Tuesday, January 31, 2012

(No.186) Costa Concordia & cruising tips - Part 1

Because Pat and I have become what the tourist industry refers to as frequent cruisers we had more than a passing interest in the disaster on Jan.13 off the Italian coast involving the Costa Concordia cruise ship running aground. We have never cruised on a Costa ship (there are 20+ of them) but would not likely have done so even before the Concordia went aground. No safety/lifeboat drill for some Concordia passengers even 5 days after boarding was one indication of inadequacy.

Costa is Europe's largest cruise line and one of the eleven cruise line brands owned by Carnival.
Carnival Corporation controls more than fifth of the cruise ship market world wide. Costa is more European in passenger mix, service, multilingualism, atmosphere and orientation than are large cruise lines like Royal Caribbean, Norwegian or Holland America.

We do not regard ourselves as experts on cruising but we have accumulated some conclusions, advice and observations based on our cruise experience which includes a trio of trans-Atlantic crossings. However, unlike too much of what one reads about cruising these days, our views are untainted by financial self-interest.

These points or tips about cruising are not offered in any particular order but will take up at least two columns.

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As I have indicated in previous columns about travel on RickardsRead.com a great deal of what appears in Canadian newspaper travel sections is, rather than useful critical comment, thinly disguised advertising and promotional articles written by 'freelance' writers whose trips were 'subsidized' by whatever entity they were writing about. This is true generally of travel articles, often labelled as 'special' to the newspaper but masquerading as third party advice.

When it comes to writing for Canadian newspapers about cruising there is an honourable exception: Wallace Immen, a (Toronto) Globe and Mail journalist who has not only been writing about cruising for years but actually takes cruises himself (90+ cruises). I read his articles on the subject long before we took our first cruise. I recommend any of his well-informed articles about cruise ships and cruising.

The best travel guide to cruising, the most critically useful is The Unofficial Guide to Cruises published by Wiley. The latest edition, the 11th, was published in 2010. Among the numerous websites devoted to cruising, one of the most useful -- because of its ease of use, its comprehensiveness and up-to-dateness -- is vacationstogo.com. It is the site of a large American travel agency specializing in cruises.

Also, in terms of American newspapers The New York Times' travel articles are, like the newspaper itself, in a class by themselves in terms of reliability.

Although cruising is perhaps the last segment of tourist travel which remains predominantly in the hands of travel agents (who are therefore catered to by the cruise lines) wise prospective travellers will do their homework first whether they decide ultimately to book a cruise directly with the cruise line or through a travel agent or packager (who may or may not have their own agenda favouring a particular cruise line and/or may be less than well informed). If using a travel agency pick one that specializes in cruising.

Learn enough to be able to make an informed decision about what you would like in your cruise (e.g., size of ship, destinations and atmosphere). For example: if you do not want to share your cruise with lots of children, do not book a cruise on a Disney ship. The reality is that cruise lines, specific cruises and cruise itineraries differ as does the profile of the passengers most likely to form the majority of those on a particular ship and/or cruise. As an opinion, "a cruise is a cruise is a cruise", is so much heifer dust.

Travel agents specializing in cruises like to hold out the prospect of a buyer being able to get a better price for a cruise from them rather than dealing directly with the cruise line because they are able to acquire early on prior to a cruise a block of cabins at a particular price. That is often true as far as it goes but it is not necessarily the case that all the cabins in the block a travel agent has acquired for a given cruise at an attractive price are all cabins attractively positioned on the ship.

The best chance of a great bargain from a travel agency specializing in cruising may occur if the agency is stuck with cabins it has paid for but has not yet sold as the cruise's departure date approaches. If you do buy through an agent and have problems with some aspect of your reservation, don't expect the cruise line to sort it out for you. They will likely tell you to contact the travel agent you bought from to deal with it.

Pat and I have made a point of researching for ourselves what cruises are available from various cruise lines, which line has the best deals for what we are interested in, etc., and then we reserve directly with the cruise line. We call the cruise line with the deck plans for the ship we wish to travel on in front of us. These plans are available for download from the cruise line websites. The deck and cabin numbers are indicated. Then we can ask about specific staterooms and their prices.

Decide in advance not only how much extra you are prepared to pay for a preferred deck location but also for the type of cabin ('stateroom'). In ascending order of cost they are: interior cabin; 'oceanview' ( a window or at least a porthole); balcony stateroom, sometimes called 'verandah'; various suite sizes.

