Utah Medical Insurance Association - Page 26

                                         -26-                                          
          $42,577,000 for 1992.                                                        
          D.   Analysis                                                                
               1.   Whether Petitioner's Reserves Were Fair and Reasonable             
               Respondent contends that respondent's adjustments to the                
          unpaid loss reserves are needed to make the reserves fair and                
          reasonable as required by section 1.832-4(b), Income Tax Regs.               
          Respondent argues that respondent's proposed reduction of                    
          petitioner's undiscounted unpaid losses for 1991 and 1992 is                 
          reasonable.                                                                  
               A taxpayer's reserve for unpaid losses must be fair and                 
          reasonable based on the facts in each case and the company's                 
          experience with similar cases.  Sec. 1.832-4(b), Income Tax Regs.            
               Petitioner could not offset reserve deficits with reserve               
          surpluses in another line of insurance because it wrote a single,            
          relatively volatile line of business in a limited market.  The               
          inability to offset deficits with surpluses makes petitioner's               
          business more risky and reasonably led petitioner to establish               
          higher reserves.                                                             
               For the years in issue, the medical malpractice industry                
          overstated reserves to virtually the same extent as petitioner.              
          This suggests that petitioner's estimates were fair and                      
          reasonable.                                                                  
               UDI made a triennial examination of petitioner's 1990-93                
          annual statements.  It did not adjust petitioner's reporting of              






Page:  Previous  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  32  33  34  35  Next

Last modified: May 25, 2011