implement the recommendations contained in the sixth and the seventh actuarial reports on the Scheme at December 31, 2001 and 2006. But the two persons I spoke with apparently did not know about the parlous state of the Scheme, while my politician friend was bold enough to ask seriously but rhetorically, how did we “allow that?” Perhaps our politicians have been reading too much Lewis Carroll.

A second issue on the NIS is the location of the consultation. Now you would expect that anyone consulting with the actuary would want to meet with him outside of the framework of the NIS Board or its chairman. But that kind of liberal and rational thinking would in Dr Luncheon’s eyes be too dangerous. The consultation had to take place with Dr Luncheon, whose leadership of the Scheme is not insignificantly responsible for its parlous state, at Luncheon’s office and under his chairmanship. Dr Luncheon may strike many as a bumbling incompetent but he remains a dangerous practitioner of artful politics. The idea to hold the consultations on his turf and in his presence was clearly designed to control any criticisms of his government’s abominable management of the Scheme, now facing its worst crisis in 42 years.

Even as we ponder the serious medicine prescribed by the actuary to address the crisis the NIS faces, my hope is that the media would now ask the private sector as well as the political parties and the trade unions in particular, for a report on the consultations. As I indicated last week, I am particularly concerned that if the recommendations are accepted the burden of the adjustments would be felt mainly by the workers of the country.

Now you see it, now you don’t
Today’s subject seeks to raise questions on other matters we may not have noticed. It touches on the disproportionate sharing of the benefits and burdens of the taxation system and the inequality it has spawned in the vast disparity of wealth among those who are part of the power structure and those outside of it. This column has addressed such disparity time and time again and for emphasis captioned a column on January 29 of this year drawing attention to the US system under the topic, “If Mitt Romney was in Guyana, his 13.9% tax rate would have been lower.” The reason is that our tax system favours the employers, those with capital over the workers, who often struggle to make ends meet and who at the end of their working lives which the actuary now says should be extended to sixty-five have nothing but an NIS pension to look forward to. I will deal with that disproportionality next week and look at how different types of income are taxed differently in Guyana.

For starters, let us look at the system of remission of duties granted by the government which was reported on each year in the annual report of the Auditor General up to 2005.

There is a lot to argue with on whether some of the figures do not defy the logic of the reported performance of the economy during the six years. The wild swings between 2003 and 2005 seem to make little sense, but that is really not relevant here, except perhaps to reflect the quality of some elements of the work done by the Audit Office. As for the revenues of the country and their impact on the resources available to spend on education, health, security and infrastructure, it matters little whether the authority to grant remission of duties since 2003 is vested solely in the Commissioner General as the Audit Office seems to think.

But even if the Audit Office is correct, and regardless of where the range of authority lies, there should surely be some formal manner in which the body vested with the powers of remission reports to taxpayers and the National Assembly on the extent and value of remissions granted. If the power is vested in someone else, the one person who should insist on the publication of the information is the Minister of Finance who has constitutional responsibility for the national budget. Any taxes required to meet public expenditure which are borne, if at all, at lower effective rates by one segment of the population, must inevitably be met by those who do pay. But coincidentally or otherwise, the Audit Office ceased to report on remissions from the time Dr Ashni Singh became Finance Minister.

Dr Singh and tax remissions
Dr Singh has been egregiously reckless on the expenditure side of the Budget, misdirecting public funds to NICIL of which he is the Chairman, making unlawful withdrawals from the Contingencies Fund for which he is solely responsible, and authorising the transfer of billions of dollars from the 2000 series bank accounts which requires statutory authority. Under the Jagdeo presidency – and quite possibly still – spending outside of the authority of an Appropriation Act became normal with not even a hint of protest from the Finance Minister. After his role in the unlawful granting of concessions to the former President’s friend, it is difficult for anyone to believe that he is any less careless with the country’s tax revenues than he is with its expenditure.

Yet, our laws give the Minister of Finance enormous powers to give away tax revenues, over what may appear to be a small range of taxes but which have substantial fiscal implications. We start with the first and perhaps best known concession, the tax holiday. Under the Income Tax (In Aid of Industry) Act, the Minister of Finance has discretionary powers to grant an exemption from corporation tax with respect to income from new economic activity of a developmental and risk-bearing nature, or from dozens of economic activities. Without putting too much of an emphasis on it, the ease with which Mr Jagdeo and Dr Singh amended the law for friends shows how elastic and discretionary the law is.

