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and a board member and Secretary of Parthenon, wrote Parthenon's
president on September 11, 1986, and advised that, as an
insurance company subject to State regulation, it was critical
that Parthenon require premiums to be paid when due. Petitioners
paid the 1986 premiums during late 1986.
Workers' compensation premiums charged petitioners by Ideal
Mutual and, subsequently, by Continental, were set under State
law by rating bureaus, which are organizations that compile
statistical loss information to determine actuarially appropriate
premium rates. By statute in the relevant States, those rates
were subject to adjustment on the basis of the actual loss
experience of the individual insureds.
Reserve Setting
Hospital professional liability insurance, like other
medical malpractice coverages, is relatively "long tailed"; i.e.,
claims are often not reported until months or years after the
occurrence claimed to have resulted in liability. Because the
full extent of liabilities from reported claims may take a long
time to develop, reserves against future liabilities constitute
the bulk of total incurred losses during the first several years
following a policy year. Incurred but not reported (IBNR) losses
account for a significant portion of those reserves.
During the years in issue, Parthenon employed consulting
actuaries to assist in determining the appropriate reserves to
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