Hospital Corporation of America and Subsidiaries - Page 40

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               For 1987 and thereafter, the liability policy issued by                
          Parthenon to petitioners was modified to incorporate a $10                  
          million deductible, causing petitioners to be substantially self-           
          insured for general and professional liability risks for policy             
          years after 1986.  Parthenon continued to provide petitioners               
          risk management services and claims administration, and insured             
          high-level excess exposures, but no longer provided insurance for           
          any substantial portion of the day-to-day professional and                  
          general liability risks faced by petitioners.  Parthenon                    
          continued to provide reinsurance of the workers' compensation               
          risks of petitioners on the same basis as before, with the                  
          exceptions that a retrospectively rated feature was added in                
          1987, and charges to hospitals were made on the basis of                    
          actuarial calculations of loss experience beginning in 1988.                
               As a result of the retrospectively rated premium plan for              
          workers' compensation insurance during policy years 1987 and                
          1988, Parthenon received a premium installment in the year the              
          policy was issued, followed by a payment in the second year                 
          designed, within limits, to cover the losses plus expenses                  
          actually incurred.  Parthenon recorded annual statement                     
          liabilities during the first year only to the extent that they              
          corresponded with the amount of that year's premium installment,            
          adjusting both premiums and liabilities in the second year to               
          reflect estimated total losses and corresponding premium amounts.           





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