- 17 -
made routine adjustments to its loss reserves based on its past
reserving practices. Id. at 357.
The Court of Appeals for the Eighth Circuit affirmed the Tax
Court's decision in Western National. It concluded that the term
"reserve strengthening" when used in the life insurance industry
refers to reserve increases attributable to changes in
computational methods or assumptions. Western Natl. Mut. Ins.
Co. v. Commissioner, 65 F.3d 90, 92-93 (8th Cir. 1995). The
court rejected the Commissioner's argument that the term's
meaning in the P&C insurance industry is ambiguous. Id. at 93.
Having decided that the meaning of "reserve strengthening" is
clear in the industry, the court further concluded that the
legislative history underlying the provision is not controlling.
Id. Nevertheless, the court stated that it had reviewed the
legislative history "out of an abundance of caution" and found
"'no persuasive rationale for interpreting the statutory term
"reserve strengthening" in a manner different from industry
usage.'" Id. (quoting Western Natl. Mut. Ins. Co. v.
Commissioner, 102 T.C. at 355).
IV. Respondent's Position
Respondent urges this Court to reconsider its holding in
Western National. Respondent in the present case, as in Western
National, maintains that "reserve strengthening" encompasses all
net additions in 1986 to pre-1986 loss reserves. Respondent
acknowledges that, in the life insurance industry, the term
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011