-16-
Percentage change from
Year ending preceding year or period
12/1/79 -5.0%
12/1/80 12.1
12/1/81 11.8
12/1/82 24.6
12/1/83 14.9
12/1/84 42.0
12/1/85 67.0
12/1/86 30.5
12/1/87 4.5
1/1/89 2.6
1/1/90 0.0
1/1/91 -3.2
1/1/92 -13.6
7/1/92 -7.0
I. Reinsurance
During the years at issue, petitioner bought reinsurance12
coverage for losses falling in a certain loss "layer"; i.e., for
losses and allocated loss adjustment expenses in excess of a
certain minimum and below a certain maximum per loss.
Petitioner's reinsurance treaty13 during the years at issue
covered losses from $300,000 plus an indexed amount to a maximum
of $1 million per loss. The indexed amount equaled the product
of (a) $25,000, and (b) the number of "December 31sts" occurring
12 Reinsurance is an agreement between an insurer (the
ceding company) and a second insurer (the reinsurer), under which
the ceding company passes to the reinsurer some or all of the
risks that the ceding company assumes through the direct
underwriting of insurance policies. See Trans City Life Ins. Co.
v. Commissioner, 106 T.C. 274, 278 (1996).
13 A reinsurance treaty is a contract between two insurers
in which the reinsurer agrees to provide coverage of risks that
the primary insurer has already assumed under an insurance
contract with another party. See Trans City Life Ins. Co. v.
Commissioner, supra.
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