And bear in mind that in approving tax holidays, the Minister is also extending exemptions from Property Tax and the Capital Gains Tax act.

Here again there is a silence feeding the appetite of the conspiracy theorists. Tax holidays can extend from five to ten years and cost billions. So the law requires some accountability. Under the Investment Act the Audit Office is required to carry out annual audits of the tax holiday incentives granted by the Minister, but the Audit Office has failed in its obligations under section 38 of the Investment Act to have laid in the National Assembly such a report for any year. The deadline for this is six months after the end of each financial year.

I have repeatedly raised this omission with no reaction from anyone. Surely the Public Accounts Committee has a duty to deal with this blatant disregard for the law with the potential of massive cover-up of tax giveaways. All to the detriment of those who pay taxes.

To be continued

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From recklessness to inanity: the state of the NIS

Introduction
Dr Roger Luncheon, Chairman of the National Insurance Scheme (NIS) and chief spokesperson for the Government is denying the reality of the parlous state of the NIS. His amazing comments and pretended reassurance that “the scheme is healthy… I intend to draw pension for a good lil while,” seems to be a reaction to the findings of the independent actuaries as contained in the Eighth Actuarial Report of the National Insurance Scheme (NIS). By law, the NIS is subject to a five-yearly review by actuaries whose principal task is to determine whether the Scheme is operating on sound financial and actuarial bases and whether it provides adequate and affordable levels of income protection. Such reports invariably include recommendations on steps required, where necessary, to bring the Scheme back to viability, or where its assets and income far exceed its actual and actuarial liabilities, to reduce the over-funding by a reduction of rates.

This applies to all schemes – private and public – and the recommendations of the actuaries are taken seriously and acted upon promptly. Not so with the NIS under Dr Luncheon.

The responsibility for the failure to deal with the recommendations arising out of the 6th and 7th actuarial reports at December 31, 2001 and 2006 has been murky and confusing. In each of their annual reports since 2004 the directors have admitted to being “in the process of reviewing and implementing the recommendations.” So when Dr Luncheon tells the press that “The board was rather selective with regards to the recommendations [in the 2001 and 2006 actuarial reports] that it endorsed and implemented,” he is more disingenuous than dishonest.

Duplicity and its consequences
The truth is that the decision to implement or not the recommendations of the actuaries lies not with the directors but with Cabinet. Indeed Dr Luncheon gave a hint of this when he added to his comments that “the government is also exploring a new intervention, such as putting to parliament sustainable measures, to keep the NIS from failing.”

But such duplicity and delay have consequences. As Ram & McRae wrote in their Focus on Budget 2012, the actuaries became so frustrated about the failure to implement their 2001 recommendations that they felt it necessary to restrict a full menu of recommendations, given the outlook of the Fund and the concerns regarding some benefit provisions.

They added that if the limited recommendations were implemented, “then other changes may be considered later.” Ram & McRae concluded that that huge warning signal was missed by the entire Board of the NIS.

Dr Luncheon’s denial is not the only dangerous absurdity to have emanated from him. He actually found it possible to say that his government considers any decision on the Scheme in the same manner as it considers same-sex marriage or the decision on the death penalty!

The Government can choose to tolerate this level of banality in its midst but clearly Dr Luncheon is very bad news for the NIS in particular and ought to have been removed years ago.

Deficit sooner rather than later
One of the reasons for acting promptly on recommendations made by the actuaries is that delay prolongs the underlying problems and exacerbates their consequences to the point that when a solution is finally accepted, the medicine is much bitterer than it might otherwise have been.

A painful example of such a situation is evident in the warning contained in the 2006 Actuarial Report which had projected that total expenditure in 2014 would exceed total income for the first time in the scheme’s forty years, and that unless contribution rates are increased, the Scheme’s reserves would be exhausted by 2022.

But Luncheon and his mindless men and a few women went merrily along their do-nothing path, the result of which is that we are now confronted with the revelation by the actuaries that the NIS experienced just such a deficit ($371 million) in 2011, and is facing an even larger deficit in 2012.

This means that something has gone dramatically wrong in the past couple of years to make a bad situation egregiously worse. And that thing is the NIS’s failed investment in CLICO of close to six billion. Even after the unlawful transaction involving the CLICO head office in Camp Street Georgetownm the NIS is left with a $5 billion hole in its balance sheet and no income from more than 20% of its investment.

