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other members of the insurance sector OPL would have operated in.
Professor Shapiro's report contained the following chart, which
includes Value Line56 statistics regarding return on equity in
each year for 22 property/casualty insurers and diversified
insurance companies:
1979 1980 1981 1982 1983 Mean
Mean Value Line ROE 23.5% 20.4% 20.5% 13.8% 11.8% 18.0%
Estimated Value 18.5 20.0 22.5 19.2 17.1 19.5
Line ke1
Minimum Value Line 12.4 8.3 9.7 0.1 0.1 6.1
ROE
Maximum Value Line 39.6 40.0 42.3 26.6 27.1 35.1
ROE
OPL's estimated ROE 172.9 170.1 182.3 174.1 168.6 173.6
($0.25 charge)
OPL's estimated ROE 15.7 15.8 15.2 13.5 12.8 14.6
($0.092 charge)
Estimated OPL ke 13.7 15.2 17.7 14.3 12.3 14.6
Value Line sample 22.0 22.0 22.0 22.0 22.0
size
1"ke" is the estimated year-by-year cost of equity capital.
Professor Shapiro concluded that had OPL been in existence during
the periods preceding 1984 and had it charged a fee of 25 cents
(instead of $0.092) per $100 in excess value coverage, it would
have earned huge persistent returns and that "OPL's ROE would
56 Value Line is a publication widely used as a source of
financial data.
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