Best Life Assurance Company of California - Page 9




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            interpretive guide” as to the item's treatment for Federal income                          
            tax purposes.  See Harco Holdings, Inc. v. United States, supra                            
            at 1031; Central Reserve Life Corp. & Subs. v. Commissioner,                               
            supra at 242.  As explained in Harco Holdings, Inc. v. United                              
            States, supra at 1033:                                                                     

                  We do not accept the NAIC's treatment of unpaid losses                               
                  as the definitive answer to the question before us.                                  
                  Nevertheless, absent indications to the contrary, we                                 
                  think it likely that Congress meant to enact a taxation                              
                  scheme that defines reserves and treats unpaid losses                                
                  as the NAIC does.  The Annual Statement may not be                                   
                  definitive, but it is an authoritative interpretive                                  
                  guide to the meaning of the statute.  [Fn. ref.                                      
                  omitted.]                                                                            

            Congress also has mandated some measure of deference to NAIC                               
            accounting principles by stating in section 811(a) that all                                
            computations with regard to methods of accounting “shall be made                           
            in a manner consistent with the manner required for purposes of                            
            the annual statement approved by the [NAIC].”  See also Harco                              
            Holdings, Inc. v. United States, supra.                                                    
                  We conclude that the term “unpaid losses” has acquired a                             
            specialized meaning in the LA&H industry that includes only those                          
            unpaid losses that represent actual reserves in the NAIC sense;                            
            i.e., unaccrued unpaid losses.  Accrued unpaid losses reflect                              
            liabilities and are not to be included in the denominator of the                           
            life insurance company qualifying fraction under section 816.                              
            See Harco Holdings, Inc. v. United States, supra; Central Natl.                            






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