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Atlantic was organized in 1842 under the laws of the State
of New York as a mutual marine insurer. Over the years, Atlantic
has expanded its insurance underwriting activities to include
most lines of insurance business available to a property and
casualty (P&C) insurer. Centennial Insurance Co. (Centennial), a
wholly owned subsidiary of Atlantic, is a P&C insurance company
included in Atlantic's consolidated return. Because respondent's
notice of deficiency relates to the activities of both Atlantic
and Centennial, we will refer to the two corporations together as
petitioner.
From 1985 through 1993, petitioner filed an annual statement
with the insurance department of each State in which petitioner
was licensed to conduct insurance business. Each annual
statement was prepared in the format prescribed by the National
Association of Insurance Commissioners (NAIC). A primary purpose
of the annual statement is to provide State insurance
commissioners with information concerning a P&C insurer's
financial condition. The accounting principles on which the
NAIC-prescribed annual statement is based generally have been
incorporated into the Internal Revenue Code sections applicable
to P&C insurers.
On the annual statement, P&C insurers are required to report
estimates of amounts they expect to pay to cover losses that have
already occurred. These estimates are commonly referred to as
"loss reserves" (or simply "reserves"). Petitioner maintained
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Last modified: May 25, 2011