- 84 -
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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