-24-
range was reasonable. His reports met all relevant actuarial
standards.
Hurley applied one exposure (i.e., pure premium) and four
development methods. The development and exposure methods
produced ultimates, which were weighted, as coverage years aged,
against petitioner's loss experience reflected primarily in the
development methods. Hurley's weighting of the two types of
methods was similar to a Bornhuetter-Ferguson method,21 which is
widely used for long-tailed lines of insurance like medical
malpractice.
Estimates as of December 1990 of petitioner's ultimates for
coverage years 1986 through 1990 were lower than estimates made
previously for those years. Hurley reduced his estimate of
petitioner's ultimates for 1991 and 1992 because his projected
ultimates for prior coverage years were reduced.
Hurley's range was large because: (a) petitioner is a
relatively modestly capitalized, single-line insurer that serves
a limited geographic area; (b) it has relatively few claims, but
the average cost of a claim is high; and (c) medical malpractice
insurance is highly risky and longer-tailed. These facts makes
projecting losses difficult. See Hospital Corp. of America v.
Commissioner, supra.
21 The Bornhuetter-Ferguson method is an actuarial technique
used to estimate the value of a company's reserves by subtracting
its paid losses from its reserves.
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