The Ottawa Citizen
May 9, 2000

The federal government’s Export Development Corporation has struck an exclusive deal — without a call for tenders –with an insurance company owned by a powerful Canadian corporation with strong connections to Prime Minister Jean Chretien and the Liberal party.
(Excerpt)

London Guarantee, owned by Power Corp. of Montreal, is entering the rapidly growing accounts receivable insurance market in Canada by taking over Canadian customers who obtain export insurance from the Export Development Corporation, a Crown agency, and want the same kind of insurance in the Canadian market.

Domestic credit insurance essentially guarantees a Canadian purchaser’s payment to the Canadian seller. The EDC estimates that the potential domestic insurance market is worth $500 million.

EDC has long been under fire from insurance and banking firms, along with environmental and human rights activists for secrecy (EDC is not covered by the Access to Information Act), its involvement in questionable projects and the unfair advantage it enjoys over private-sector competitors.

The EDC is moving to get out of the domestic insurance part of the market in response to complaints lodged by the Canadian insurance industry. In 1999, the EDC was paid $10 million in premiums for domestic insurance by about 13 per cent of its customers.

The Crown corporation estimates that the Canadian business it is turning over to London Guarantee represents about 20 per cent of the insurance on domestic receivables currently being insured in Canada.

The EDC’s board, which recently approved the deal, is dominated by Liberals, including chairman Patrick Lavelle, a close friend and former political organizer of Mr. Chretien’s.

The deal has surprised officials at the Guarantee Company of North America, London Guarantee’s main competitor in surety insurance products, who feel they should have been consulted about the business. “I find it difficult to understand why the EDC would not have picked up the phone and told us they were contemplating a transaction,” said Jules Quenneville, president of the Guarantee Company.

Mr. Lavelle says London Guarantee’s Power Corp. ownership was never discussed by the board and did not play a role in selecting the insurance company for the arrangement.

He said EDC’s domestic insurance business was not put up for tender, partly since it was believed the Guarantee Company was not interested in working with the Crown corporation.

“A tender was not the process — that was not the recommendation,” said Mr. Lavelle. “The decision was basically made that London Guarantee was the right partner — that we should pursue everything that pointed in the direction of doing it with them as opposed to anyone else.”

Power Corp. has numerous connections with Mr. Chretien. His son-in-law, Andre Desmarais, is president of the corporation and Power executive John Rae is Mr. Chretien’s election campaign manager. Paul Desmarais, Andre’s father and the founder and CEO of Power, has been a friend of the prime minister’s for 40 years.

Mike Kappein, vice-president of corporate development for London Guarantee, said the Power Corporation connections were considered early on in discussions. “You know what? They were sensitive to that connection early on and they went through what I believe to be great lengths not to (have it play a role),” he said. “And I am not even sure that Paul Desmarais knows that he owns us.”

London Guarantee is part of Great West Life and Annuity Insurance, a company owned by Power.

The EDC said Canadian insurance companies were assessed and ranked and London Guarantee was “clearly the best company” for the arrangement. It says a call for tenders, auction or bidding process was unnecessary since the deal is “not a sale” but “an ongoing business arrangement.”

Paul Kovacs, the senior vice-president of the Insurance Bureau of Canada, says there are a lot of unanswered questions about the arrangement and he is disappointed by “the lack of disclosure” so far.

He said London Guarantee, along with the Guarantee Company, were both part of an insurance industry group that criticized the EDC last November before the Commons committee. “I would think a tender would have been a natural process for a Crown corporation to sell off something of value. I certainly know there are a number of companies interested.”

Mr. Kovacs said EDC put “an intriguing limitation” on the number of interested companies by restricting any arrangement to Canadian companies.

“I mean if their goal was to maximize the value, they would have wanted more to bid,” said Mr. Kovacs. He declined comment on Power’s strong Liberal ties.

The EDC says London Guarantee was selected on the basis of a number of criteria in consultation with KPMG, which was brought in as an independent third party. London Guarantee is paying EDC an undisclosed sum for the new business.