ACADEMIC ARTICLES

Interrogations critiques sur l’uberrima fides dans le contrat d’assurance
by André Bélanger                                                                            

The Pricing of Multiple Line P&C Insurance Based on the Full Information Underwriting Beta
by Li Zhang and Norma Nielson                                                         

PROFESSIONAL ARTICLES

Le risque de longévité : valorisation et outils de gestion (deuxième partie)
by Patrice Boucher et Martin Boyer                                                 

L’escroquerie à la Ponzi et autres arnaques financières
by Rémi Moreau                                                                            

Collateralized Fund Obligations (CFO) : Fusion des fonds de couverture aux CDO
by Shady Aboul-Enein    
                                                             

Current Events
under the responsibility of Rémi Moreau

1. La grippe A est-elle une grande tueuse ? – 2. La crise financière est-elle terminée ? – 3. Négociations en vue d’une entente à l’amiable avec les autorités réglementaires – 4. Dubaï au bord du gouffre – 5. La Caisse de dépôt et placement a reçu 5 milliards $ US de financement à long terme – 6. Certaines mesures québécoises à venir en matière de sécurité routière – 7. Un fonds de garantie pour les atteintes à l’environnement verrait le jour en France – 8. Un autre fonds français : l’indemnisation des accidents dus aux animaux sauvages – 9. Les cinq plus gros courtiers d’assurance mondiaux en 2008 en termes de revenus de courtage – 10. Les renouvellements pour 2010 se sont faits dans la sérénité lors des derniers Rendez-vous de septembre à Monte-Carlo – 11. Des assureurs poursuivent le gouvernement québécois dans la foulée de l’effondrement du viaduc de la Concorde – 12. Pourquoi les assurances de motos et les hausses de primes vont-elles de pair avec la notion d’équité ? – 13. Bisbille entre le ministre fédéral des Finances et les banques à propos de la vente d’assurance par internet – 14. Une poursuite de 30 milliards de dollars par le gouvernement québécois contre les cigarettiers – 15. Les Jeux olympiques de 2010 : les coûts de la sécurité à la hausse – 16. UBS a mis fin au secret bancaire, mais on parle de données volées à la banque HSBC –  17. Comment se porte la réassurance en ce début de 2010 ? – 18. Les grandes banques américaines seront taxées –19. Le plus haut gratte-ciel au monde est assuré pour 1,5 milliard de dollars – 20. La réforme américaine du système de l’assurance santé menacée par une amère défaite des Démocrates au Sénat – 21. Port-au-Prince sous les décombres

Interrogations critiques sur l’uberrima fides dans le contrat d’assurance
by André Bélanger

In insurance law, the notion of uberrima fides has long been considered essential to a good contractual relationship. And yet, the use of the notion to explain the nature or the object of the contractual responsibilities of both client and insurer appears to be less and less founded. Given that its conception is rather moral than juridical, the notion leaves room for the subjective interpretation of the courts and legal representatives. In a context thus open to rhetoric, those not specialized in law and insurance cannot fully realize the significance of their insurance contracts and the ensuing responsibilities. Hence, the utmost good faith cannot contribute to a renewed elaboration of a theory of insurance law which might be appropriated as much by the legal representatives than it could be by the contractual parties. The recourse to uberrima fides offers resistance to some possible abuses by the respective parties, presenting the contract as an inevitably hostile play that opposes insured and insurer and which thus needs to be overseen by the moral concept. Placing emphasis on the greater context within which the parties are to reach an understanding can rather allow the desirable move beyond contractual morality, favouring law over morality.

Keywords: Duty of each party, comparative law, new legal context, contractual morality, utmost good faith, theory of the contract.

The Pricing of Multiple Line P&C Insurance Based on the Full Information Underwriting Beta
by Li Zhang and Norma Nielson

This paper develops a financial model of insurance pricing that is able to price insurance by line in a multi-line property & casualty insurance company based on the Full Information Underwriting Beta Methodology. It extends the existing literature in insurance pricing in that the model is suitable for multi-line pricing and reflects the systematic risk of different business lines. Based on Canadian Property & Casualty insurance industry data, the primary empirical findings in this paper strongly reject the argument in prior studies that underwriting betas of distinct lines vary in proportion to the length of the period that the premium of the corresponding line can be kept for investment. The results also show that the expected underwriting profit margin of liability insurance is the lowest among three distinct business lines: auto insurance, property insurance, and liability insurance.

Keywords: Multi-line insurance pricing, fair underwriting profit margin, insurance capital asset pricing model, full information underwriting beta methodology.

A Note on the Valuation of a CDO and of an n^th-to-Default CDS Without Monte Carlo Simulation
by Martin Boyer and Olivier Marquis

The quasi-closed form solution to estimate default probabilities for a group of n assets developed in Hull and White (2004) allows a bypass of traditional Monte-Carlo simulations to value credit default swaps and collateralized debt obligations. The authors then construct a simple example to illustrate their approach. The purpose of the present note is to raise the issue that the closed form solution presented does not yield the empirical results of the simple example. Finally, we show how the two can be reconciled.

Le risque de longévité : valorisation et outils de gestion (deuxième partie)
by Patrice Boucher & Martin Boyer

How long will live a given population? The answer to this question is crucial for insurers as well as for corporations and governments that have promised benefit payments upon retirement. For Canadians the cost of certain public programs, such as Canada’s Pension Plan, depends directly on the life span of the population. This is also the case for private pension plans and the profitability of insurance companies that offer annuity services. We present in this second of three articles on longevity risk a longevity risk valuation and hedging method.

L’escroquerie à la Ponzi et autres arnaques financières
by Rémi Moreau

The author examines the major recorded oil spills into international and national seas, some of them occurring in Canada, caused by supertankers: the Torrey Canyon, the Arrow, the Amoco Cadiz, the Gino, the Aegean Captain and the Atlantic Express, the Odyssey, the Exxon Valdez, the Braer, the Maersk Navigator, the Erika, the Prestige and the Ixtoc 1 (oil well).

But, there are a lot more accidents, since those black tides began, in 1960. Each year, since the seventies, we could count around half-dozen of such oil spills disasters. Annex A provides a table listing all oil spill accidents from tankers since 1975 involving more than 20 000 tons of oil. Annex B provides the chronological list of all accidents since 1960.

Following the recent verdict in the Total SA affair (the Erika charterer), announced by the Paris Criminal Court on January 16, 2008, after several years of trial, the author takes this opportunity of studying oil spill accidents and causes, some research programs, ecological and economical impacts, legal aspects, insurance and indemnification, all in order to learn some lessons from such perils of sea.

Keywords: Petroleum, oil pollution from tankers, marine pollution, IMO, international conventions, FIPOL (compensation funds).

Collateralized Fund Obligations (CFO) : Fusion des fonds de couverture aux CDO
by Shady Aboul-Enein

Collateralized Fund Obligations (CFOs) are a relatively new type of financial product in the wide family of derivatives that emerged from structured finance. Contrary to the case of a CDO which consist in the securitization of a portfolio of debts, the cash flows generated in a CFO structure come from a portfolio of hedge funds. The purpose of this paper is to expose the big picture related to hedge funds and CDOs in order to briefly present CFO structures afterwards as the result of the merger of the two previous products. Despite the objective to summarize the universe of hedge funds, the description of these vehicles needs exhaustiveness in order to understand all the basic characteristics of the securitized assets. Concerning CDOs, a global understanding of the different possible structures is necessary to better situate the attributes inherent to CFOs.