JIM Parkes, former head of Mutual Life, is still in awe that the Jamaican Government in 1998 could have shut down the 154-year-old insurance company, said to be the largest in the Caribbean at the time.

“I was totally blown away. I feel that of all the companies in Jamaica, Mutual Life represented the heart and soul,” Parkes told yesterday’s sitting of the enquiry into the 1990s financial meltdown at the Jamaica Pegasus Hotel in Kingston.

Making his submission before the enquiry, Parkes contended that the Government’s sustained high interest rate policy at the time meant the death for all life insurance companies, given the nature of the business.

“It [insurance company] is not structured to withstand that sort of onslaught,” Parkes responded to questions from the commissioners. “We were into long-term development, we were into projects.”

According to Parkes, the situation was exacerbated when policyholders began to encash long-term policies, opting instead for equity-linked policies and other short-term instruments such as Government paper and certificate of deposits. “We had to match some of those rates,” he said.

“If this situation of high inflation, fuelling higher and higher short-term interest rates, is one-off…then the life insurance business can accommodate it over the long term,” Parkes noted.

“However, where this policy persists for any length of time it must have a deleterious effect on the life insurance product. Unfortunately, for all concerned, this is what took place in Jamaica from 1988 to 1998.”

Parkes told the commission that all insurance companies became insolvent during that period except First Life, which was a minor player in the business.

“Their focus was on health insurance where they could re-price their products every year,” he said.

Parkes, who became head of Mutual Life in April 1996, told the commission that discussions with the Financial Sector Adjustment Company (Finsac) for assistance were already underway to save the company when he took office. “At least one meeting was already held with the minister of finance [Omar Davies] to apprise him of the situation,” Parkes said.

He added that when he resigned from Mutual Life two years later, in 1998, it was the understanding that conditionalities by Finsac were being met.

“When I left we had agreed on a programme to receive a complete package,” said Parkes, who has since been ordained a priest in the Anglican Church. “The paperwork was well advanced and the staff had been briefed,” he said.

Mutual Life was sold to Guardian Life in 1998 and yesterday Parkes argued that the life insurance portfolio began to turn a profit for Guardian almost immediately after its acquisition by the Barbados-based company.

He also sought to dispel the notion that local insurance companies failed during the 1990s because of incompetent management.

“Can anyone with a knowledge of the economic conditions prevailing in Jamaica in the 1990s truthfully and honestly conclude that the common factor present in all of these companies and the cause of which they all failed was incompetent management and a failure to contain cost?” Parkes questioned.

“The fact that all went under at the same time must indicate that the cause must be due to something external to these companies,” said the former insurance boss.

Questioned by commissioners about the negative impact that heavy real estate investment and activities in farming and tourism, outside of core business, had on the insurance industry, Parkes said long-term development was always the backbone of the insurance industry.

“It was the life insurance industry that had almost single-handedly supported the Government’s divestment of its hotel stock from the National Hotel and Properties,” he told the enquiry.

He added that the industry constructed the bulk of residential and commercial development throughout Jamaica’s history.

“I suggest that if the industry was being run in an incompetent and cavalier manner how could it have contributed so significantly to the development of Jamaica,” said Parkes.

But despite his obvious disappointment, Parkes yesterday admitted that “something” had to be done as “the economy at the time was not right”, adding that the Government’s objectives were good.

“I got the feeling Finsac was committed to saving companies, but the problem as a result of the high interest rate was always there,” he said.

“Government is to be congratulated for its bailout of policyholders, none of whom, to my knowledge, actually lost any money,” said Parkes. “But in hindsight the entire country should be reminded of the maxim; an ounce of prevention is better than a pound of cure,” he added.