Best Life Assurance Company of California - Page 8




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            (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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