- 70 -
was thinly capitalized, but because, when the reserve
strengthening payments were made, earlier actuarial projections
made by Parthenon's independent consulting actuaries of unpaid
losses appeared insufficient to cover all of those losses. Under
the circumstances, we conclude that HCA and the sister
subsidiaries made the reserve strengthening payments to secure
insurance protection and that the fact of such payments does not
require a conclusion that the insurance arrangement with
Parthenon was a sham. Additionally, we believe that HCA's
decision to pay the Florida workers' compensation claims rather
than having the hospitals' assets frozen by the State of Florida
was a sound business decision relating to the continued
operations of those hospitals, and not evidence of a sham
arrangement with Parthenon.
Respondent contends further that the premiums for the 1986,
1987, and 1988 policy years were understated while the premium
for the 1984 policy year was overstated. Respondent relies on
Mr. Merlino's opinion to support that contention. Petitioners
contend that their independent actuarial consultants recommended
the premiums based on estimates of the risks assumed by
Parthenon. Petitioners contend that whether the actuarial
calculations produced premiums that proved to be higher or lower
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