The painful medicine
The actuaries are now recommending strong measures that would hurt the beneficiaries of the Scheme who are mainly persons over the age of sixty and who would otherwise be expecting to receive a pension after decades of contributing to the Scheme. Here are the principal measures recommended and my comments thereon:

1. Increase the contribution rate from 13% to 15% no later than January next year.

Some of the relevant considerations are whether the increase should be borne in the same ratio between employers and employees or some other ratio; whether the two percentage point increase should take place at once or staggered; or whether there should be any increase at this time.

We can expect a series of consultations with the business community of which one member has already come out against any increase, and the labour unions. It is unlikely that the sugar workers will agree to such an increase even as they battle the employer for more take-home pay.

The workers and their advisers should avoid being misled into believing that this is the maximum increase they may have to face over the next few years. Pages 32/33 set out two contribution scenarios to meet the funding objectives of the Scheme. In the first case the contribution rate goes up to 19% in 2019 and in the other the contribution rate is a more modest 16.5%.

From a purely financial perspective the government might welcome the immediate increase to 15% of insurable earnings. This will bring in new revenues with no immediate outflows in the form of pension or other benefits payments, particularly if it can cajole the unions to accept this and recommendation 2 below.

In any case, if we stick to form, do not expect this recommendation to be acted on before Budget 2013.

2. Increase the wage ceiling to $200,000 per month.

The increase is close to 40% of the current insurable earnings and again, will bring in additional cash inflows with very little immediate benefits to the contributors. For each employee who earns more than $200,000 per month, the increased contribution will be over $11,300 per month of which the employer will pay $6,800 and the employee $4,500 more per month, both assuming that the share of the contribution split remains at 7.8% for the employer and 5.2% for the employee.

3. Freeze pension increases for two years or until the contribution rate is increased and finances improve.

This recommendation is a three-edged sword in which the key players are the pensioner, the employee and the employer. The question is who decides that the finances have improved and what is the yardstick to measure that improvement.

The consequences of a freeze are enormous for those who rely solely on the NIS pension for survival. A freeze means that the pensioner might move from three meals per day to just two or even less.

4. Move up the pension age from 60 to 65 in a phased manner.

The situation gets worse. If this recommendation is accepted, the worker will now be working and contributing to the Scheme from the age of 16 to 65 – 49 years – and will receive pensions from the NIS for a mere few years – unless the life expectancy increases dramatically.

We have to wait and see what the 2012 census tells us but the 2002 census reported that while the numbers of those 65 years and over have risen proportionally, from 3.9 per cent in 1980 to 4.3 per cent in 2002, they are still small in number.

It is true that the census data do not correspond to NIS pensions, since these are also paid to persons no longer living in Guyana, but the numbers cannot be that large.

The financial and actuarial consequences of this increase will be a significant increase in contributions income over the life of every member of the Scheme corresponding with a similarly large decrease in pension payments to them.

And there will be other implications such as the compounding effect on public servants who now retire at 55 but have to wait another five years for their NIS pension. They will now have to wait ten years.

5. Make changes to old age benefit provisions such as:

The actuaries recommend a revision of the pension accrual rates so that the maximum 60% benefit is attained after 40 years of contributions instead of 35; lifting the number of years over which insurable wages are averaged for old age pension calculations from 3 to 5; and amending the basis for pension increases from the minimum public sector wage to price inflation with a limit.

Each of these will have the same kind of effect – increasing the contribution income to the Scheme and reducing the value of the lifetime benefits which the contributing worker will receive.

The actuaries do however make some recommendations of value to beneficiaries. They call for the equalization of the benefit rules for males and females where differences still subsist and for increasing the minimum survivor’s pension to 50% of the minimum old age pension and up the maternity grant to at least $5,000.

Conclusion
The workers of the country are being called upon to pay for the inertia, intransigence and, dare I say it, the stupidity of the government for more than ten years, aided by the perpetual breaches by the directors of their statutory and fiduciary obligations.

And amid all this the only private sector response I have heard so far is the shameless admission that the private sector will increase its evasion of their obligations under the NIS Act, as we witness with the VAT Act, the Income Tax Act and the Corporation Tax Act.

