- 100 -
industry, the needed rate would increase from 8.1 cents to about
8.6 cents.
Respondent's expert Dr. Blaine Nye, an insurance economist,
explained in his expert report that an insurance company would
price a policy by calculating the expected losses and expenses
and adding an underwriting profit margin. Dr. Nye used the
capital asset pricing model to derive an underwriting profit for
petitioner's excess value activity. Dr. Nye concluded that the
arm's-length price of an insurance arrangement providing coverage
on the liability to shippers declaring values in excess of $100
to be 32 percent of declared value revenues. Thus, according to
Dr. Nye, petitioner would have paid a price of approximately 8
cents (32 percent of 25 cents) per $100 of coverage to insure its
excess value activity liability.
One of the experts presented by petitioner at trial
implicitly acknowledged that petitioner could have negotiated a
lower arm's-length price for the coverage provided by NUF and
OPL. Petitioner presented Dr. Neil Doherty as an expert in the
economics of insurance. On cross-examination, Dr. Doherty
responded as follows:
Q. From purely insurance pricing perspective,
would you agree that if Overseas Partners, Limited, was
entirely unrelated to UPS, had no common shareholders,
no common officers, no common board of directors, that
this transaction would have made little sense from
UPS's perspective?
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