Midship cabins are usually a good choice. Avoid a cabin on a deck and in a location that is just above or just below ship facilities that are likely to be noisy (e.g., swimming pools, bars, etc) or ones that have an obstructed view (e.g., by lifeboats) if you are in a balcony or oceanview stateroom. If you are unsure about such negative factors vis-a-vis a particular location, ask specific questions before reserving your cabin.

To BE CONTINUED IN THE NEXT COLUMN
on RickardsRead.com (No.187)


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Friday, January 13, 2012

(No.185) Class action appeal: London Life & Great-West

In Oct. of 2010 I wrote a column about the class action led by D'Alton 'Bill' Rudd, a former London Life senior executive and a man of principle and conviction. He opposed the use of London participating policyholder funds by Great-West Lifeco (controlled by the Desmarais family) in its Oct. 1997 takeover of London Life.

At the invitation of its editor Joseph Belth I subsequently wrote an article about the case for the Dec. 2010 issue of the American publication INSURANCE FORUM [see below for the footnote references].

My view, one shared by some others with experience in the Canadian life insurance industry and elsewhere, is that Canada's federal insurance regulator -- the Office of the Superintendent of Financial Institutions (OSFI) -- should not have allowed the use of ANY par policyholder funds by Great-West to help finance its takeover of London Life.

The class action finally came to trial in Sept of 2009 and the Oct. 2010 decision awarded $455 million to the par policyholders. London/Great-West appealed the Ontario Superior Court decision in Jeffery v. London Life Insurance Company.

On Nov. 3, 2011 the Ontario Court of Appeal released its decision (ONCA 683) which had the effect of largely negating the financial compensation awarded by the Superior Court judge to the par policyholders while upholding certain aspects of the appealed decision. The judgement ended up cancelling the raiding of the par policy accounts but without upholding the $400+ million payout to the policyholders.

It was at the London Life annual meeting in the spring of 1998 that Bill Rudd rose to speak and began what turned out to be a process that has lasted almost 14 years. He pointed out that what was being done with par funds was illegal under the federal Insurance Companies Act.

It's been a very long slog for those individuals challenging these large financial institutions. A person close to the class action told me that he doubts there will be an appeal, that the Appeal Court decision is a "dog's breakfast and not all clear" and that the Appeal Court made its decision in part on the basis of "some matters not tried" in the Superior Court action.

I would like to have seen in this or in some future legal action:

-- A major attack on the actuarial concept of "policyholders' reasonable expectations" which life insurance companies can and do use to curtail as well as frustrate the promises given to par policyholders by their agents -- at the time the policies are bought -- that they (the par policyholders) will share in the profits of the companies issuing the participating life insurance policies.

-- Some emphasis on the major disconnect between what buyers of participating life insurance policies are told and what the issuing life insurance companies actually do with their promise to share profits via policy dividends. As a former industry colleague of mine says, the "reasonable expectation" fiction invented and controlled by company actuaries, when combined with the absence of any third party involvement to rebalance the equation in the interests of par policyholders, produces mushroom treatment for people buying life insurance.

-- Examination of whether or not a good chance that the courts would override life insurance company directors' discretion to declare dividends would be to force the appropriate members of the life insurance companies' senior management and direction into court in order to cross-examine them about any number of questions revolving around the use and misuse of par funds.

For an illustration of a more conventional, company & regulatory-friendly commentary on the Appeal Court decision see the Nov. 9, 2011 issue of the Financial Institutions Bulletin put out by the Toronto law firm Fasken Martineau. For example, it commented that "the Court of Appeal found that the trial judge was right to conclude that the [par funds] transactions breached the ICA [Insurance Companies Act] but significantly curtailed the remedy granted. ...

" The remedy sought by the plaintiffs [in the class action] and ordered by the trial judge was tantamount to an oppression remedy and was inconsistent with the deliberate decision not to provide an oppression remedy in the ICA. The Court of Appeal found that any remedy had to ensure compliance with the ICA without giving the PAR policyholders a windfall ...."

While it may not be likely, one can still hope that the Ontario Appeals Court decision in this class action is appealed to the Supreme Court of Canada. If it is I think it likely that both the rights of par policyholders generally and a tougher look at OSFI insurance regulation might well be part of the benefit of a Supreme Court ruling.