The failure to address the weaknesses in the NIS over the past ten years has guaranteed that there is no easy option. The workers will have to pay and suffer.

Those who are responsible such as the Finance Minister, the Chairman of the NIS Board and his band of directors are never going to be called upon to answer for their dereliction.

The NIS is a national tragedy. Let us now see how the unions and in particular the government-leaning Federation of Independent Trade Unions of Guyana (FITUG) respond.

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The danger of ignoring dangers – the NIS debacle

Introduction
The Luncheonese in the heading is deliberate. Business Page of May 10 2009 wrote that the NIS faced real and disastrous consequences from Cabinet’s failure to act on the recommendations contained in the 2001 and 2006 Actuarial Reviews of the NIS.

In one of the columns in that 2009 series on the annual report on the Scheme, I wrote that the 2006 Actuarial Report had projected that total expenditure would, in 2014, exceed total income for the first time in the scheme’s forty years and unless contribution rates are increased, the scheme’s reserves would be exhausted by 2022. I wrote then that with the likely loss of billions in capital and income in Clico and the inaction of the government and the board, including PPP/C fixtures like trade unionist Komal Chand and Chitraykha Dass, Chartered Accountant Maurice Solomon and business executive Paul Cheong, it was possible that the actuary’s fears about expenditure exceeding income could happen sooner rather than later.

Last week, on the 43rd. anniversary of the Scheme the Chairman and the General Manager made separate statements in which the word “pride” was used by both of them. But the full-page advertisement caused consternation and led to more concern than might have been warranted. Indeed another section of the media mistakenly reported that the Scheme would have a deficit for 2012 of $1.399B. The cause of the confusion was the reporting of all expenditure the Scheme would incur in 2012 but only the contribution income it would receive. Of course the NIS has two principal sources of income – contributions and investment income. In 2010 investment income amounted to $1,348 million which if continued into 2012, would cover the deficit of payments over contributions received.

Late reporting
We wait on the audited report for 2011 which Dr. Ashni Singh, as the subject-minister, is already late in presenting. But if the audit confirms the General Manager’s numbers then the actuaries are spot on with respect to their doomsday scenario – if the unlikely urgent and drastic preventive action is not taken. Indeed, since the last actuarial report predated the Clico debacle, the actuaries would have assumed that the NIS would be receiving a stream of income from Clico with no risk to its investment of nearly seven billion.

The audited financial statements of the Scheme at December 31, 2010 included accrued investment income from Clico of $90 million, and no provision for a loss on the investment. That is at best aggressive accounting – and as noted before in this column – is based on a misunderstanding of a statement by Dr. Luncheon as Head of the Presidential Secretariat to the NIS of which he has been Chairman since 1992.

But casual and irresponsible as Dr. Luncheon has been, he is not solely to be blamed for the almost irreparable financial damage to the NIS over the past ten years. At the policy level I would have to name President Jagdeo and the two Finance Ministers of the PPP/C since 2001 – Mr. Saisnarine Kowlessar and Dr. Ashni Singh.

Sharing the responsibility
Dr. Singh in particular has to take a lot of the blame because the acceleration of the deterioration was the collapse of Clico for which as Finance Minister he bears statutory responsibility, and tolerated and later excused. And he has not been contrite, modest or courteous about his serial failures in relation to the NIS. To check on the propriety of NIS investing in Clico, I wrote Minister of Finance Dr Ashni Singh a letter on February 24, 2009 pointing out that the NIS Act only allows the NIS to invest in securities approved of by the Co-operative Finance Administration (COFA) established under the Co-operative Financial Institutions. I pointed out in my letter that Dr. Singh as Finance Minister is not only the Chairman of COFA but as Minister, he also appoints its Board. The Minister of course also appoints the Board of the NIS. I asked him the following questions:

1. The names of the persons he appointed to COFA currently serving as members of the administration, and the commencement and termination dates of their appointments.

2. The securities which COFA approved for purposes of investment.

3. Whether the NIS had sought and received approval for any investments other than those determined by the administration and if so, the securities which have been so approved.

4. Whether the administration during his tenure as Minister has ever taken the opportunity under section 4 of the act for its Chairman or Secretary to attend any meeting of the National Insurance Board, and in particular the meeting at which any decision was made by the board for any special investments.

More than three years later, I am still awaiting a response.

