-8-
reserves. Petitioner believed that a switch from occurrence to
claims-made basis policies would improve its financial condition.
In 1985, based on the recommendation of Tillinghast, petitioner
began offering claims-made instead of occurrence basis policies
to its physicians. Petitioner's claims-made policies had a 1-
year term and an anniversary date5 of January 1. Occurrence
basis medical malpractice insurance policies are "long-tailed"
because it can take 10 years or more for claims to be received
and resolved.
G. Petitioner's Actuaries
Petitioner has hired outside actuaries to perform all of its
actuarial services since it was formed.
1. Milliman & Robertson
From 1978 to 1985, the actuarial firm of Milliman &
Robertson (M&R) provided actuarial services to petitioner to help
it estimate its annual statement unpaid losses.
Petitioner followed M&R's recommendations. However, M&R
underestimated petitioner's unpaid losses. As this unfavorable
trend emerged, petitioner gradually increased its estimates of
unpaid losses each year.
To improve its financial condition, in 1984 petitioner asked
UDI for permission to discount its loss reserves for the
5 The anniversary date is the date when insurance coverage
begins. Modern Am. Life Ins. Co. v. Commissioner, 92 T.C. 1230,
1232 (1989).
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Last modified: May 25, 2011