United Parcel Service of America - Page 112




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          did not offer coverage to certain high-risk shippers.                       
          Nevertheless, the coverage underwritten by FFIC was very similar            
          to that which was purported to be provided by NUF and OPL and is            
          an indication that the price of the excess value coverage                   
          provided by NUF and OPL was substantially more than the price               
          petitioner could have obtained in arm's-length negotiations.55              
               Respondent's expert, Prof. Alan Shapiro, Ph.D., professor of           
          finance and business economics, estimated that $0.092 per $100 of           
          declared value in excess of $100 would have been an arm's-length            
          price for insurance covering petitioner's excess value activity.            
          Professor Shapiro based his analysis on the proposition that an             
          arm's-length price for OPL's excess value coverage would be one             
          that over time provided OPL with a fair return on its necessary             
          equity investment.                                                          
               In coming to his conclusion, Professor Shapiro compared what           
          OPL's return on equity would have been had it been reinsuring the           
          EVC activity during the years 1979 through 1983 with that of                


               54(...continued)                                                       
          premiums minus claims paid minus commissions.                               
               55Had petitioner's customers paid $0.125 per $100 of                   
          declared value (the same as PIP charged), EVC revenues would have           
          been cut in half, but the gross profit percentage (one-half of              
          EVC's, less all claims paid, divided by one-half of EVC's) for              
          the years 1979 through 1989 would have been 37 percent.  One-half           
          of EVC revenue for 1979 through 1989 is $622,678,544 less actual            
          claims paid of $393,153,605 equals gross profit of $229,524,939.            
          Gross profit of $229,524,939 divided by $622,678,544 equals a               
          gross profit percentage of 37 percent.                                      




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