The nature of the Scheme
The NIS is an actuarial scheme that seeks to balance out, in the long-run, its obligations against its resources. The NIS Act requires that every five years, external independent actuaries must review all the data on active and past contributors, project future income and expenses – of which pension benefits are always the more significant item – and then make recommendations to maintain/restore the actuarial balance of the Scheme.

The responsibility of the Government and the Board is to consider and act on the actuaries’ recommendations. However, for more than a decade, the Government has consistently allowed political considerations to undermine the proper management of the Scheme, ignoring the recommendations contained in the reports of the actuaries for the 2001 and 2006 reviews.

Between 2004 and 2007, every annual report of the NIS stated that the Board of Directors “is in the process of reviewing and implementing the recommendations”. But then in 2008, the Scheme’s annual report dropped the word “implementing”. Clearly, they gave up on their own plans to implement.Not surprisingly, and apparently frustrated by the failure to implement their recommendations, the actuaries in their Executive Summary of the 2006 Actuarial Review, categorically expressed a decision to limit their recommendations “given the outlook of the Fund and the concerns regarding some benefit provisions”.

We give up
They added that if the limited recommendations were implemented, “then other changes may be considered later.” In other words, ‘we give up’. When you get serious, we will too. This huge warning signal was missed by the entire Board of the NIS and the Cabinet of the country.

The result of this stubborn and irresponsible failure by the Government is that the NIS is now under serious stress from which no amount of spinning or flippancy will rescue it or detract from. In the most unbelievable statement to come out of the NIS, its Chairman Dr. Roger Luncheon, the 2009 announcement of whose removal from the Board was welcomed in many quarters, could find it possible to say that his government considers any decision on the Scheme in the same manner as it considers same-sex marriage or the decision on the death penalty!!

Source: National Insurance Scheme Annual Reports, 2004 to 2010

Under the immediate past stewardship of Drs. Luncheon and Singh, the failure to act on the recommendations of the actuaries, compounded by the collapse of its investment in Clico has left a $5 billion hole in the Scheme’s balance sheet, and no income from more than 20% of its investment. Significantly, the benefits most under threat are pensions for which the reserves to payments ratio has fallen from 4.95 times in 2002 to 1.82 times in 2010, the last year for which the annual reports of the NIS are available.

Ram & McRae in their 2012 Budget Focus repeated the fear that “the possibility cannot be ruled out that perhaps no later than in 2012, expenditure will exceed income with the situation worsening every year thereafter.” The accountants warned in their document that the resolution of the Scheme’s problems which began in earnest in 2004 cannot await the completion of the 2011 Actuarial review now in its preparatory stage. Immediate and decisive action is necessary, otherwise disaster looms.

Darkening clouds
The outlook for the NIS is grim and once again the smiling, avuncular doctor is trying to assure the public that things are not that bad. In his anniversary message he assures the country that the findings of the 8th. actuarial review would soon be presented to stakeholders who he “[expects] to contribute constructively to the resolution of the challenges facing the Scheme.”

Those confident enough to believe Dr. Luncheon are assured that the Board and the Management commits to spearhead this entire exercise with the intention of ensuring that the expectations of the stakeholders are solicited and recommended in any new disposition adopted by the Government of Guyana.”

This column is not optimistic.

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NIS buys Clico building for $600 million

Introduction
At a time when the National Insurance Scheme is experiencing the results of more than two decades of bad governance it has just dished out some $600 million to buy the CLICO building on Camp Street. That building was the single most valuable asset of the failed giant insurance company which was placed first under judicial management and later ordered by Chief Justice (ag) Ian Chang after he found that information available to him in 2010 pointed “unerringly” in the direction of its insolvency. The Chief Justice appointed Bank of Guyana Governor Mr Lawrence Williams as liquidator of the company but in keeping with the law Mr Williams was appointed in his personal capacity.

The acquisition is an interesting transaction. On the one hand the building is one of the largest buildings in Georgetown and the transaction is the single largest real estate transaction ever entered into by the Scheme. Yet but not surprisingly, the board of the NIS headed by Dr Roger Luncheon has not made any statement on the matter. With one old but historic church site sold in Regent Street for $500 million dollars the NIS might have thought it was getting a fancy building at a steal.

Shortly after the danger signs appeared in February 2009, a report on the net assets of the company showed the building as CLICO’s single most valuable asset. According to the report done by a local accountancy firm the building had a going concern value of $1.5 billion and a liquidation value on a best case scenario of $1.112 billion and under a worst case, $750 million. So $600 million must be a good price for any buyer.

