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The agreement, with respect to OPL's reinsurance of Liberty
Mutual includes but is not limited to the following terms:
1. OPL reinsured Liberty Mutual's UPS California workers'
compensation exposure for losses not exceeding $250,000 from any
one accident. Liberty Mutual retained the exposure for losses
exceeding $250,000 from any one accident. Liberty Mutual also
retained the risk of multiple accidents with losses in excess of
$250,000.
2. Liberty Mutual Fire agreed to pay over to OPL an amount
equal to the premiums received on the California workers
compensation policy, less $50,000 for the retained layer of
liability for losses above $250,000, a management fee equal to 1
percent of the premium, 1 percent of the premium for excise tax,
and a ceding commission equal to 12 percent of the losses
incurred. The ceding commission was capped at $1.2 million.
3. Liberty Mutual retained the obligation to investigate
and adjust all claims for the UPS workers' compensation program
in California.
4. Liberty Mutual paid a 1 percent excise tax on
reinsurance by a foreign insurer, pursuant to I.R.C. section
4371.
C. Amount in Dispute
On its 1984 Federal income tax return, petitioner deducted
the estimated premium of $14,241,915 it paid to Liberty Mutual
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