- 8 -
(1967); Central Reserve Life Corp. & Subs. v. Commissioner, supra
at 244.
As we understand the history behind the life insurance
company qualifying fraction and the terms “unpaid losses” and
“reserves” in the LA&H industry, Congress considered and intended
that total reserves under section 816 include only “future,
unaccrued, and contingent amounts”. Harco Holdings, Inc. v.
United States, supra at 1031; Alinco Life Ins. Co. v. United
States, supra at 347-349; Commissioner v. Monarch Life Ins. Co.,
114 F.2d 314, 325 (1st Cir. 1940), affg. 38 B.T.A. 716 (1938).
The Supreme Court has specifically held that, in the accident and
health insurance industry, unpaid losses constitute reserves only
as long as they are not accrued. See Helvering v. Oregon Mut.
Life Ins. Co., 311 U.S. 267, 271-272 (1940); Harco Holdings, Inc.
v. United States, supra.
Since the late 1930's, when NAIC first developed the
predecessors to current LA&H industry regulations and the Annual
Statement forms, the insurance industry and the Annual Statements
have consistently separated future policy claim reserves
(unaccrued unpaid losses on Exhibits 8 and 9) from accrued losses
(on Exhibit 11). Because the distinction between “reserves” and
“liabilities” has been present in LA&H accounting throughout the
relevant tax provisions, NAIC's treatment of accrued unpaid
losses on the Annual Statements represents an “authoritative
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