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insurance company qualifying fraction includes accrued unpaid
losses on CA&H insurance policies.1
Best Life argues that the term “unpaid losses” in section
816(c)(2) refers only to unaccrued unpaid losses corresponding to
the amounts reflected on Exhibits 8 and 9 of its Annual
Statements. Best Life argues that accrued unpaid losses reflect
current liabilities, not reserves in the NAIC Annual Statement
sense, and that they should not be included in the denominator of
the qualifying fraction as part of an insurance company's total
reserves. Accordingly, for 1991 and 1992, Best Life calculated
that it qualified as a life insurance company under section 816
and timely filed U.S. Life Insurance Company income tax returns
claiming life insurance company treatment and deductions under
section 806 in the amounts of $615,971 and $712,152,
respectively.
On audit, respondent treated the accrued amounts (shown on
Exhibit 11 of Best Life's Annual Statements) as unpaid losses in
1 The following schedule reflects the parties' conflicting
computations herein of Best Life's life insurance company
qualifying fraction under section 816:
For 1991:
Best Life: $1,669,727 � 2,089,513 = 79.9% Life Reserves
Respondent: $1,669,727 � 4,755,844 = 35.1% Life Reserves
For 1992:
Best Life: $2,089,797 � 2,532,058 = 82.5% Life Reserves
Respondent: $2,089,797 � 5,026,179 = 41.6% Life Reserves
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