This whole subject is actually increasing steadily in relevance these days in Canada. The big life insurance companies which demutualized a decade or so ago (London Life was always a stock company and, atypically, always sold a ton of par life) couldn't wait to stop selling par life insurance in order to increase financial benefit to their newly acquired shareholders. However, for several reasons the retail attractiveness of of selling par whole life insurance is being rediscovered, rather like Malcolm Muggeridge -- a longtime atheist -- rediscovering Jesus.

by Alastair Rickard

references:

-- "An Important Court Decision Relating to Rights of Participating Policyholders in Canadian Stock Companies" by Alastair Rickard, INSURANCE FORUM Dec. 2010 (Vol.37, No. 12).

-- "Great-West '0', par polciyholders '1' " on www.RickardsRead.com, column No.118, posted Oct.8. 2010.

-- "Names to ponder: Great-West Life, Joseph Belth, Alan Press, Primerica" on www.RickardsRead.com, column No.124, posted Nov. 28, 2010.

-- Jesus Rediscovered by Malcolm Muggeridge (1969).

-- www.fasken.com


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Thursday, January 5, 2012

(No.184) Oops! 'No' to a national securities regulator

When the Canadian government decided to push ahead with establishing a national securities regulator, over the objections of several provinces but cheered on by the large financial institutions, Finance Minister Jim Flaherty (a former Ontario Treasurer) wisely decided in the spring of 2010 to refer the proposed Securities Act to the Supreme Court of Canada for a ruling on whether it fell within federal jurisdiction.

Most 'experts' in the financial media and related playpens were confident that the Supreme Court would come down on the side of the feds and not that of provincial jurisdiction. The Globe and Mail was representative:
May 27, 2010 -- "most legal experts believe the highest court will approve Ottawa's request";
May 28, 2010 -- editorially the Globe considered that the proposed federal Securities Act would be found acceptable to the Supreme Court and concluded that "probably it will say it is".

Two days later in a RickardsRead.com column (No.95 posted May 30, 2010), and because I lacked the Globe and Mail's 'expertise', I took the opposing view and argued that a Supreme Court "endorsement of Ottawa's view of the creation of a national securities regulator vis-a-vis the provincial government authority is very, very far from being a dead bang certainty."

By March 2011 the appeal courts in both Alberta and Quebec had ruled that the proposed federal legislation was unconstitutional. The 'experts' who had so confidently predicted a win by Ottawa fell largely silent. They seemed, as I pointed out in April of 2011, "to have retreated quietly into the bushes, a good place for those who wish to be able once the SCC decision is handed down to foster some appearance of wisdom even if after the fact" (RickardsRead.com, No.147).

On Dec. 22, 2011 the Supreme Court gave its opinion in response to the federal government's reference request. The opinion was unanimous: the securities laws of Canada fall exclusively under provincial authority. The proposed federal legislation was constitutionally invalid.

I was particularly interested by the fact that one of the three constitutional principles supporting the SCC opinion involved the SCC's own judgement of May 31, 2007 in the Canadian Western Bank case. In that case, involving a challenge to provincial jurisdiction over insurance by the big banks, the Supreme Court also upheld provincial jurisdiction.

It was another case in which the media 'experts', including the lawyers advising the banks, were confident that the provinces would lose. I was confident publicly (as I had been in various published comments over the years) that provincial jurisdiction over insurance would prevail if the banks were ever foolish enough to challenge provincial authority in the insurance field (see for example RickardsRead.com columns Nos. 69, 95, 114).

That the Dec. 22, 2011 Supreme Court decision received far less attention by the financial services paparazzi than did the initial reference by the feds is hardly surprising. For every financial columnist offering valuable insights -- like Eric Reguly, the Globe and Mail's Rome-based business correspondent -- there are battalions of 'experts' and cable news 'talking heads' whose erroneous analyses and predictions are rarely revisited by the host media.

The Western Bank and Securities Act cases and the SCC decisions on both illustrate a continuing theme of mine in RickardsRead.com columns. As I observed over the years as both an editor and an executive, the likelihood of most senior business excecutives being wise before the fact rather than after it is, logically, no better than the financial media whose writings provide the grist for executives' daily media 'clipping' services.

by Alastair Rickard

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