Divestment

Lump-Sum Interest Sensitive Policies

Lump-sum interest-sensitive policies are marked by minimal life insurance coverage and a large investment input. Primarily investment vehicles, they were funded usually by a single lump-sum deposit . The interest paid on these policies was unrelated to the performance of any investment.

The link to insurance came through a small amount of the deposit going into insurance coverage. In many cases the actuarial valuation of the insurance component was worth less than 1% of the investment component. For example, in the case of Mutual Life, of a total lump-sum portfolio liability of approximately $2.1B only $1.4M or .07% went to insurance coverage for its 6,513 lump-sum policyholders.

In more than 90% of lump-sum interest-sensitive policies, the policyholder's life was insured for $60,000 or less compared to average coverage of approximately $250,000 in the savings-type interest sensitive policies.

Lump-Sum, Interest-Sensitive Policies are:

• Asset Investor issued by Crown Eagle Life Insurance Company

• Fortune issued by Dyoll Life

• Mutual Investor Plus (MIP) issued by Mutual Life

The FINSAC /BNS Initiative

FINSAC  brokered an agreement with the Bank of Nova Scotia Jamaica Ltd. through which holders of lump-sum, interest-sensitive policies were repaid all their investment in Asset Investor, Fortune and Mutual Investor Plus policies.

Under the initiative, 78.8% of policyholders would get back all their money as soon as their accounts were opened and others would get up to $200,000 in cash now and the balance later.

The Offer

Cash of up to $200,000 was paid into an account opened in the policyholder's name at the Bank of Nova Scotia.

For the 21.2% of policyholders with over $200,000 in lump-sum, interest-sensitive policies, the balance of their funds was placed on 7-year Certificates of Participation at Scotia Trust with the following terms:

• Tax-free interest paid twice per year at BNS passbook rate.

• The principal will not be available before the maturity in 7 years.

• Certificates are tradable and may be used as collateral.

Improvements to The Offer

Pensioners

Many pensioners were affected by the fallout in the insurance sector. They had invested their pensions, or other savings accumulated for security in their old age, and were suddenly in the position of not being able to pay their day to day expenses.

In a special consideration of their plight, the Ministry of Finance decided that pensioners who were 65 years old or older on March 31,1999 would receive monthly interest payments. This would allow them to meet their expenses on a timely basis until their Certificates of Participation matured.

Certificate of Participation

During the closing of the 1999 budget debate, the Minister of Finance & Planning announced a new 5-year savings instrument which if the principal was left untouched would earn tax-free interest.

Subsequently, the Government took the decision to reduce the maturity period from 7 years to 5 years on the Certificates of Participation, in the interest of parity.

The Role of the Judicial Manager

 A Judicial Manager was appointed by the Courts to oversee the management and sale of the insurance portfolios of Crown Eagle, Dyoll Life and Mutual Life.

The Judicial Manager was responsible for filing with the Court , a report stating which of the available options was in the best interest of policyholders.  A copy of the report was  filed with the Superintendent of Insurance and another was available for public scrutiny.  Once a Court Order was received, the decision of the Court was binding on all persons.

On Thursday, April 29,1999, the Judicial Manager  filed a report with the Supreme Court regarding the lump-sum interest-sensitive policies, following which the Court ruled that the FINSAC-pioneered scheme to pay out these policies formerly marketed by  Crown Eagle, Mutual Life and Dyoll Life was the best deal possible for policyholders.

The following shows a breakdown of policyholders accepting the offer:

Analysis of Lump-Sum Policies Signed

Bank of Nova Scotia Transfers:

*  Liability as at March 31, 1999

** Total does not include US $MIP

The FINSAC/BNS/ BNS Trust Initiative has been accessed by 4,091 policyholders, with a total liability of J$2.5 billion. For United States dollar denominated policies, 11 policyholders have taken advantage of the scheme, with total liability of US $334,000. The combined figures represent 52% of all policyholders and 80% of the total liabilities.

As an interim measure, FINSAC provided the facility of an Emergency Fund which allowed policyholders establishing hardship and extreme need to obtain advance funds from their policies. A total of $32,733,861.77 to 2,514 policyholders was advanced under the programme.

Larnaka Limited

 Larnaka Transfers:

 The Supreme Court agreed that lump-sum interest sensitive policies whose owners do not accept the FINSAC/ BNS scheme should be transferred to Larnaka Limited, a FINSAC subsidiary.

 The following describes the treatment of the policies managed by Larnaka Limited:

· Policies under $200,000 are transferred to Guardian Life

· Policies over the $200,000 are transferred to Union Bank

· US dollar policies are to be paid out

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