A series of correspondence written by Colina officials in the months following the government’s approval of their acquisition of the Imperial Life Financial company last year suggests that there were concerns about Colina Insurance Company meeting certain solvency standards.
A dossier on the internal financial squabbles provided to The Bahama Journal reveals disagreements on how the company’s funds should be invested.
One of the letters also reveals that a year before Colina principal Anthony Ferugson was bickering with financial controller, Dario Lundy-Mortimer, about the use of certain cash assets, he (Mr. Ferguson) was considering bowing out of the Colina group.
“I am just trying to get my ducks in a row to move forward from Colina,” Mr. Ferguson says in a correspondence on July 19, 2004 that was addressed to an apparent business partner with whom he was reportedly trying to set up a separate company.
He continues, “I am tired of working-with no help. I think we can make this (new venture) a success long-term.”
In an earlier correspondence, he had written to Mr. Lundy-Mortimer inquiring about when he as head of Colina’s investment company could receive “the cash that is not for operational purposes.”
But Mr. Lundy-Mortimer wrote back informing Mr. Ferguson that there was need to address certain issues before the cash could be released for investments.
He said, “MCCSR [Minimum Continuing Capital and Surplus Requirements] at December 31, 2004 will be extremely low for a number of factors.”
The MCCSR for insurance companies is intended to reduce the risk of insolvency and capital deficiency, one industry official explained. The MCCSR ratio is considered to be a recognized measure of stength and stability of insurance companies, which are required to keep their capital at a minimum level.
“Maintaining the cash balances through March 31 will assist in bringing our MCCSR balance back to a reasonable level. I believe the funds you refer to are in fixed deposits (which technically is not surplus),” Mr. Lundy-Mortimer wrote Mr. Ferguson.
“In any event I share your views that we can earn a higher yield. We can use a strategy that as these deposits mature we can forward the proceeds to [Colina Financial Advisors] for investment.”
He added, “Alternatively, if we are going to break fixed deposits I would like to have documentation (i.e. analysis) on the investments where we will be forwarding cash. The documentation will serve as a rationale for us taking penalty charges on fixed deposits which are to be cancelled.”
But Mr. Ferguson remained firm in his position that no analysis was needed.
“I really do not need to provide you with what we intend to use the funds for before the necessary funds are transferred,” he wrote back. “-I cannot argue that cash is not an investment, but if the strategy of having so much cash at below market rates is your idea of maximizing shareholder value then I am really concerned about the direction of this company.”
It was not enough to convince Mr. Lundy-Mortimer to free up the cash to CFA.
He wrote in response, “I don’t have a problem sending cash to CFA, but I need to know where the cash is going to go, particularly since the funds are already in investment.”
It led to another Colina official stepping in to intervene in the matter.
That official wrote on April 2, 2005 that Mr. Lundy-Mortimer’s concerns about MCCSR were valid.
“Dario’s point about MCCSR is right on the ball,” the official wrote. “It is under strain and we must ensure that we bring it back up.”
It was at that point that the official in writing to Messrs Ferguson and Lundy-Mortimer advised that they drop the matter and take a few days to “cool off”.
“Because of the current corporate situation, let us focus on maintaining value and cooperation,” the official advised. “Nothing fundamental will change in the next three to four days to change investment opportunities.”
Months after the MCCSR matter was raised, Colina said in a statement this week that with an A- (Excellent) AM Best financial strength rating, it is without a doubt one of the strongest domestic financial institutions in The Bahamas.
“Our balance sheet is one of the healthiest in the country and the company is not experiencing any cash flow problems,” said Emanuel Alexiou, the company’s chairman.
In a criticism of the Colina Bond Fund, the accounting firm, Deloitte and Touche in an independent audit said in January that, “At the balance sheet date the Fund was not compliant with the eligible investments stipulated in its Offering Memorandum in that approximately $2.63 million of its net assets were loaned to related party entities. Total loans amounted to $2.69 million which represents 55 percent of total assets and exceed asset allocation limits.”
From The Bahama Journal