Bigger building
Hopefully the Liquidator can explain this and whether he sought out the widest possible prospects to ensure that he obtained the best possible price as his fiduciary obligations would require. The price at which the Liquidator sold the property ought to be of some concern to the creditors of CLICO since it is out of the pool of proceeds that they are paid. Fortunately for the Liquidator and despite several possible causes, no challenge has been raised in relation to the liquidation of CLICO.

The building which dominates Camp Street seems to have been built without any serious consideration for cost, and indications are that it would be extremely expensive to maintain. Perhaps in making the acquisition decision the directors might have felt that the existing head office built decades ago is no longer adequate to house the staff and records and cater for the persons who visit there daily.

Or perhaps it wants to consolidate its Georgetown operations which are now housed in three locations, hopefully leading to greater efficiency and economy. In that case, our pensioners and persons attending the NIS office for medical and other reasons will have to accustom themselves to use elevators!

Bigger issue
If the NIS moves offices it will then have to consider what it would do with the existing buildings and whether there is a market for them. If that turns out not to be the case, the NIS would regret its $600 million dollar decision in addition to other costly decisions and transactions it has had with CLICO. For example, as at December 31, 2009 the NIS had more than $5.8 billion invested in CLICO which it seemed most unlikely to recover, not withstanding the bravado of Mr Jagdeo that the “NIS would not lose a cent.”

And in his own peculiar style Dr Luncheon had assured the auditors during the course of the 2009 audit that “the Board of the National Insurance Scheme wishes to advise that it has noted the undertakings made by the President concerning the recovery of NIS investments in CLICO.

The Board is also mindful of the unanimous Parliamentary Resolution guaranteeing state support for recovery by NIS of its investments in CLICO. As such, the Board has the utmost confidence that the undertaking would be honoured and the investments of NIS in CLICO will be recovered.”

With recent parliamentary developments I do not think the matter will be that simple. The end of the Jagdeo presidency allows for all the questions that have gone unanswered for nearly two years to be answered fully and truthfully. It would be sad indeed that the NIS should be one of the first casualties of the newly configured National Assembly.

Clearly, Jagdeo’s undertaking is not worth a cent and the opposition controlled Assembly will no doubt demand a quid pro quo: an investigation into the collapse of CLICO including the unlawful transfer of money abroad, the relationship between Jagdeo and CLICO and its CEO and whether there was impropriety in the use of $1.5 billion the company received from the New Building Society to which it sold the bulk of its investments in the Berbice Bridge Company bonds.

More of CLICO and the NIS
Now let us return briefly to the liquidation. CLICO’s principal asset is now well and truly sold for $150 million less than the worst case fire-sale price. So that those larger investors who were hoping to get some more out of CLICO might just have experienced that sinking sensation which we have all felt at some time. Their situation is at least $150 million worse but even that to the NIS as a creditor of CLICO is chicken feed.

For several years, the NIS has been engaged in some quite interlocking, if not incestuous relationships with CLICO. It had lent CLICO and Hand-in-Hand Insurance Company tons of money at modest interest rates which they then invested in the Berbice Bridge Company at quite attractive rates of interest. Indeed CLICO was such a big investor that its CEO and Director Ms Gita Singh-Knight was hand-picked as the Chairperson of the Berbice Bridge Company Inc.

But there may be a bit of good news. As at the date of the net assets report referred to above CLICO is shown as an investor in the Bridge Company to the tune of $605 million made up of $400 million in Subordinated Loan Stock, unpaid interest of $89 million and short-term loans of $116 million.

There is no indication whether Mr Williams the Liquidator has sought to liquidate those funds or call in the unpaid interest. If not that is a good small piece and some consolation.

Conclusion
Finally, I saw a newspaper article refer to the payment of the building to be by way of a set-off. In my view this is not permissible under the law but then the liquidation of CLICO has had improper interference from then President Bharrat Jagdeo which was hardly consistent with the law.

The reason for set-off not being available is that it would amount to a preference to the detriment of the 39 policyholders who at the date of cessation of business had balances in excess of $30 million but who were paid up to a maximum of $30 million only.

I am sympathetic to the new members of the National Assembly whose task is almost as huge as the cleaning of the Augean stables.