Hospital Corporation of America and Subsidiaries - Page 84

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          of the unpaid losses and expenses that Parthenon actually would             
          pay out.  Rather, for purposes of his reserve recommendations,              
          Mr. Merlino focused on the reasonableness of the reserves from              
          the viewpoint of whether the unpaid losses reserves as reported             
          by Parthenon on its annual statements were either inadequate or             
          excessive in comparison to the reserves recommended by                      
          Parthenon's independent consulting actuary.                                 
               With respect to the 1984 policy year, Mr. Merlino concluded            
          that Parthenon had recorded total reserves in an amount that was            
          $22,276,000 below the actuary's recommendation, and he                      
          recommended an upward reserve adjustment in that amount.  As                
          stated above, neither party disputes the accuracy of the                    
          adjustment for the year ended 1984.  Accordingly, we accept as              
          reasonable the increase in the unpaid losses reserves for that              
          year proposed by Mr. Merlino.                                               
               With respect to the 1986 policy year, Mr. Merlino concluded            
          that the professional and general liability reserves were                   
          overstated by $67,384,000.  Mr. Merlino calculated that                     
          adjustment by (1) reducing to $221 million the undiscounted                 
          reserve estimate of $238 million selected by Parthenon (to                  
          conform the unpaid losses reserve to Mr. Klaassen's original                
          estimated recommended reserve level), and then (2) reducing that            








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