The Cayman Islands Government’s settlement with Cayman General Insurance for Hurricane Ivan losses is attracting attention because of an apparent inequity in the value of company shares received in lieu of payment for some of the negotiated claim.
Leader of Government Business Kurt Tibbetts outlined the terms of the CGI settlement last week. He said the original claim was for CI$108 million and that the figure was adjusted down to CI$70 million after negotiations.
The Government received two cash payments which comprised an initial payment of CI$15 million and a final payment of CI$35 million.
‘Government received 24 per cent shares in [Cayman General Insurance] in lieu of the balance,’ Mr. Tibbetts said.
In essence, government, therefore gave up CI$20 million in valid insurance claims for 24.2 per cent of CGI.
However, Barbados-based Sagicor Group subsequently only paid US$10 million (CI$8 million) for 51 per cent of CGI. Sagicor thus received more than twice the share the Government received for 40 per cent of the ostensible cost.
The apparent disparity has been brought to the attention of the Auditor General’s office.
‘My office is looking at this and we’ll be issuing a report to the Legislative Assembly in the near future,’ Auditor General Dan Duguay said Thursday.
Questions put to Financial Secretary Kenneth Jefferson as to the value placed on the Cayman General shares in the Government’s accounting were unanswered through press time.
Mr. Duguay said he did not know the answer but that he was also interested in finding out what value Government would use.
‘We have not seen the consolidated financial statements yet,’ he said ‘We will be looking at the value and comparing it to the known value of the company. If the Government overvalues it, we’ll want them to qualify their accounts.’
Cayman National Corporation president Stuart Dack was off the island and unavailable for comment.
However, last year prior to the sale of shares to Sagicor, Mr. Dack said in an interview that the settlement was fair and consistent with what should be expected in such a claim.
Mr. Dack also said that the value of the Government’s claim was never definitively determined, partially because some of the supporting documentation was destroyed in the hurricane. The claim process was therefore shortened considerably by the settlement, he said.
At the time, which was before the sale to Sagicor, Mr. Dack discounted suggestions that the 24 per cent stake of CGI the Government received as part of the settlement had little value.
‘Given the survival of the company and its potential with a new regional partner, its future fortunes and value could be considered enhanced from even its pre-Ivan position,’ he said at the time.
Cayman General paid out some $270 million in claims after Hurricane Ivan, and the Cayman Islands Government was its largest insured entity.
Former Leader of Government Business McKeeva Bush, who was a part of the Cabinet majority that approved the CGI settlement, defended the move on Thursday.
‘We never looked so much at the value of the shares,’ he said.
‘If we had not helped [Cayman General Insurance], thousands would have lost.’
Mr. Bush said two Cayman National Corporation directors came to the Cabinet and made their case for a settlement.
‘They said it could very well affect [Cayman National Bank],’ he said. ‘From that perspective, we said we had to do something to help.’
Mr. Bush said there were two paramount concerns at the time: first, that a failure of CGI could affect the bank; and secondly, that a failure of CGI would mean that thousands of people with home, automobile or other property insurance would have lost their insurance pay-outs.
‘And if the bank had been affected, hundreds of people would have been unemployed,’ he said.
In addition, Mr. Bush said if Cayman National Bank had failed, it could have had serious international implications.
Mr. Bush said Cayman National was the first to approach the Government and make its case for help.
‘We could not help everyone,’ he said, referring to the subsequent failure of Jamaica-based Dyoll insurance.
‘I was insured with Dyoll and I lost – me and my mother – with Dyoll,’ he said.
Mr. Bush pointed out that the settlement had nothing to do with helping out prominent individual shareholders of Cayman National Corporation, and he noted that two of them – Truman Bodden and Benson Ebanks – are long-time strong political adversaries.
‘I have no regrets in doing it,’ he said. ‘I know what we did and I know that it is something we had to do. This was the country we were talking about.’