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liabilities recorded as of that date by Parthenon. That amount
was equal to the difference between the low point of the range of
ultimate losses of petitioners predicted as of that time by Mr.
Biscoglia and the loss amounts recorded on the books of Parthenon
at that time. HCA management considered the $120 million
difference as an amount it was required to record for
consolidated financial reporting purposes under generally
accepted accounting principles, but which Parthenon did not have
to record because it represented liabilities that Parthenon did
not cover, and consisted of the amount of the discount for
investment income that Parthenon was permitted by the Department
of Insurance to remove from its reserves and the difference
between claims made and occurrence exposure for the 1986 policy
year.
Petitioners retained John A. Mackie (Mr. Mackie), a
certified public accountant (C.P.A.) who specializes, among other
fields, in insurance accounting, to assist petitioners to
determine Parthenon's undiscounted reserve amounts for use in
Parthenon's 1986 annual statement based on a $187 million
discounted general and professional liability reserve. Mr.
Mackie used discount factors to calculate that Parthenon would
need an undiscounted reserve of approximately $238 million for
unpaid losses and expenses relating to the general and
professional liability insurance that it had issued though 1986.
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