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and providing insurance and reinsurance products. In his report,
Mr. Kelley stated:
The .25 per $100 of declared value charges used on the
NUF policy was apparently derived directly from * * *
[petitioner's] tariff filing, and bore no reasonable
relationship to the rate that would have been developed
in a competitive marketplace for a comparable insurance
arrangement transacted on an "arm's length" basis.
* * * For the period 1984 through 1989 total premium
received and losses paid on the NUF policy amounted to
approximately $845,000,000 and $281,000,000,
respectively, for an overall loss ratio of 33% * * *.
There was little or no potential for late reported
claims or significant adverse reserve development on
business of this kind, so the numbers reflected on
NUF's premium and loss bordereaux may be treated as
final for the years involved.
In a competitive marketplace such results could never
be achieved. * * * it should be noted that the U.S.
property-casualty insurance industry has achieved a
combined ratio (the sum of the loss ratio (incurred
losses � earned premium) plus the expense ratio
(expenses � written premium) of less than 100%, i.e.,
produced an underwriting profit) in only three of the
past twenty years * * *.
It is also extremely unlikely that any insurance broker
that permitted an insurer to generate such profits at
the expense of its client could expect to retain that
client for very long. In this instance, of course, the
profits were not retained by NUF, but flowed, as
intended, as ceded reinsurance premiums back to OPL.
Mr. Kelley logically concluded that the 25-cent price per $100 of
excess value set on the NUF policy was not an arm's-length price
that would have been agreed upon in a competitive market.50
50Similarly, respondent's expert Mr. Michael Cohen, an
insurance expert with extensive brokerage experience, agreed that
the 25 cents per $100 of excess value was too high. Referring to
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