-17-
then-current market hurdle rate9 for investments of comparable
risk. KPMG Peat Marwick made various assumptions, including that
Crossroads' reserves should be restated to reflect the gross
reserve estimate (that is, the reserve estimate gross of
retroceded policies) stated in KPMG Peat Marwick's 1991 review of
reserve estimates. KPMG Peat Marwick estimated that Crossroads'
stock was worth $505 per share, applied a 40-percent discount for
minority interest and lack of marketability, and concluded that
the fair market value of the Crossroads' common stock that
petitioner gave to his children in 1992 and 1993 was $303 per
share.
3. Petitioner's Trial Expert: Thomas Gallagher
Petitioner hired Thomas L. Gallagher (Gallagher), a property
and casualty actuary with Tillinghast-Towers Perrin, to appraise
Crossroads' common stock as of January 1, 1992, and January 1,
1993, in connection with the trial of this case. Gallagher has
worked extensively in the workers' compensation industry.
Gallagher projected a reserve for each of the self-insurer
funds reinsured by Crossroads. He reviewed the underlying claims
data and extrapolated the historical results for the individual
9 A hurdle rate is the minimum rate of return required by an
investor for a proposed investment. Rosenberg, Dictionary of
Banking and Financial Services 344 (2d ed. 1985).
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