Central Reserve Life Corporation and Subsidiaries - Page 9




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          insurance reserves” as used in section 816(c)(2) to define an               
          insurer’s “total reserves” includes accrued unpaid losses on CA&H           
          insurance policies.  The Court of Appeals for the Seventh Circuit           
          has concluded it does not.  See Harco Holdings, Inc. v. United              
          States, 977 F.2d 1027 (7th Cir. 1992), revg. 754 F. Supp. 130               
          (N.D. Ill. 1990).  The Court of Appeals for the Ninth Circuit has           
          concluded that the term “unpaid losses” did include accrued                 
          unpaid losses for purposes of section 806(c), before its repeal             
          by section 2 of the Life Insurance Company Income Tax Act of                
          1959, Pub. L. 86-69, 73 Stat. 112.3  See United States v.                   
          Occidental Life Ins. Co., 385 F.2d 1, 6 (9th Cir. 1967), revg. on           
          this issue 250 F. Supp. 130 (S.D. Cal. 1965).  The United States            
          Court of Claims also considered this issue in the context of                
          former section 806(c)'s predecessor.  That court reached a                  
          conclusion consistent with the view of the Court of Appeals for             
          the Ninth Circuit.  See Prudential Ins. Co. v United States, 162            
          Ct. Cl. 55, 319 F.2d 161, 165-166 (1963).                                   



               3 Former sec. 806(c) provided:                                         
                    In the case of a life insurance company writing                   
               contracts other than life insurance or annuity                         
               contracts (either separately or combined with                          
               noncancellable health and accident insurance), the term                
               “adjustment for certain reserves” means an amount equal                
               to 3 1/4 percent of the unearned premiums and unpaid                   
               losses on such other contracts which are not included                  
               in life insurance reserves * * *.                                      





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