Question

What are the factors contributing to the widespread failure of Colonial Life Insurance Company (Trinidad) Limited (CLICO) ?

Answer 1

The factors contributing to the widespread failure of CLICO are:-

1. Insurance legislation remained unchanged:

CLICO did not change its insurance legislation over the period of 28 years of its business. The government has updated its regulatory framework but CLICO failed to incorporate and update its own legislation to align with the framework.

2. Liquidity challenges:

Over the period of time, the company faced various withdrawal requests. This resulted into huge liquidity challenge which resulted into mismatch of assets and liabilties.

3. Inter-group transactions:

There were large number of inter-group transactions. The company has numerous related-party agreements which reduced the profit margins of the company, thus resulting into the collapse of the business, ultimately.

4. Operational weakness:

CLICO has operational weakness that turned out the failure for the company. The company failed to revisit its business model and corporate governance structure. It needed a model that was more robust and less risky.