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Divestment of State Insurance Corporation

As the Chairman of the Antigua Labour Party, Let me confirm that the Antigua Labour Party is categorically opposed to the proposed sale of State Insurance Corporation ostensibly  as part of an international auction to a private foreign entity or to a hand full of locals in a closely held private company from a private placement.

State Insurance in its present form is a national asset, a national treasure that is held in trust by the Government for the people of Antigua & Barbuda. State Insurance is an organization that represents the ownership pride of our people.  It is being operated effectively and efficiently and today is the premier insurer in Antigua & Barbuda, the largest economy in the OECS.

The corporation is debt free therefore, there it has no Central Government guarantees contributing to the national debt. It is well capitalized with over EC$60 million dollars in assets and is extremely profitable. Its assets include over 60 acres of land valued at EC$15M, two commercial buildings in the Central Business District valued over EC$20M and approximately EC$20M in receivables due from the Government of Antigua & Barbuda. State Insurance whilst publicly owned, operates almost independent of the Government. Unlike other state owned institutions, it does not compete for public funds but on the contrary contributes millions of dollars annually to the Consolidated Fund and consequently to national development.

During the past three years State Insurance has paid into the treasury more than 18 million dollars of its profits. It has one of the best re-insurance charters which resulted in excess of EC$50 million in settled claims from the damages created by Hurricane Luis. The Company is carrying in the region of EC$20million dollars in receivables due from the Government representing premium areas spanning several years. Notwithstanding this, they continue to underwrite the Government assets to include motor vehicles, airport and the sea port.

After the passage of Hurricane Luis several insurance companies in Antigua & Barbuda and throughout the region folded and many failed to settle all of their claims.  State Insurance settled all of its claims, all.

Now, it is well known that Governments from time to time seek to privatize inefficient and unprofitable business units with the understanding that the private sector operators would be successful in improving productivity and would introduce strategies to make the entity profitable, so that instead of the entity being a burden on the Government, competing for public resources, it would become a source of corporate income tax for the Government.

Clearly, State Insurance is effective, it is efficient, it is highly productive and it offers good customer service. Fortunately, unlike other state owned corporations, political priorities have not taken precedence over commercial ones in the operation of State Insurance. Consequently, it is outperforming its competitors and is generating superior profits.

Having shared the foregone, I would like to ask Baldwin Spencer and Joan Underwood; where are the compelling reasons to privatise State Insurance?

These are the reasons proffered by the Government’s privatization officer, Joan Underwood.

  1. That State Insurance charter restricts it from doing business outside Antigua and Barbuda.
  2. That State Insurance may be acquired by another player in the sub-region during the period of consolidation.
  3. That state may become unprofitable or fail after a major catastrophe.
  4. That the sale is to facilitate widespread individual shareholding
  5. That the sale is to provide much needed capital to the Government.
  6. That Government ‘s role is to regulate

The UPP Government has many other options that it could have considered that would have satisfied all of the objectives stated by Joan Underwood without losing effective control of State Insurance.


To overcome the restrictions in its charter assuming this is so, State insurance could be corporatized and listed on the Eastern Caribbean Stock Exchange (ECSE).  When I say corporatise, I mean turning it into a limited liability company that is wholly owned by the Government of Antigua & Barbuda. By listing it on the ECSE, the UPP Government could raise a significant amount of capital to further capitalize State Insurance &/or to provide   funding for expansion or funding for the state.  As an aside, let me add here that instead of bleeding State Insurance of its profits and wasting its resources on Pork Barrel projects, the Government should allow the corporation to re-invest its profits for business expansion.

It is well known that consolidation will occur in both the banking and insurance sectors of the OECS sub-region because of the lack of economies of scale, small size, overcrowding and the generally harsh global economic climate.  Any sensible administration would recognize that State Insurance as the largest insurer, in the largest OECS economy, is in a strategic position to pursue a market penetration or expansion strategy by entering the other OECS countries and acquiring weaker companies. This is one of the opportunities (The right of Establishment) that both the OECS and Caricom treaties would have afforded State Insurance thereby, creating the potential for a more viable and profitable entity.  In fact, it is not inconceivable that State Insurance could grow into a major regional and potentially a global player thereby generating more profits and more opportunities to include, employment and investment opportunities for our people.

