Prime Minister Spencer opened the meeting stating that one of the UPP’s manifesto pledges was the privatization of State Insurance Corporation among other state owned entities to facilitate wide local share ownership.

He said that the UPP Government has adjusted its original position and has taken on board a number of recommendations to include the corporatizing of State Insurance as recommended by the Hon. Gaston Browne. However, the allocation of shares would be on a bilateral basis in opposed to listing State insurance on the Eastern Caribbean Stock Exchange (ECSE) as recommended by Browne.

He indicated that Government intended to reserve 10 percent of the shares for the staff at State Insurance which will be sold at a discount and 20 percent for the Government which subsequently will be divested to ordinary Antiguans Barbudans.  The remaining 70 percent he said, would be shared by two or more entities with the provisio that no entity would own less than 21 percent of the shares, if it is a local entity, and no more than 49 percent of the shares if it is a foreign entity.

It was estimated that State Insurance is worth in the region of EC$50million including its real estate holding.  Mr. Lovell reiterated the PM’s articulations to adopt the recommended corporatisation to provide popular local ownership.  He said that between 1995 and 2000, State Insurance incurred EC$7.5M in losses as a result of several hurricanes that struck the island during that period and that, it is only until two years ago, State Insurance started to generate substantial profits in the region of EC$10M annually.

Lovell confirmed that State Insurance was carrying receivables in the region of EC$38M which was due from the Government of Antigua Barbuda but approximately 50 percent of the amounts due was set off against profits remitted to the consolidated fund. Lovell further stated that the viability of State Insurance would be threatened by natural disasters to include hurricanes and that the government was determined to divest before any such eventuality.  He declared that the proceeds of the sale would not be utilized for consumption but will be reinvested.

It is at this time Hon. Gaston Browne intervened and advised Minister Lovell that his outlook to risk is flawed and that catastrophic risks are intrinsic to the insurance business but could be managed through re-insurance and should not be utilised as the reason to divest State Insurance which has an excellent re-insurance charter.  Mr. Browne pointed out to Lovell that between 1995 – 2000 despite the unprecedented regularity of the storms, State insurance was successful in absorbing EC$7.5 million in losses without any threat to its survival and that those losses now represent less than one year’s profits.

He advised that the net effect of the Government’s investment in the long run is that, it has generated, on average, in excess of EC$2M in profits for the last 25 years, that is, in excess of 400 percent on the initial capital of EC$500M invested by the Government.  It was further pointed out that the net effect of the profits remitted is such that Government premiums would have been subsidized by at least 50 percent and this does not take into consideration the convenience of coverage without front end payment of premiums.

MP Browne also stated that unlike other OECS countries, Antigua does not have a single publicly traded company on the ECSE and that State Insurance represented a great opportunity to create a listed entity that is majority owned by the Government and people of Antigua Barbuda. He added that by listing on the ECSE the shares could be sold at a premium at say 25 to 30 percent which will maximize the value of the firm in opposed to bi-lateral placements in which the buyer would seek a bargain price and more than likely would demand corporate tax holidays and the waiver of withholding taxes for several years since the acquirer is likely to be a foreign entity thereby reducing the Government returns.

He rationalised his assertion of foreign ownership since the other Antiguan Barbudan domiciled insurance companies (not agencies) would be too small and lack the capital and the expertise to acquire State and to facilitate its market penetration into the OCES and the wider Caribbean.  He asserted that on the other hand, the newly listed State Insurance would have access to capital to acquire other insurance companies locally and regionally to accelerate its transformation into a strong regional insurance company and ultimately a global player.

MP Browne further argued that the sale of say 49 percent of the shares on the ECSE at a premium, would be more transparent and could provide just as much or even more funding compared to selling 70 percent on a bilaterally negotiated basis with the attendant discounts and concessions. He also stated that the bilateral negotiations could give rise to certain corrupt practices which could further reduce the value of the firm. Additionally, he said that a publicly traded State Insurance would have access to capital to support its business expansion or market penetration or diversification strategy into property development to include residential housing, commercial development possibly to include hotels and shopping plazas.

Minister Lovell at this time agreed that there was some convergence on the proposed divestment but felt that the bi-lateral negotiations would better facilitate the creation of a strategic alliance so that State Insurance could benefit from the expertise of the acquiring firm.  However, MP Browne disagreed, and pointed out that a strategic alliance partner need not be a shareholder and in any event could be a minor shareholder of traded securities which could be readily converted to cash.

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This liquidity benefit he said would also help indigenous individual and corporate investors who would hold negotiable traded securities instead of shares in a closely held private company which could not be easily converted to cash. He said to that this approach will help to preserve the local management pool instead of risking displacements and that any the state would have sufficient financial resources to the relevant skills and technology that acquire skills that may be needed. 

Minister Browne felt that it was important for the Government and people to maintain a controlling interest in State Insurance in order to protect the best interest of consumers, the staff and to create value (wealth) though the repatriation of profits and from its overseas operations for the collective benefit of all Antiguans Barbudans.  He advised both the Prime Minister and Finance Minister that bold prudent decisions like this one would be needed to move the country forward.

Mr. Browne concluded that ultimately the devil will be in the details and undertook to brief his colleagues on the discussions held with the Government subject to the final details of the divestment. The Prime Minister undertook to give further consideration to the suggestions that emanated from the meeting.

Whereas no formal agreement was reached between the two parties, it was acknowledged that, that there was some convergence in the two positions as a result of the UPP’s adoption of some of the recommendations of the ALP.  

Hon. Gaston Browne

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written by Antiguan Overseas,
December 18, 2010

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