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are reserves merely because the court held there that some A&H
obligations are reserves.
The only case that has squarely addressed the meaning of the
subject term in section 816(c)(2) is Harco Holdings, Inc. v.
United States, 977 F.2d 1027 (7th Cir. 1992). There, the
taxpayer’s subsidiary, Association Life, was a chartered life
insurance company that filed annual statements on which it
reported its unaccrued CA&H insurance obligations on exhibit 9
and its accrued CA&H insurance obligations on exhibit 11. The
Commissioner argued that Association Life had to include its
exhibit 11 accrued liabilities (i.e., its accrued unpaid losses)
in the denominator of the reserve ratio. The Court of Appeals
for the Seventh Circuit thoroughly analyzed the statutory text,
the relevant regulations, the administrative history, the case
law, and the legislative history and concluded that the reserve
ratio’s denominator did not include Association Life's exhibit 11
amounts. The court’s analysis and conclusion are persuasive, and
we follow them in this case.
As further support for our conclusion as to accrued unpaid
losses, we turn to the Commissioner's administrative position on
accrued liabilities and the reserve ratio for purposes of life
insurance; that position is contrary to the position respondent
takes here. In Rev. Rul. 72-115, 1972-1 C.B. 200, the
Commissioner ruled that unpaid losses on life insurance policies
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