Two years after it was completed, lawmakers finally examined a report on insurance settlements from Hurricane Ivan at a Public Accounts Committee meeting on Monday.
The report, completed by the Auditor General Dan Duguay in February 2007, found the UDP government did not get good value for money on a deal it cut with Cayman General Insurance, now Sagicor, following 2004’s Hurricane Ivan.
The government received CI$50 million plus 24 per cent of the issued shares of Cayman General Insurance in settlement of the damage claim arising from Hurricane Ivan because the company was unable to meet full insurance payouts.
The claim was originally estimated at CI$108 million and was subsequently reduced after negotiation to CI$70 million.
Members of the committee, United Democratic Party legislators Ellio Solomon and Cline Glidden pointed out if the government had not bailed out the insurance company, that could have led to its bankruptcy, unemployment for workers and, consequently, considerably more hardship for the victims of the storm.
Mr. Duguay criticised a confidentiality clause in the business transaction between the insurance company and the government, and urged the Public Accounts Committee to issue a statement on the need for more transparency.
He said that the confidentiality clause meant that the terms of the deal were not in the public domain and should have been, considering that it was a business transaction ‘to forgo some of our insurance money because there was a social need’.
He said the issue could have been debated and the public had the right to know why and how the deal was being done.
He told the committee, ‘We have to say, as auditors, if you receive half the value of your original claim, that you did not receive all the value, but it has to be taken in the context with all the social costs that you had.’
No paper trail
He pointed out that a lack of paper trail leading up to the signing of the deal was surprising for the auditors. ‘We did expect to see more documentation of the thought process.’
He recommended that the Lands and Survey s Department carry out a valuation of government assets so they were insured for the correct amount.
In his report, he stated: ‘If Hurricane Ivan has taught the residents of the Cayman Islands anything, it is that all owners, including government, need to continually update the value of its assets and to ensure that the insurance company agrees before an event that the organisation is adequately insured.’
He pointed out that one of the issues that led to the problem of Cayman General Insurance being unable to pay out was because the company did not have sufficient re-insurance. He urged the committee to ensure that the insurance firms with whom the government now has policies had enough re-insurance to cover policies if another disaster occurred.
Since Ivan, the government has diversified its portfolio and, as of February 2007, had policies with five insurance companies – ACE American Insurance Company, Royal Star (Fidelity), NEM West Indies Limited, British Caymanian and Island Heritage.
The committee discussed a regulatory framework that would ensure that Cayman dealt with insurance companies that were sufficiently re-insured and could meet their obligations to clients.
Following its discussion on the report, the next step for the committee will be to call witnesses to explore such avenues as an exit strategy for the shares in Cayman General Insurance, the government’s risk management strategy, the insurance regulatory environment including liquidity, reinsurance and legislation, the decision-making process.
It will also look at proper documenting and confidentiality of government transactions, and the evaluation of government assets. After this, a recommendation will be made to the Legislative Assembly.
‘If Hurricane Ivan has taught the residents of the Cayman Islands anything, it is that all owners, including government, need to continually update the value of its assets and to ensure that the insurance company agrees before an event that the organisation is adequately insured.’
Dan Duguay, auditor general