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petitioner in estimating its reserves. Unlike respondent's
expert, Kilbourne, who was unfamiliar with petitioner's business
and who merely prepared a report essentially critiquing Hurley's
actuarial analysis, Hurley's loss reserve reviews were
specifically based on petitioner and its business. Because
Hurley prepared petitioner's rate reviews, he knew that
estimating excessive loss reserves would result in higher
insurance premiums for petitioner's insureds. He recognized that
petitioner had an incentive not to overstate its reserves.
Hurley prepared semiannual loss reserve reviews and annual
rate indication studies for petitioner. He used consistent
actuarial methods and standard actuarial loss development and
pure premium methods to estimate petitioner's unpaid loss
reserves for 1991 and 1992.
Hurley used petitioner's and industry data in his
projections. Over time, he increased the weight he gave to
petitioner's data relative to industry data because more of
petitioner's data was available.
Hurley estimated only actual unpaid losses in establishing
petitioner's annual statement unpaid losses. He based his
projections on petitioner's database containing information about
its past loss payments and case reserves. Hurley's report for
the 1991 and 1992 annual statements estimated unpaid losses
within an actuarially reasonable range. Each point in Hurley's
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