There is a saying that all competition is global.  State Insurance is perhaps, the only government owned entity that has the capacity to compete outside of Antigua & Barbuda at this time. Therefore, the Government should hold onto State Insurance and facilitate its growth and development instead of divesting our prize institution, the pride of Antigua & Barbuda, State Insurance Corporation.  They say, that where there is no vision the people perish and I want to say that we are surely perishing here in Antigua & Barbuda.

On the issue of wide share ownership, privatisation invariably is dominated by the corporate sector because of a lack of financial sophistication among individual investors hence, the communal ownership by the Government for the people will be more effective than privatizing to encourage wide individual share ownership. Experience in other countries even sophisticated developed countries like the UK, US, Canada, have shown that ownership and control of all public sector held companies that have been privatized are invariably dominated by the wealthy elites and the corporate sector because of the risk aversion,  inferior wealth, the lack of sophistication and experience of individuals investing in stocks and bonds. These reasons are true to Antigua & Barbuda and coupled with the prevailing economic conditions in which the majority of the population is finding it difficult to survive will make this type of wide individual share ownership unachievable. Even with tax incentives for individuals to invest, majority ownership and control of these entities in developed countries remain in the hands of a few corporations. If the Government were to limit the maximum shareholding per entity of a privatized State Insurance at say 10 percent, majority ownership will still be in the hands of a handful of wealthy individuals and corporations, so equitable ownership is unlikely to be achieved.   If the stocks in the proposed privatized State Insurance are unlisted or illiquid, this will be a further impediment to private individual ownership.

Let me address Joan’s speculation that State Insurance may fail due to the risks of a major catastrophe.  For the benefit of Joan Underwood, this risk has been and could continue to be mitigated through prudent re-insurance.  State Insurance has the best re-insurance charter in this country and that is why it was successful in surviving seven hurricanes including, Hurricane Luis, which unarguably is the most devastating natural disaster to have hit our country.

On the Issue that Governments should regulate and not offer insurance services. In the absence of a highly developed competitive market, the exploitation of consumers have and could continue to occur in our oligopolistic insurance market.  The previous ALP Government strategically intervened in the insurance industry in keeping with its socialistic and egalitarian philosophy to provide affordable insurance services and to create value for the benefit of the citizenry.  There is already a regulatory authority in place which I would accept needs to be strengthened and supported by the establishment of a Competition Authority to guard against anti-competitive business practices and to protect consumers.

In closing, let me re-emphasize, that the ALP is oppose to the proposed divestment of State Insurance Corporation. The corporation is easily the most productive in the insurance sector, it provides good quality customer service, it enjoys a positive return on capital employed, higher than most private entities including several local banks. It operates almost independent of the Government and is not a burden on public resources but to the contrary contributes millions of dollar annually to national development.  In addition, it carries millions of dollars of receivables for the Government and it has the potential to grow into a major regional player.  Evidently, there are no compelling reasons to sell State Insurance. Then again,  may be, there are some in the UPP Government who may find the prospects of a finders fee and the tens of millions of dollars that will be paid into the Government treasury to support their continued excesses a compelling.

If the UPP Government continues to pursue this sale, State Insurance is likely to lose a significant amount of business, its goodwill and its value which will prove counter productive. The Government ought to immediately scrap this divestment to end the controversy surrounding the sale of this Pride Institution and the resultant hemorrhaging of the corporation.

Should the UPP Government fail to heed this advice, we must coalesce to fight this divestment and force the Government to empower State Insurance with the opportunity to grow into a regional and potentially global player that would be equipped to make an even larger contribution to national development.

Hon. Gaston Browne, 36 Bay Street, Villa, February 23, 2010

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