An ex­pert re­port of the po­ten­tial re­turns from the Gov­ern­ment's com­pen­sa­tion of hold­ers of Ex­ec­u­tive Flex­i­ble Pre­mi­um An­nu­ities has con­clud­ed that the pol­i­cy­hold­ers are like­ly to re­ceive 59 cents on the dol­lar. The analy­sis, which ac­com­pa­nies the law­suit filed last week by for­mer At­tor­ney Gen­er­al Ramesh Lawrence Ma­haraj, was con­duct­ed by Vishal Grover, who has a de­gree from Har­vard and an MBA from Co­lum­bia Uni­ver­si­ty. Fol­low­ing are ex­cerpts of the re­port:

Like­li­hood of a 92% re­turn

"Giv­en the cir­cum­stances de­scribed in the pre­ced­ing analy­sis. I do not be­lieve that it would be like­ly that pol­i­cy­hold­ers would re­ceive a 92 per cent re­turn on their Jan­u­ary 2009 poli­cies. Rather, the re­vised gov­ern­ment pro­pos­al ex­pos­es CLI­CO pol­i­cy­hold­ers to sig­nif­i­cant risk in both the debt and eq­ui­ty mar­kets. Fur­ther, the vol­ume of trans­ac­tions that would pro­vide liq­uid­i­ty to pol­i­cy­hold­ers rep­re­sents mul­ti­ples of peak his­tor­i­cal vol­umes in both the sec­ondary gov­ern­ment se­cu­ri­ties mar­kets and pub­lic eq­ui­ty mar­kets. As such, pol­i­cy­hold­ers would face sig­nif­i­cant dis­counts for im­me­di­ate liq­uid­i­ty or en­dure pro­tract­ed illiq­uid­i­ty, risk­ing loss of val­ue to ris­ing in­ter­est rates or volatil­i­ty of the un­der­ly­ing NEL2 hold­ings.

De­layed Es­tab­lish­ment of NEL2

As head­line in­fla­tion is ex­pect­ed to be 6.0 per cent in 2012 and one-year de­posit rates are ap­prox­i­mate­ly 1 per cent, a de­lay of 6-12 months would rep­re­sent a fur­ther loss in re­al val­ue of 3.5 per cent to 7 per cent.

To­tal Val­ue of 20 Ma­tu­ri­ties

The present dis­count­ed val­ue of all bonds, ie all twen­ty ma­tu­ri­ties, us­ing the March 2011 pre­vail­ing in­ter­est rates is ap­prox­i­mate­ly 62 cents on the dol­lar. Dis­count­ing these val­ues back to Jan­u­ary 2009, the to­tal val­ue of the gov­ern­ment's pro­pos­al is 59 cents on the dol­lar.

Like­li­hood of achiev­ing 67 per cent re­turn

Giv­en that the present val­ue of all twen­ty ma­tu­ri­ties, i.e. max­i­mum price that an in­vestor would pay un­der pre­vail­ing mar­ket rates, rep­re­sents 59 per cent of Jan­u­ary 2009 hold­ings, it would be high­ly un­like­ly that pol­i­cy­hold­ers re­alise a 67 per cent re­turn. The sale of $11 bil­lion on the sec­ondary mar­ket would rep­re­sent more than six times the his­tor­i­cal peak turnover, sug­gest­ing that fur­ther dis­counts due to over­sup­ply.