On Friday morning, I received the following e-mail: "I am a Clico policyholder but am one of the people who accepted the Government's offer and I have been receiving my dividends from the Clico Investment Fund.
"I saw your interview on the CNC3 Morning Brew programme this morning and would like to know if the Government does pay out to Clico policyholders, does that include those of us who accepted their offer, or does this just concern the people who are suing.
"You kept referring to ALL the policyholders so I am hoping it might include us as well. I lost over $400,000 when I sold my first set of bonds. We are in the majority and we signed something to say we would accept this and matter done!
"I always enjoy reading your articles in the Business Guardian and admire your knowledge of all the topics you write on. I met you once as I introduced myself to you at one of the Clico meetings held at the University."
The letter writer, who will be called Mrs Smith in order to protect her privacy, disclosed several things in this short e-mail:
�2 That she invested money in Clico, probably through an Executive Flexible Premium Annuity (EFPA) contract owners;
�2 Her investment had a value of over $75,000
�2 She accepted the Government's offer in 2012, by which she received $75,000 in cash with the balance paid through the issue of a 20-year, zero-coupon bonds;
�2 In accepting the offer, Mrs Smith would have signed a Deed of Assignment and Declaration of Trust for the "sale and assignment to the Government of all of their respective benefits, rights, title, estates and interests" in the EFPA and under Clico's statutory fund. In effect, this means she would have sold her EFPA rights to the Government
�2 She would have received bonds with maturities from one to 10 years, which she sold to a registered financial institution, taking a loss of $400,000;
�2 Ms Smith exchanged her bonds with maturities from 11-20 years for unit in the Clico Investment Fund, from which she receives a distribution twice a year.
The point needs to be made clearly that having sold the Government her "benefits, rights, title, estates and interests" under the EFPA, there is no legal obligation by the State to make any additional payment to Ms Smith.
But, it is equally clear that the Government is in the process of working out the details of an out-of-court offer to the litigants who are appealing this matter to the Privy Council.
The logic of what I said on national television on Friday is that if the Government makes an out-of-court offer to the group of EFPA policyholders who are appealing this matter to T&T's final court of appeal, there would be a moral obligation to top up those who accepted the offer in 2012...if the financial position of Clico allows them to do so.
In other words, if the Government agrees to pay those who are challenging its 2012 offer 100 per cent of their investments plus two per cent interest for every calendar year since September 2010, I would argue that there is a moral obligation to pay additional monies to those who accepted.
Put another way, if the Government were to offer the Clico policyholding litigants 100 per cent of their investment plus 2 per cent interest compounded for every year since September 2010–when former Finance Minister Winston Dookeran froze the accural and payment of interest, claiming the existence of "ghost" accounts–then a similar offer should be made to those policyholders who accepted the State's 2012 offer.
The proposal for 2 per cent is based on the fact that interest rates offered by insurance companies on annuity-type products in 2010 were substantially lower than the same rates in 2008.
To illustrate this point, let us take the example of two policyholders who had investments of $500,000 in a Clico EFPA–one who accepted the Government's offer (Ms Smith) and one who did not (Ms Singh).
Based on an offer of 100 per cent of the principal, plus 2 per cent compounded for every year, my calculation is that the litigant, Ms Singh, would receive $552,040.40, and my argument is that fairness and equity indicate that those who accepted the Government's offer should similarly receive 110.4 per cent of their initial investments.
Ms Smith, who accepted the Government's offer, would have received: $75,000 in cash and a 20-year, zero-coupon bond for $425,000, which was divided into two blocks:
�2 Years one to 10 (equal to $212,500) for which Ms Smith would receive $10,625 a year ($212,500/20) for 10 years; and
�2 Years 11 to 20, which were exchanged for 8,500 units in the Clico Investment Fund (for every $1,000 in bonds, she received 40 units at an initial Net Asset Value of $25 each).
Given Friday's closing price of $22.50 per CIF unit, the investment which started off at $212,500, was worth $191,250 on Friday.
If the Government is going to top up those who accepted the offer, the obvious place to do that would be through the CIF, perhaps by giving these policyholders something closer to the net asset value of the instrument, which was $26.70.
From her 8,500 CIF units, Mrs Smith would have received a final dividend of $0.64 a unit paid on February 23, 2015 and an interim dividend of $0.33 on August 21, 2014, for a total of $0.97.
This means that this policyholder would have received $8,245 (as CIF distributions) + $10,625 (from the retirement of the annual face value of the zero-coupon bond).
Can Clico pay?
Section 37 (4) of the Insurance Act states: "Every company carrying on long-term insurance business in Trinidad and Tobago shall place in trust in Trinidad and Tobago assets equal to its liability and contingency reserves with respect to its Trinidad and Tobago policyholders as established by the balance sheet of the company as at the end of its last financial year."
According to Clico's 2013 audited financial statement, which was released last week: "Currently, according to the Insurance Act regulations, the company has insufficient assets in trust to cover its T&T policyholders, as defined by the Act."
According to Note 16 (1) of the insurers 2013 financials: "The aggregate amount of the liaibilities of the company in relation to its long-term sinurance business...as at December 31, 2013 amounted to $20.54 billion," which exceeds the aggregate value of the statutory fund assets.
Among the assets that have been pledged to the Inspector of Financial Institutions in T&T are:
�2 Approximately $925 million of investments in associated companies;
�2 About $1.81 billion of investments in subsidiary companies
�2 Fixed deposits amounted to $812 million
�2 About $10.625 billion of other investments
�2 About $1.36 billion of other investments are pledged as security for various bank overdrafts, short-term and long-term loans, including collateralised borrowings due to Clico Investment Bank
�2 Some $256 million of assets were pledged after December 31, 2013.
From what I can deduce, about $15.8 billion of assets have been pledged.
Assuming that this does not include the proceeds from last year's sale by Clico of its 56.53 per cent stake in Methanol Holdings (Trinidad) Ltd for $7.5 billion, one may conclude that the statutory fund in 2015 is in surplus.
Given that Clico's assets at the end of 2013 totaled $28.5 billion the question is does the insurer have enough money to repay the Government's $15.5 billion intervention in it as well as make whole the litigious policyholders and the agreeable ones?