-3-
underwriting losses as a result of a rapid increase in medical
malpractice claims and litigation. As a result, they raised
rates, e.g., 400-600 percent in California from 1965 to 1971, to
cover their losses. When rate increases failed to keep pace with
continued adverse loss experience, many commercial insurers
stopped issuing medical malpractice insurance. As a result,
State medical societies formed physician-owned medical
malpractice insurance companies to offer medical malpractice
insurance to their members.
In the early 1970's, the Utah Medical Association (UMA), the
leading professional association for doctors in Utah, endorsed
Aetna Life and Casualty Insurance Co. (Aetna) as the preferred
malpractice carrier in Utah. Aetna, which wrote most of the
medical malpractice insurance in Utah during the 1970's,
increased rates several times in the late 1970's.
C. Formation of Petitioner
In response to Aetna's rate increases, about 900 doctors who
were members of UMA formed petitioner as an unincorporated inter-
insurance exchange1 or reciprocal company in November 1978. They
executed subordinated loans which gave petitioner an initial
capitalization of $2.2 million. Shortly thereafter, Aetna
withdrew from the insurance market in Utah. Petitioner became
the principal medical malpractice insurer in Utah.
1 An inter-insurance exchange is a mutual insurance company
in which the members of a group insure each other's risks.
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