-22-
We do not adopt Gallagher's and Wise's values for the
following reasons.
2. Gallagher
Gallagher greatly overestimated Crossroads' reserves for
1992 and 1993 based on a calculation of reserves that was higher
by 86 percent for 1992 and 38 percent for 1993 than Crossroads'
balance sheet reserves. He testified that his estimate of
reserves was a major factor in his conclusion that Crossroads had
negative economic value as of January 1, 1992, and a lower value
as of January 1, 1993. We believe his assumption that Crossroads
would have a 160-percent loss ratio for the first year of future
business based on Crossroads' experience loss ratios over the
period 1982-91 did not give enough weight to the 2 years
immediately before the gifts, during which Crossroads showed a
strong trend towards decreasing loss ratios. Also, Gallagher's
assumed loss ratio of 160 percent is higher than the average loss
ratio from 1982 to 1991 which was about 144 percent. He
testified that any closely held insurance company the size of
Crossroads would experience or project a loss if it used an
assumed loss ratio of 160 percent. We conclude that, by using
Gallagher's inflated reserves and loss ratios, Crossroads was
predisposed to have a negative or lower value. Gallagher's
reserves and loss ratio assumptions skewed the projected values
of Crossroads' stock to make it appear much less valuable than we
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