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On or before September 16, 1991, Blue Cross filed a letter
with the Texas Department of Insurance, the entire contents of
which are set forth below:
As you are aware, in reporting to your department
[BLUE CROSS] has always followed actuarially accepted
and certified practices for determining and reporting
its losses incurred and its incurred unpaid claim
reserves. In OBRA 1990, Congress granted a special one
time deduction to insurance carriers who report losses
incurred as we do. IRS regulations provide that a
notification filed with your office will establish the
amount of this allowable tax deduction.
The sole purpose of this letter is to notify you
that we have determined our special tax deduction to be
87% of $74,780,518 discounted at 96.1538% for
recoveries related to our losses incurred deduction
prior to 1990 and reported in the 1989 Annual
Statement.
OUR REPORTING TO YOU HAS NOT CHANGED AND WILL NOT
CHANGE IN ANY RESPECT FROM THE ACCEPTED METHODS AND
APPROACHES WE HAVE ALWAYS USED. Our incurred unpaid
claim reserves will continue to be determined using the
same methods, include the same actuarial certifications
as always and continue to be in full compliance with
established methods and practices approved and
routinely examined by your department. [Emphasis in
original.]
As respondent notes, the language of the above letter does
not begin to disclose to Texas insurance regulators the extent to
which Blue Cross' losses that were incurred for each line of
business, as reported on its 1989 Annual Statement, were reduced
by estimated salvage recoverable. No separate lines of business
are disclosed, and the words “estimated salvage recoverable” are
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