PrefBlog

Evan Soltas writes an interesting piece on Bloomberg titled Misconceptions 101: Why College Costs [in the US] Aren’t Soaring:

What has happened is a shift toward price discrimination — offering multiple prices for the same product. Universities have offset the increase in sticker price for most families through an expansion of grant-based financial aid and scholarships. That has caused the BLS measure to rise without increasing the net cost.

Wealthier families now pay more than ever to send their children to college. But for much of the middle class, the real net cost of college has not changed significantly; for much of the poor, the expansion of aid has increased the accessibility and affordability of a college education.

Data from the College Board show effectively no change in real net tuition and fees for dependent students at four-year public or private universities whose families are in the lower-two income quartiles. There also have been some increases in the real cost of room and board, but for families with below-average income, the rise has been on the order of 20 percent over 20 years.

At four-year public universities, the average sticker price for tuition and fees has risen 127 percent in real terms, from $3,810 in 1992 to $8,660 in this academic year. But only $990 of this $4,850 increase in sticker price, or 20 percent, is due to increases in net cost. The remaining 80 percent is price discrimination.

At four-year private universities, the story is the same. From 1992 to 2012, their average sticker price rose $12,020, or 70 percent, after inflation. Only 28 percent of this increase, or $3,370, has come from net cost; 72 percent of the increase is in the sticker price only.

In other words, the universities are now part of the tax system. Is this supposed to be good? I’m all in favour of merit-based scholarships and grants – but that’s not what is being defended. I also note that the increase in real net cost is about 25% over the past twenty years; it is not clear how this increase is justified.

Co-operators General Insurance Company was confirmed by DBRS at Pfd-3(high):

The Company is the cornerstone of The Co-operators Group Limited, a co-operative financial services organization with complementary interests in life insurance and investment management. As part of a larger financial services group, the Company enjoys a strong franchise in the co-operative space, which ranks it among the top five providers of general insurance products in Canada. The Company is positioned to benefit from recent management initiatives to reduce costs, contain underwriting risk and cultivate deeper customer relationships. The Company is demonstrating the discipline to pull back from unprofitable business even at the cost of lost revenue. More customer segmentation and differential pricing create a more favourable platform for improved future profitability.
…
In line with the improvement in underwriting profitability, return on equity has recovered to low double digits, which is in line with the Company’s targets. Investment income remains pressured by lower interest rates, although realized gains in market values of securities have supported investment results in recent periods. Financial leverage remains modest, with the preferred shares representing just 17.4% of capitalization. The corresponding fixed-charge coverage ratio has averaged between seven and eight times, which is strong for the rating category. The Company’s consolidated regulatory minimum (MCT) capital ratio is 269%, which is well in excess of the Company’s minimum target of 180% ($437 million of excess capital). Strong regulatory capital ratios at its major operating subsidiaries permit the regular flow of dividends up to the Company which, in addition to its own operating earnings, are available to meet its preferred share obligations. Liquidity is generally not a concern in the general insurance industry as premiums are written and invested in relatively liquid assets.

There’s an interesting article on Bloomberg about accountability of anti-piracy troops.

It was a day of very little movement for the Canadian preferred share market, with PerpetualPremiums and DeemedRetractibles both gaining 1bp and FixedResets up 2bp. Volatility was low. Volume was a little above average.

PerpetualDiscounts now yield 4.89%, equivalent to 6.36% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 215bp, a small (and perhaps spurious) increase from the 210bp reported November 21.

This entry was posted on Wednesday, November 28th, 2012 at 11:32 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.