- 13 -
the prospect of Federal income tax deductions for the reserves5
that would be maintained against insured labilities of the
operating companies. HCA management believed that setting up a
legitimate U.S. insurance company managed by insurance
professionals would offer the best chance of obtaining that
deduction, though they realized that favorable tax treatment was
not assured.
The Formation of Parthenon
During 1976, HCA formed Parthenon as a wholly owned
subsidiary under the Colorado captive insurance statute, Colorado
Rev. Stat. secs. 72-36-1 to 72-36-30 (1963), now codified at
secs. 10-6-101 to 10-6-130 (1991). HCA management expected that
5 In Western Natl. Mut. Ins. Co. v. Commissioner, 102 T.C.
338, 350-351 (1994), affd. 65 F.3d 90 (8th Cir. 1995), we defined
the term "reserve" as follows:
In the insurance industry a policy reserve represents a
liability; i.e., it represents an obligation to the
policyholders. Historically, reserves have been described
in PC [property and casualty] insurance literature as
estimated liabilities for losses and loss adjustment
expenses. To some extent, loss reserves are estimates
extrapolated from past trends, patterns, averages, and
inferences and predictions as to the future. Accordingly,
"The reserve simply operates as a charge on so much of an
insurance company's assets as must be maintained in order
for the company to be able to meet its future commitments
under the policies it has issued." The general concept for
reserves is the same for life and PC insurance companies.
[Fn. ref. omitted; citations omitted.]
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